Fair Value Measurements
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | December 31, 2012 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
Assets | | | | | | | | |
Money market funds |
| $3,783 |
|
| $3,783 |
| | |
| $4,534 |
|
| $4,534 |
| | |
Available-for-sale investments | 8 |
| 6 |
| |
| $2 |
| 9 |
| 6 |
| |
| $3 |
|
Derivatives | 86 |
| |
| $86 |
| | 178 |
| |
| $178 |
| |
Total assets |
| $3,877 |
|
| $3,789 |
|
| $86 |
|
| $2 |
|
| $4,721 |
|
| $4,540 |
|
| $178 |
|
| $3 |
|
| | | | | | | | |
Liabilities | | | | | | | | |
Derivatives |
| ($79 | ) | |
| ($79 | ) | |
| ($84 | ) | |
| ($84 | ) | |
Total liabilities |
| ($79 | ) | |
| ($79 | ) | |
| ($84 | ) | |
| ($84 | ) | |
Money market funds and available-for-sale equity securities are valued using a market approach based on the quoted market prices of identical instruments. Available-for-sale debt investments are primarily valued using an income approach based on benchmark yields, reported trades and broker/dealer quotes.
Derivatives include foreign currency, commodity and interest rate contracts. Our foreign currency forward contracts are valued using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the present value of the commodity index prices less the contract rate multiplied by the notional amount. The fair value of our interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve.
Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents the nonrecurring losses recognized for the years ended December 31, and the fair value and asset classification of the related assets as of the impairment date: |
| | | | | | | | | | | | | | | |
| 2013 | | 2012 |
| Fair Value |
| | Total Losses |
| | Fair Value |
| | Total Losses |
|
Operating lease equipment |
| $216 |
| |
| ($81 | ) | |
| $75 |
| |
| ($55 | ) |
Property, plant and equipment | 40 |
| | (15 | ) | | 21 |
| | (21 | ) |
Total |
| $256 |
| |
| ($96 | ) | |
| $96 |
| |
| ($76 | ) |
The fair value of the impaired operating lease equipment is derived by calculating a median collateral value from a consistent group of third party aircraft value publications. The values provided by the third party aircraft publications are derived from their knowledge of market trades and other market factors. Management reviews the publications quarterly to assess the continued appropriateness and consistency with market trends. Under certain circumstances, we adjust values based on the attributes and condition of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by third party publications, or on the expected net sales price for the aircraft.
Property, plant and equipment was primarily valued using an income approach based on the discounted cash flows associated with the underlying assets.
For Level 3 assets that were measured at fair value on a non-recurring basis during the year ended December 31, 2012, the following table presents the fair value of those assets as of the measurement date, valuation techniques and related unobservable inputs of those assets.
|
| | | | | | | |
| Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range Median or Average |
Operating lease equipment | $216 | | Market approach | | Aircraft value publications | | $155 - $206(1) Median $189 |
| | Aircraft condition adjustments | | ($18) - $45(2) Net $27 |
| |
(1) | The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process. |
| |
(2) | The negative amount represents the sum for all aircraft subject to fair value measurement, of all downward adjustments based on consideration of individual aircraft attributes and condition. The positive amount represents the sum of all such upward adjustments. |
Fair Value Disclosures
The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the Consolidated Statements of Financial Position at December 31 were as follows:
|
| | | | | | | | | | | | | | | |
| December 31, 2013 |
| Carrying Amount |
| | Total Fair Value |
| | Level 1 | | Level 2 |
| | Level 3 |
Assets | | | | | | | | | |
Accounts receivable, net |
| $6,546 |
| |
| $6,525 |
| | | |
| $6,525 |
| | |
Notes receivable, net | 572 |
| | 622 |
| | | | 622 |
| | |
Liabilities | | | | | | | | | |
Debt, excluding capital lease obligations | (9,483 | ) | | (10,897 | ) | | | | (10,897 | ) | | |
|
| | | | | | | | | | | | | | | | | |
| December 31, 2012 |
| Carrying Amount |
| | Total Fair Value |
| | Level 1 | | Level 2 |
| | Level 3 |
|
Assets | | | | | | | | | |
Accounts receivable, net |
| $5,608 |
| |
| $5,642 |
| | | |
| $5,642 |
| | |
Notes receivable, net | 571 |
| | 632 |
| | | | 632 |
| | |
Liabilities | | | | | | | | | |
Debt, excluding capital lease obligations | (10,231 | ) | | (12,269 | ) | | | | (12,221 | ) | |
| ($48 | ) |
The fair value of Accounts receivable is based on current market rates for loans of the same risk and maturities. The fair values of our variable rate notes receivable that reprice frequently approximate their carrying amounts. The fair values of fixed rate notes receivable are estimated with discounted cash flow analysis using interest rates currently offered on loans with similar terms to borrowers of similar credit quality. The fair value of our debt that is traded in the secondary market is classified as Level 2 and is based on current market yields. For our debt that is not traded in the secondary market, the fair value is classified as Level 2 and is based on our indicative borrowing cost derived from dealer quotes or discounted cash flows. The fair value of our debt classified as Level 3 is based on the median of the underlying collateral value as described above. With regard to other financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of our indemnifications and financing commitments because the amount and timing of those arrangements are uncertain. Items not included in the above disclosures include cash, restricted cash, time deposits and other deposits, commercial paper, money market funds, Accounts payable and long-term payables. The carrying values of those items, as reflected in the Consolidated Statements of Financial Position, approximate their fair value at December 31, 2013 and 2012. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash (Level 1).
