Fair Value Measurements (Notes)

6 Months Ended

Jun. 30, 2011

NOTE 2. FAIR VALUE MEASUREMENTS

Assets (Liabilities) Measured at Fair Value on a Recurring Basis



(in millions)	June 30, 2011			Level 1		Level 2			Level 3
Cash equivalents	$	2,612		$	2,612	$	—		$	—
Short-term investments	967			967		—			—
Restricted cash equivalents and short-term investments	469			469		—			—
Long-term investments	136			—		27			109
Hedge derivatives, net
Fuel derivatives	135			—		135			—
Interest rate derivatives	(68		)	—		(68		)	—
Foreign currency derivatives	(70		)	—		(70		)	—



(in millions)	December 31, 2010			Level 1		Level 2			Level 3
Cash equivalents	$	2,696		$	2,696	$	—		$	—
Short-term investments	718			718		—			—
Restricted cash equivalents and short-term investments	440			440		—			—
Long-term investments	144			—		25			119
Hedge derivatives, net
Fuel derivatives	351			—		351			—
Interest rate derivatives	(74		)	—		(74		)	—
Foreign currency derivatives	(96		)	—		(96		)	—

Cash Equivalents, Short-term Investments and Restricted Cash Equivalents and Short-term Investments. Cash equivalents and short-term investments generally consist of money market funds and treasury bills. Restricted cash equivalents and short-term investments generally consist of money market funds and time deposits, which are primarily held to meet certain projected self-insurance obligations. These investments are recorded in restricted cash, cash equivalents and short-term investments and other noncurrent assets. Cash equivalents, short-term investments and restricted cash equivalents and short-term investments are recorded at cost, which approximates fair value. Fair value is based on the market approach using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Long-term Investments. Long-term investments are comprised primarily of student loan backed and insured auction rate securities, which are recorded at fair value. At June 30, 2011 and December 31, 2010, the fair value of our auction rate securities was $109 million and $119 million, respectively. The cost of these investments was $133 million and $143 million, respectively. These investments are classified as long-term in other noncurrent assets.

Because auction rate securities are not actively traded, fair values were estimated by discounting the cash flows expected to be received over the remaining maturities of the underlying securities. We based the valuations on our assessment of observable yields on instruments bearing comparable risks and considered the creditworthiness of the underlying debt issuer. Changes in market conditions could result in further adjustments to the fair value of these securities.

Hedge Derivatives. Our derivative instruments are comprised of contracts that are privately negotiated with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk).

•

Fuel Derivatives. Our fuel derivative instruments generally consist of three-way collar, swap, collar, and call option contracts with heating oil, Brent crude oil ("Brent"), West Texas Intermediate crude oil ("WTI") and jet fuel as the underlying commodities. Three-way collar, collar, and call option contracts are valued under the income approach using option pricing models based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Volatilities used in these valuations ranged from 15% to 38% depending on the maturity dates of the contracts. Swap contracts are valued under the income approach using a discounted cash flow model based on data either readily observable or derived from public markets. Discount factors used in these valuations ranged from 0.996 to 0.999 based on interest rates applicable to the maturity dates of the contracts.


•	Interest Rate Derivatives. Our interest rate derivative instruments consist of swap contracts and are valued primarily based on data readily observable in public markets.


•	Foreign Currency Derivatives. Our foreign currency derivative instruments consist of Japanese yen and Canadian dollar forward contracts and are valued based on data readily observable in public markets.

For additional information regarding the composition and classification of our derivative instruments on the Consolidated Balance Sheets, see Note 3.

Fair Value of Debt

Market risk associated with our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. In the table below, the aggregate fair value of debt was based primarily on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral.



(in millions)	June 30, 2011			December 31, 2010
Total debt at par value	$	14,739		$	15,442
Unamortized discount, net	(847		)	(935		)
Net carrying amount	$	13,892		$	14,507
Fair value	$	14,700		$	15,400

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

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