Notes to Consolidated Financial Statements

NOTE 12

FAIR VALUE MEASUREMENTS

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2008:

(dollars in millions)

 

Level 1(1)

 

 

Level 2(2)

 

 

Level 3(3)

 

 

Total

 

Assets:

Short-term investments

$

180

 

$

329

 

$

 

$

509

 

Investments in unconsolidated businesses

 

290

 

 

 

 

 

 

290

 

Other investments

 

 

 

 

 

4,781

 

 

4,781

 

Other assets

 

 

 

1,158

 

 

 

 

1,158

 

 

Liabilities:

Other liabilities

 

 

 

59

 

 

 

 

59

 

(1) quoted prices in active markets for identical assets or liabilities
(2) observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) no observable pricing inputs in the market

A reconciliation of the beginning and ending balance of items measured at fair value using significant unobservable inputs as of December 31, 2008 is as follows:

(dollars in millions)

Level 3

 

Balance at January 1, 2008

$

 

Total gains (losses) (realized/unrealized):

 

 

 

Included in earnings

 

 

Included in other comprehensive loss

 

 

Purchases, issuances and settlements

 

4,767

 

Discount amortization included in earnings

 

14

 

Transfers in (out) of Level 3

 

 

Balance at December 31, 2008

$

4,781

 

Short-term investments include a fund comprised of cash equivalents held in trust for the payment of certain employee benefits and are classified as Level 2. These temporary cash investments are stated at fair value using matrix pricing as they are not actively traded in an established market. Short-term investments and Investments in unconsolidated businesses also include equity securities, mutual funds, U.S. Treasuries, and obligations of the U.S. government, which are generally measured using quoted prices in active markets and are classified as Level 1.

Other investments are comprised of our investment in Alltel debt, which was acquired in June 2008, and is classified as Level 3. The fair value of the investment in Alltel debt is based upon internally developed valuation techniques since the underlying obligations are not registered or traded in an active market. Upon closing of the Alltel acquisition (see Note 2), the investment in Alltel debt became an intercompany loan that will be eliminated in consolidation.

Other assets are primarily comprised of domestic and foreign corporate and government bonds. While quoted prices in active markets for certain of these debt securities are available, for some they are not. As permitted under SFAS No. 157, we use alternative matrix pricing as a practical expedient resulting in our debt securities being classified as Level 2. Our derivative contracts, included in Other assets or Other liabilities, are primarily comprised of interest rate swaps, are valued using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. As permitted by SFAS No. 157, we use mid-market pricing for fair value measurements of our derivative instruments.

The fair value of our short-term and long-term debt, excluding capital leases, is determined based on market quotes for similar terms and maturities or future cash flows discounted at current rates. The fair value of our long-term and short-term debt, excluding capital leases, was $53,174 million and $32,380 million at December 31, 2008 and 2007, respectively, as compared to the carrying value of $51,562 million and $30,845 million, respectively at December 31, 2008 and 2007.