Fair Value Measurement

12 Months Ended

Sep. 29, 2012

Fair Value Measurement

15 Fair Value Measurement

The Company’s assets and liabilities measured at fair value are summarized in the following table by the type of inputs applicable to the fair value measurements. See Note 10 for the definitions of fair value and each level within the fair value hierarchy.

	Fair Value Measurements at September 29, 2012
Description	Level 1		Level 2		Level 3		Total
Assets
Investments	$	86	$	–	$	–	$	86
Derivatives (1)
Interest rate		–		239		–		239
Foreign exchange		–		390		–		390
Liabilities
Derivatives (1)
Foreign exchange		–		(235)		–		(235)
Total recorded at fair value	$	86	$	394	$	–	$	480
Fair value of borrowings	$	–	$	13,493	$	1,653	$	15,146

	Fair Value Measurements at October 1, 2011
Description	Level 1		Level 2		Level 3		Total
Assets
Investments	$	143	$	43	$	–	$	186
Derivatives (1)
Interest rate		–		214		–		214
Foreign exchange		–		498		–		498
Residual Interests		–		–		40		40
Liabilities
Derivatives (1)
Interest rate		–		(18)		–		(18)
Foreign exchange		–		(262)		–		(262)
Total recorded at fair value	$	143	$	475	$	40	$	658
Fair value of borrowings	$	–	$	11,081	$	3,070	$	14,151

⁽¹⁾  The Company has a master netting arrangement by counterparty with respect to certain derivative contracts. Contracts in a liability position totaling $153 million and $167 million have been netted against contracts in an asset position in the Consolidated Balance Sheets at September 29, 2012 and October 1, 2011, respectively.

The fair value of Level 2 investments is primarily determined by reference to market prices based on recent trading activity and other relevant information including pricing for similar securities as determined by third-party pricing services.

The fair values of Level 2 derivatives are primarily determined based on the present value of future cash flows using internal models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.

Level 2 borrowings, which include commercial paper and U.S. medium-term notes, are valued based on quoted prices for similar instruments in active markets.

Level 3 residual interests relate to securitized vacation ownership mortgage receivables and are valued using a discounted cash flow model that considers estimated interest rates, discount rates, prepayment, and defaults. On June 5, 2012, the Company repurchased previously sold mortgage receivables.

Level 3 borrowings, which include International Theme Parks borrowings and other foreign currency denominated borrowings, are valued based on historical market transactions, interest rates, credit risk and market liquidity.

The Company’s financial instruments also include cash, cash equivalents, receivables and account payable. The carrying values of these financial instruments approximate the fair values.

The Company also has assets and liabilities that are required to be recorded at fair value on a non-recurring basis when certain circumstances occur. During fiscal years 2012 and 2011, the Company recorded impairment charges of $121 million and $46 million, respectively, on film productions. These impairment charges are reported in “Costs and expenses” in the Consolidated Statements of Income. The film impairment charges reflected the excess of the unamortized cost of the films over the estimated fair value using discounted cash flows. The discounted cash flow analysis is a level 3 valuation technique. The aggregate carrying values of the films for which we prepared the fair value analyses were $172 million and $86 million as of September 29, 2012 and October 1, 2011, respectively.

Transfers of Financial Assets

Through December 4, 2008, the Company sold mortgage receivables arising from sales of its vacation ownership units under a facility that expired on December 4, 2008 and was not renewed. The Company continued to service the sold receivables and had a residual interest in those receivables. On June 5, 2012, the Company repurchased these receivables for the outstanding principal balance of $191 million which approximated fair value.

Credit Concentrations

The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments and does not anticipate nonperformance by the counterparties.

The Company does not expect that it would realize a material loss, based on the fair value of its derivative financial instruments as of September 29, 2012, in the event of nonperformance by any single derivative counterparty. The Company enters into transactions only with derivative counterparties that have a credit rating of A- or better. The Company’s current policy regarding agreements with derivative counterparties is generally to require collateral in the event credit ratings fall below A- or in the event aggregate exposures exceed limits as defined by contract. In addition, the Company limits the amount of investment credit exposure with any one institution.

The Company does not have material cash and cash equivalent balances with financial institutions that have a credit rating of less than investment grade. As of September 29, 2012, the Company’s balances that exceeded 10% of cash and cash equivalents with individual financial institutions were 44% of total cash and cash equivalents compared to 41% as of October 1, 2011.

The Company’s trade receivables and financial investments do not represent a significant concentration of credit risk at September 29, 2012 due to the wide variety of customers and markets into which the Company’s products are sold, their dispersion across geographic areas, and the diversification of the Company’s portfolio among issuers.