Note 6 Fair values

Recurring fair value measures

The following tables show the fair value of financial assets and liabilities measured at fair value on a recurring basis:

(XLS:)

December 31, 2011 ($ in millions)

Level 1

Level 2

Level 3

Total
fair value

Assets

 

 

 

 

Available-for-sale securities in “Cash and equivalents”

 

 

 

 

Debt securities – Corporate

180

180

Available-for-sale securities in “Marketable securities and short-term investments”

 

 

 

 

Equity securities

3

54

57

Debt securities – U.S. government obligations

761

761

Debt securities – Other government obligations

3

3

Debt securities – Corporate

125

125

Available-for-sale securities in “Other non-current assets”

 

 

 

 

Equity securities

5

5

Derivative assets – current in “Other current assets”

2

252

254

Derivative assets – non-current in “Other non-current assets”

105

105

Total

771

719

1,490

 

 

 

 

 

Liabilities

 

 

 

 

Derivative liabilities – current in “Provisions and other current liabilities”

4

427

431

Derivative liabilities – non-current in “Other non-current liabilities”

61

61

Total

4

488

492

(XLS:)

December 31, 2010 ($ in millions)

Level 1

Level 2

Level 3

Total
fair value

Assets

 

 

 

 

Available-for-sale securities in “Cash and equivalents”

 

 

 

 

Debt securities – Corporate

381

381

Available-for-sale securities in “Marketable securities and short-term investments”

 

 

 

 

Equity securities

3

1,842

1,845

Debt securities – U.S. government obligations

151

151

Debt securities – Other government obligations

3

3

Debt securities – Corporate

335

335

Available-for-sale securities in “Other non-current assets”

 

 

 

 

Equity securities

Derivative assets – current in “Other current assets”

12

634

646

Derivative assets – non-current in “Other non-current assets”

184

184

Total

169

3,376

3,545

 

 

 

 

 

Liabilities

 

 

 

 

Derivative liabilities – current in “Provisions and other current liabilities”

7

297

304

Derivative liabilities – non-current in “Other non-current liabilities”

77

77

Total

7

374

381

The Company uses the following methods and assumptions in estimating fair values of financial assets and liabilities measured at fair value on a recurring basis:

  • Available-for-sale securities in “Cash and equivalents”, “Marketable securities and short-term investments” and “Other non-current assets”: If quoted market prices in active markets for identical assets are available, these are considered Level 1 inputs. If such quoted market prices are not available, fair value is determined using market prices for similar assets or present value techniques, applying an appropriate risk-free interest rate adjusted for non-performance risk. The inputs used in present value techniques are observable and fall into the Level 2 category. Where the Company has invested in shares of funds, which do not have readily determinable fair values, Net Asset Value (NAV) is used as a practical expedient of fair value (without any adjustment) as these funds invest in high-quality, short-term fixed income securities which are accounted for at fair value. As the Company has the ability to redeem its shares in such funds at NAV without any restrictions, notice period or further funding commitments, NAV is considered Level 2.
  • Derivatives: The fair values of derivative instruments are determined using quoted prices of identical instruments from an active market, if available (Level 1). If quoted prices are not available, price quotes for similar instruments, appropriately adjusted, or present value techniques, based on available market data, or option pricing models are used. Cash-settled call options hedging the Company’s WAR liability are valued based on bid prices of the equivalent listed warrant. The fair values obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input unless significant unobservable inputs are used.

Non-recurring fair value measures

There were no significant non-recurring fair value measurements during 2011 and 2010.

Disclosure about financial instruments carried on a cost basis

Cash and equivalents, receivables, accounts payable, and short-term debt and current maturities of long-term debt

The carrying amounts approximate the fair values as the items are short-term in nature.

Marketable securities and short-term investments

Includes short-term time deposits whose carrying amounts approximate their fair values.

Other non-current assets

Includes financing receivables (including loans granted) carried at amortized cost, less an allowance for credit losses, if required. Fair values are determined using a discounted cash flow methodology based upon loan rates of similar instruments and reflecting appropriate adjustments for non-performance risk. The carrying values and estimated fair values of long-term loans granted and outstanding at December 31, 2011, were $52 million and $54 million, respectively, and at December 31, 2010, were $56 million and $58 million, respectively.

Includes held-to-maturity marketable securities (described in Note 4) whose carrying values and estimated fair values at December 31, 2011, were $92 million and $120 million, respectively, and at December 31, 2010, were $84 million and $103 million, respectively.

Long-term debt excluding finance lease liabilities

Fair values of bond issues are determined using quoted market prices. The fair values of other debt are determined using a discounted cash flow methodology based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for non-performance risk. The carrying value and estimated fair value of long-term debt, excluding finance lease liabilities, at December 31, 2011, were $3,151 million and $3,218 million, respectively, and at December 31, 2010, were $1,036 million and $1,098 million, respectively.

Financial review

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