K. Fair Value of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments at June 30, 2012 and September 30, 2011 are as follows:


	June 30, 2012				September 30, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in millions)
Assets:
Cash and cash equivalents	$	407	$	407	$	286	$	286
GAM Promissory Notes and Inventory Note		253		252		—		—
Accounts and notes receivable		710		710		659		659
Derivative instruments		—		—		1		1
Liabilities:
Notes payable to banks		102		102		86		86
Accounts payable and accrued liabilities		440		440		461		461
Long-term debt—fixed rate		572		637		585		633
Long-term debt—floating rate		9		9		15		15
Capital lease obligations		16		16		15		15
Derivative instruments		19		19		39		39

At June 30, 2012 and September 30, 2011, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and notes payable to banks approximated their carrying values due to the short-term nature of these instruments. The estimated fair values of derivative instruments are valued as described in Note J. The fair value of Cabot’s fixed rate long-term debt and capital lease obligations are estimated based on comparable quoted market prices at the respective period ends. The carrying amount of Cabot’s floating rate long-term debt approximates its fair value. As discussed in Note J, other than the GAM Promissory Notes and Inventory Note, all such measurements are based on observable inputs and are classified as Level 2 within the fair value hierarchy. The valuation technique used is the discounted cash flow model.

As described in Note J, the GAM Promissory Notes and Inventory Note are classified as Level 3 instruments within the fair value hierarchy because they are valued using a valuation model with significant unobservable inputs. The fair value of the GAM notes was $252 million at June 30, 2012. The valuation used is the discounted cash flow model and the significant inputs are the discount rate, Adjusted EBITDA forecast, and timing of expected cash flows from GAM.