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| 1 | AES CORP | 6. INVESTMENTS IN AND ADVANCES TO AFFILIATES 50%-or-less Owned Affiliates and Majority-owned Unconsolidated Subsidiaries AES holds a 71% ownership interest in AES Energia Cartagena (“Cartagena”), a VIE, in which the Company is not the primary beneficiary. The Company’s investment in Cartagena is a combination of common stock and participative loans. As a result of unrealized losses on Cartagena’s interest rate hedges, in December 2008 the investment balance was reduced to zero and the recognition of equity losses was suspended. AES will resume the equity method of accounting and recognize income once Cartagena generates income of which AES’s portion is greater than or equal to the cumulative losses AES has not recognized while the equity method of accounting has been suspended. In June 2009, Cartagena received a cash settlement of $53 million for liquidated damages, including legal costs incurred, related to the construction delay from December 2005 to November 2006 of the 1,200 MW generation plant in Cartagena, Spain. Cartagena used the settlement proceeds to repay a portion of the participative loans outstanding to its investors including AES. The Company received its proportionate share of the settlement, $35 million, which was recognized as “net equity in earnings of affiliates” in the second quarter of 2009 because the distribution was in excess of the Company’s current investment balance of zero and AES does not have an obligation or intent to fund future cash flow requirements of Cartagena. The following table summarizes financial information of the affiliates in which we own 50% or less and have the ability to exercise significant influence but do not control and our majority-owned unconsolidated subsidiaries accounted for using the equity method of accounting:
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| 2 | ALCOA INC | G. Investments – On February 12, 2009, Alcoa and the Aluminum Corporation of China (Chinalco) entered into an agreement in which Chinalco redeemed the convertible senior secured note (the “note”) that was previously issued by a special purpose vehicle called Shining Prospect Pte. Ltd., which was a private limited liability company created solely for the purpose of acquiring shares of Rio Tinto plc (RTP). Previously, Alcoa joined with Chinalco on February 1, 2008 to acquire 12% of the U.K. common stock of RTP for approximately $14,000. Alcoa contributed $1,200 of the $14,000 through the purchase of the note on February 6, 2008. Under the agreement executed on February 12, 2009, Alcoa received $1,021 in cash in three installments over a six-month period ending July 31, 2009. This amount was reflected in Sales of investments on the accompanying Statement of Consolidated Cash Flows. As a result of this transaction, Alcoa realized a loss of $182 ($118 after-tax), which was reflected in Other (income) expenses, net on the accompanying Statement of Consolidated Operations, and reversed the unrealized loss that had been recognized in Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheet since the initial investment was made. |
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| 3 | ALTRIA GROUP, INC. | Note 6. Earnings from Equity Investment in SABMiller: Earnings from Altria Group, Inc.’s equity investment in SABMiller consisted of the following:
Altria Group, Inc.’s earnings from its equity investment in SABMiller for the nine months ended September 30, 2009 included pre-tax gains of $183 million due primarily to the issuance of 60 million shares of common stock by SABMiller in connection with its acquisition of the remaining noncontrolling interest in its Polish subsidiary. |
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| 4 | ANADARKO PETROLEUM CORP | 6. Investments Noncontrolling Mandatorily Redeemable Interests In 2007, Anadarko contributed certain of its oil and gas properties and gathering and processing assets with an aggregate fair value of approximately $2.9 billion at the time of the contribution to newly formed unconsolidated entities in exchange for noncontrolling mandatorily redeemable interests in those entities. Subsequent to their formation, the investee entities loaned Anadarko an aggregate of $2.9 billion. The Company accounts for its investment in these entities under the equity method of accounting. At September 30, 2009, the carrying amount of these investments was $2.79 billion, while the carrying amount of notes payable to affiliates was $2.85 billion. Anadarko has legal right of setoff and intends to net settle its obligations under each of the notes payable to the investees with the distributable value of its interest in the corresponding investee. Accordingly, the investments and the obligations are presented net on the consolidated balance sheet with the excess of the notes payable to affiliates over the aggregate investment carrying amount included in other long-term liabilities — other for all periods presented. Other income (expense) for the three and nine months ended September 30, 2009 includes interest expense on the notes payable to the investee entities of $(12) million and $(48) million, respectively, and equity in earnings from Anadarko’s investments in the investee entities of $11 million and $34 million, respectively. Other income (expense) for the three and nine months ended September 30, 2008 includes interest expense on the notes payable to the investee entities of $(27) million and $(96) million, respectively, and equity in earnings from Anadarko’s investments in the investee entities of $32 million and $106 million, respectively.
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| 5 | BOSTON PROPERTIES INC | 4. Investments in Unconsolidated Joint Ventures The Company’s investments in unconsolidated joint ventures consist of the following at September 30, 2009:
Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures at an agreed upon fair value. Under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.
The combined summarized balance sheets of the unconsolidated joint ventures are as follows:
The combined summarized statements of operations of the unconsolidated joint ventures are as follows:
During June 2009, the Company recognized a non-cash impairment charge which represented the other-than-temporary decline in the fair value below the carrying value of the Company’s investment in its Value-Added Fund. In accordance with ASC 323 “Investments-Equity Method and Joint Ventures” (“ASC 323”) (formerly known as Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB No. 18”)), a loss in value of an investment under the equity method of accounting, which is other than a temporary decline, must be recognized. Unlike the guidance in ASC 360 “Property, Plant and Equipment” (“ASC 360”) (formerly known as SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets”), impairments under ASC 323 result from fair values derived based on discounted cash flows and other valuation techniques that are more sensitive to current market conditions. As a result, the Company recognized a non-cash impairment charge of approximately $7.4 million on its investment in the Company’s Value-Added Fund. The Company has determined that its valuation of these investments was categorized within Level 3 of the fair value hierarchy in accordance with ASC 820-10 “Fair Value Measurements and Disclosures” (“ASC 820-10”) (formerly known as SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”)), as it utilized significant unobservable inputs in its assessment. The equity method investments represent the Company’s only Level 3 assets for the nine months ended September 30, 2009. The following table reflects the activity of its investments in unconsolidated joint ventures for the nine months ended September 30, 2009 (in thousands):
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| 6 | BOSTON PROPERTIES LTD PARTNERSHIP | 4. Investments in Unconsolidated Joint Ventures The Company’s investments in unconsolidated joint ventures consist of the following at September 30, 2009:
Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures at an agreed upon fair value. Under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.
The combined summarized balance sheets of the unconsolidated joint ventures are as follows:
The combined summarized statements of operations of the unconsolidated joint ventures are as follows:
During June 2009, the Company recognized a non-cash impairment charge which represented the other-than-temporary decline in the fair value below the carrying value of the Company’s investment in its Value-Added Fund. In accordance with ASC 323 “Investments-Equity Method and Joint Ventures” (“ASC 323”) (formerly known as Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock” (“APB No. 18”)), a loss in value of an investment under the equity method of accounting, which is other than a temporary decline, must be recognized. Unlike the guidance in ASC 360 “Property, Plant and Equipment” (“ASC 360”) (formerly known as SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets”), impairments under ASC 323 result from fair values derived based on discounted cash flows and other valuation techniques that are more sensitive to current market conditions. As a result, the Company recognized a non-cash impairment charge of approximately $7.4 million on its investment in the Company’s Value-Added Fund. The Company has determined that its valuation of these investments was categorized within Level 3 of the fair value hierarchy in accordance with ASC 820-10 “Fair Value Measurements and Disclosures” (“ASC 820-10”) (formerly known as SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”)), as it utilized significant unobservable inputs in its assessment. The equity method investments represent the Company’s only Level 3 assets for the nine months ended September 30, 2009. The following table reflects the activity of its investments in unconsolidated joint ventures for the nine months ended September 30, 2009 (in thousands):
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| 7 | CELGENE CORP /DE/ |
11. Investment in Affiliated Companies
A summary of the Company’s equity investment in affiliated companies follows:
Additional equity method investments totaling $3.6 million were made during the nine-month
period ended September 30, 2009. The three- and nine-month periods ended September 30, 2008
included other-than-temporary impairment losses of $1.6 million and $6.0 million, respectively.
These impairment losses were based on an evaluation of several factors, including a decrease in
fair value of the equity investment below its cost.
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| 8 | CF Industries Holdings, Inc. |
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| 9 | CHESAPEAKE ENERGY CORP |
On September 30, 2009, we formed a joint venture with Global Infrastructure Partners (GIP), a New York-based private equity fund, to own and operate natural gas midstream assets. As part of the transaction, Chesapeake contributed certain natural gas gathering and processing assets to a new entity, Chesapeake Midstream Partners, L.L.C. (CMP), and GIP purchased a 50% interest in CMP. Chesapeake retained the remaining 50% interest in CMP and received a $588 million cash distribution from CMP. The assets we contributed to the joint venture were substantially all of our midstream assets in the Barnett Shale and also the majority of our non-shale midstream assets in the Arkoma, Anadarko, Delaware and Permian Basins. The financial results of CMP will be consolidated and GIP’s 50% ownership interest is reflected as a noncontrolling interest as of September 30, 2009 in our consolidated financial statements. CMP will focus on unregulated business activities in service to both Chesapeake and third-party natural gas producers and its revenues will be generated almost entirely from fixed fee-based arrangements for gathering, compression, dehydration and treating services. CMP has entered into various agreements with Chesapeake, including a long-term gas gathering agreement at rates consistent with current market pricing. CMP will operate the contributed assets. Certain Chesapeake employees will provide services to CMP through an employee secondment agreement. In return for certain cost reimbursements, CMP will utilize various support functions within Chesapeake, including accounting, human resources and information technology. Subsidiaries of our wholly-owned subsidiary CMD will continue to operate our midstream assets outside of the CMP joint venture. These include natural gas gathering assets in the Fayetteville Shale, Haynesville Shale, Marcellus Shale and other areas in Appalachia. Concurrent with GIP’s funding of its interest in the joint venture, CMP closed a new $500 million secured revolving bank credit facility to partially fund capital expenditures associated with the building of additional natural gas gathering systems and for general corporate purposes. Additionally, we amended and restated the existing midstream lending agreement to reduce the total capacity from $460 million to $250 million, among other changes. This separate secured revolving bank credit facility supports CMD’s continuing midstream activities. These facilities are described in Note 6. In the Current Quarter, we recorded an $82 million impairment of certain of the gathering systems contributed to CMP prior to the formation of the joint venture, and we expensed $4 million of debt issuance costs associated with the portion of our $460 million credit facility that was reduced to $250 million. The combined impairment of $86 million was included in impairment of natural gas and oil properties and other assets on our condensed consolidated statement of operations. Additionally, an estimated post-closing adjustment related to the joint venture transaction was recorded in the Current Quarter and is expected to be finalized by December 31, 2009. The $851 million noncontrolling interest included in our consolidated equity at September 30, 2009 represents GIP’s 50% interest in the net assets of CMP, which were recorded by CMP at Chesapeake’s historical cost basis. This noncontrolling interest includes the $588 million GIP contributed in exchange for a 50% ownership interest in CMP plus $263 million of Chesapeake equity allocated to GIP pursuant to ASC 810 in order to properly reflect GIP’s 50% interest in the carrying value of CMP’s net assets.
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| 10 | CONOCOPHILLIPS | Note 6—Investments, Loans and Long-Term Receivables
LUKOIL Our ownership interest in LUKOIL was 20 percent at September 30, 2009, based on 851 million shares authorized and issued. For financial reporting under U.S. generally accepted accounting principles (GAAP), treasury shares held by LUKOIL are not considered outstanding for determining our equity method ownership interest in LUKOIL. Our ownership interest, based on estimated shares outstanding, was 20.09 percent at September 30, 2009.
At September 30, 2009, the book value of our ordinary share investment in LUKOIL was $6,466 million. Our 20 percent share of the net assets of LUKOIL was estimated to be $10,971 million. A majority of this negative basis difference of $4,505 million is being amortized on a straight-line basis over a 22-year useful life as an increase to equity earnings. On September 30, 2009, the closing price of LUKOIL shares on the London Stock Exchange was $54.20 per share, making the total market value of our LUKOIL investment $9,220 million.
Because LUKOIL’s accounting cycle close and preparation of U.S. GAAP financial statements occur subsequent to our reporting deadline, our equity earnings are estimated based on current market indicators, publicly available LUKOIL information and other objective data. Once the difference between actual and estimated results is known, an adjustment is recorded. Net income attributable to ConocoPhillips for the third quarter of 2009 included a $33 million positive alignment of our second-quarter estimate of LUKOIL’s results to LUKOIL’s reported results.
Loans to Related Parties As part of our normal ongoing business operations and consistent with industry practice, we invest and enter into numerous agreements with other parties to pursue business opportunities, which share costs and apportion risks among the parties as governed by the agreements. Included in such activity are loans made to certain affiliated companies. Significant loans to affiliated companies at September 30, 2009, included the following:
· $723 million in loan financing to Freeport LNG Development, L.P. for the construction of an LNG receiving terminal, which became operational in June 2008. Freeport began making repayments in September 2008.
· $291 million in loan financing at September 2009 exchange rates to Varandey Terminal Company associated with the costs of a terminal expansion. The terminal expansion was completed in June 2008. Principal repayments began in April 2009.
· $979 million of project financing and an additional $85 million of accrued interest to Qatargas 3, an integrated project to produce and liquefy natural gas from Qatar’s North Field. Our maximum exposure to this financing structure is $1.2 billion.
· $174 million of loan financing to WRB Refining LLC to assist it in meeting its operating and capital spending requirements.
The long-term portion of these loans are included in the “Loans and advances—related parties” line on the consolidated balance sheet, while the short-term portion is in “Accounts and notes receivable—related parties.”
Other Investments We have investments remeasured at fair value on a recurring basis to support certain nonqualified deferred compensation plans. The fair value of these assets at September 30, 2009, was $333 million, and substantially the entire value is categorized in Level 1 of the fair value hierarchy. As disclosed in our 2008 Form 10-K, late in 2008 Petroleos de Venezuela S.A. (PDVSA) notified us that January 2009 crude oil supplies nominated for the Sweeny Refinery for processing through facilities owned by the Merey Sweeny Limited Partnership (MSLP) would not be delivered due to instructions from the Venezuelan government. In subsequent months of 2009, PDVSA failed to supply crude oil and/or delivered crude oil not meeting contractual grade specifications. PDVSA also failed to pay contractually required amounts in connection with their non-delivery or off-spec delivery. As a result, and in accordance with our rights under the contractual agreements governing the ownership of MSLP, on August 28, 2009, we exercised our right to acquire PDVSA’s 50 percent ownership interest in MSLP. Due to the expected legal challenges to this action by PDVSA, we will continue to use the equity method of accounting for our investment in MSLP until any legal challenges are resolved. |
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| 11 | CORNING INC /NY |
Investments comprise the following (in millions):
(1) Amounts reflect Corning’s direct ownership interests in the respective affiliated companies. Corning does not control any of these entities.
Related party information for these investments in affiliates follows (in millions):
As of September 30, 2009, balances due to and due from affiliates were $3million and $139million, respectively. As of December 31, 2008, balances due to and due from affiliates were $2 million and $20 million, respectively.
We have contractual agreements with several of our equity affiliates which include sales, purchasing, licensing, financing and technology agreements.
Summarized results of operations for our two significant investments accounted for by the equity method follow:
Samsung Corning Precision Glass Co., Ltd. (Samsung Corning Precision) Samsung Corning Precision is a South Korea-based manufacturer primarily of liquid crystal display (LCD) glass for flat panel displays.
Samsung Corning Precision’s results of operations follow (in millions):
(1) Corning purchases machinery and equipment on behalf of Samsung Corning Precision to support its capital expansion initiatives. The machinery and equipment are transferred to Samsung Corning Precision at our cost basis, with no gain or loss recognized on the transaction.
Corning owns 50% of Samsung Corning Precision. Samsung Electronics Co., Ltd. owns 43% and three other shareholders own the remaining 7%.
As of September 30, 2009 and December 31, 2008, balances due from Samsung Corning Precision were $42 million and $17 million, respectively.
On December 31, 2007, Samsung Corning Precision acquired all of the outstanding shares of Samsung Corning Co., Ltd. (Samsung Corning). After the transaction, Corning retained its 50% interest in Samsung Corning Precision. Samsung Corning Precision accounted for the transaction at fair value while Corning accounted for the transaction at historical cost.
Prior to their merger, Samsung Corning Precision and Samsung Corning Co. Ltd. (Samsung Corning) were two of approximately thirty co-defendants in a lawsuit filed by Seoul Guarantee Insurance Co. and thirteen other creditors (SGI and Creditors) for alleged breach of an agreement that approximately twenty-eight affiliates of the Samsung group (Samsung Affiliates) entered into with SGI and Creditors on August 24, 1999 (the Agreement). The lawsuit is pending in the courts of South Korea. Under the Agreement it is alleged that the Samsung Affiliates agreed to sell certain shares of Samsung Life Insurance Co., Ltd. (SLI), which had been transferred to SGI and Creditors in connection with the petition for court receivership of Samsung Motor Inc. In the lawsuit, SGI and Creditors allege a breach of the Agreement by the Samsung Affiliates and are seeking the loss of principal (approximately $1.95 billion) for loans extended to Samsung Motors Inc., default interest and a separate amount for breach. On January 31, 2008, the Seoul District Court ordered the Samsung Affiliates: to pay approximately $1.3 billion by disposing of 2,334,045 shares of SLI less 1,165,955 shares of SLI previously sold by SGI and Creditors and paying the proceeds to SGI and Creditors; to satisfy any shortfall by participating in the purchase of equity or subordinate debentures issued by them; and pay default interest of 6% per annum. The ruling has been appealed and a ruling on the appeal is expected sometime in November of 2009. Due to the uncertainties around the financial impact to each of the respective Samsung affiliates, Samsung Corning Precision is unable to reasonably estimate the amount of potential loss, if any, associated with this case and therefore no provision for such loss is reflected in its financial statements. Other than as described above, no claim in these matters has been asserted against Corning or any of its affiliates.
In connection with an investigation by the Commission of the European Communities, Competition DG, of alleged anticompetitive behavior relating to the worldwide production of LCD glass, Corning and Samsung Corning Precision received a request on March 30, 2009, for certain information from the Competition DG. Corning and Samsung Corning Precision have responded to those requests for information. On October 9, 2009, in connection with its investigation, the Competition DG made a further request for information from both Corning and Samsung Corning Precision to which each party is responding.
In September 2009, Corning and Samsung Corning Precision formed Corsam Technologies LLC (Corsam), a new equity affiliate established to provide glass technology research for future product applications. Samsung Corning Precision invested $124 million in cash and Corning contributed intellectual property with a corresponding value. Corning and Samsung Corning Precision each own 50% of the common stock of Corsam and Corning has agreed to provide research and development services at arms length to Corsam. Corning does not control Corsam because Samsung Corning Precision’s other investors maintain significant participating voting rights. In addition, Corsam has sufficient equity to finance its activities, the voting rights of investors in Corsam are considered substantive, and the risks and rewards of Corsam’s research are shared only by those investors noted. As a result, Corsam is accounted for under the equity method of accounting for investments.
Dow Corning Corporation (Dow Corning) Dow Corning is a U.S.-based manufacturer of silicone products. Dow Corning’s results of operations follow (in millions):
Balances due to Dow Corning were $2 million and $1 million as of September 30, 2009 and December 31, 2008, respectively.
In response to recent economic challenges, Dow Corning incurred restructuring charges associated with a global workforce reduction in the first quarter of 2009. Our share of these charges was $29 million.
At September 30, 2009, Dow Corning’s marketable securities included approximately $1.1billion of auction rate securities, net of a temporary impairment of $50million. As a result of the temporary impairment, unrealized losses of $39million, net of $11million for a minority interest’s share, were included in accumulated other comprehensive income in Dow Corning’s consolidated balance sheet. Corning’s share of this unrealized loss was $20 million and is included in Corning’s accumulated other comprehensive income.
Dow Corning has borrowed the full amount under its $500 million revolving credit facility and believes it has adequate liquidity to fund operations, its capital expenditure plan, breast implant settlement liabilities, and shareholder dividends.
Corning and The Dow Chemical Company (Dow Chemical) each own 50% of the common stock of Dow Corning. In May 1995, Dow Corning filed for bankruptcy protection to address pending and claimed liabilities arising from many thousands of breast implant product lawsuits. On June 1, 2004, Dow Corning emerged from Chapter 11 with a Plan of Reorganization (the Plan) which provided for the settlement or other resolution of implant claims. The Plan also includes releases for Corning and Dow Chemical as shareholders in exchange for contributions to the Plan.
Under the terms of the Plan, Dow Corning has established and is funding a Settlement Trust and a Litigation Facility to provide a means for tort claimants to settle or litigate their claims. Inclusive of insurance, Dow Corning has paid approximately $1.6billion to the Settlement Trust. As of September 30, 2009, Dow Corning had recorded a reserve for breast implant litigation of $1.6billion and anticipates insurance receivables of $16million. As a separate matter arising from the bankruptcy proceedings, Dow Corning is defending claims asserted by a number of commercial creditors who claim additional interest at default rates and enforcement costs, during the period from May 1995 through June 2004. As of September 30, 2009, Dow Corning has estimated the liability to commercial creditors to be within the range of $82million to $224million. As Dow Corning management believes no single amount within the range appears to be a better estimate than any other amount within the range, Dow Corning has recorded the minimum liability within the range. Should Dow Corning not prevail in this matter, Corning’s equity earnings would be reduced by its 50% share of the amount in excess of $82million, net of applicable tax benefits. In addition, the London Market Insurers (the LMI Claimants) have claimed a reimbursement right with respect to a portion of insurance proceeds previously paid by the LMI Claimants to Dow Corning. This claim is based on a theory that the LMI Claimants overestimated Dow Corning’s liability for the resolution of implant claims pursuant to the Plan. The LMI Claimants offered two calculations of their claim amount: $54 million and $93million, plus minimum interest of $67million and $116million, respectively. These estimates were explicitly characterized as preliminary and subject to change. Litigation regarding this claim is in the discovery stage. Dow Corning disputes the claim and is unable to reasonably estimate any potential liability. There are a number of other claims in the bankruptcy proceedings against Dow Corning awaiting resolution by the U.S. District Court, and it is reasonably possible that Dow Corning may record bankruptcy-related charges in the future. There are no remaining tort claims against Corning, other than those that will be channeled by the Plan into facilities established by the Plan or otherwise defended by the Litigation Facility.
In 1995, Corning fully impaired its investment in Dow Corning after it filed for bankruptcy protection. Corning did not recognize net equity earnings from the second quarter of 1995 through the end of 2002. Corning began recognizing equity earnings in the first quarter of 2003 when management concluded that Dow Corning’s emergence from bankruptcy was probable. Corning considers the $249 million difference between the carrying value of its investment in Dow Corning and its 50% share of Dow Corning’s equity to be permanent.
Pittsburgh Corning Corporation (PCC) Corning and PPG Industries, Inc. (PPG) each own 50% of the capital stock of Pittsburgh Corning Corporation (PCC). Over a period of more than two decades, PCC and several other defendants have been named in numerous lawsuits involving claims alleging personal injury from exposure to asbestos. Corning also has an equity interest in Pittsburgh Corning Europe N.V. (PCE), a Belgian Corporation which is a component of the Company’s proposed settlement for asbestos litigation. At September 30, 2009 and December 31, 2008, the fair value of PCE significantly exceeded its carrying value of $122million and $112 million, respectively. There have been no impairment indicators for our investment in PCE and we continue to recognize equity earnings of this affiliate. PCC filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Western District of Pennsylvania on April 16, 2000. At that time, Corning determined that it lacked the ability to recover the carrying amount of its investment in PCC and its investment was other-than-temporarily impaired. As a result, we reduced our investment in PCC to zero. Refer to Note 3 (Commitments and Contingencies) for additional information about PCC and PCE.
Variable Interest Entities Corning leases certain transportation equipment from three Trusts that qualify as variable interest entities under ASC 810 Consolidation (ASC 810). The sole purpose of these entities is to lease transportation equipment to Corning.
For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary as prescribed by ASC 810. Corning has performed the required ASC 810 assessments and has identified three entities as being variable interest entities. None of these entities are considered significant to Corning’s consolidated financial statements.
Corning does not have retained interests in assets transferred to an unconsolidated entity that serve as credit, liquidity or market risk support to that entity.
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| 12 | DOW CHEMICAL CO /DE/ | NOTE G – NONCONSOLIDATED AFFILIATES The table below presents summarized financial information for Dow Corning Corporation and EQUATE Petrochemical Company K.S.C., significant nonconsolidated affiliates (at 100 percent):
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| 13 | Duke Energy CORP | 10. Investments in Equity Method Unconsolidated Affiliates Impairments. During the three and nine months ended September 30, 2009, Duke Energy recorded pre-tax impairment charges to the carrying value of investments in unconsolidated affiliates of approximately $3 million and $9 million, respectively. Pre-tax impairment charges of approximately $4 million were recorded during the three and nine months ended September 30, 2008. These impairment charges, which were recorded in Losses on Sales and Impairments of Unconsolidated Affiliates on the Consolidated Statements of Operations, were recorded as a result of Duke Energy concluding that it would not be able to recover its carrying value in these investments, thus the carrying value of these investments were written down to their estimated fair value. Crescent. In connection with the renegotiation of its debt agreements in June 2008, Crescent management modified its existing business strategy to focus some of its efforts on producing near term cash flows from its non-strategic real estate projects in order to improve liquidity. As a result of its revised business strategy to accelerate certain cash flows resulting from the June 2008 amendments to its debt agreements, Crescent updated its recoverability assessments for its real estate projects as required under the accounting rules for asset impairments. Under the accounting rules for asset impairments, the carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. For certain of Crescent’s non-strategic assets, it was determined that some projects’ projected undiscounted cash flows did not exceed the carrying value of the projects based on the revised business strategy assumptions, and an impairment loss was recorded equal to the amount by which the carrying amount of each impaired project exceeded its estimated fair value. The methods for determining fair value included discounted cash flow models, as well as valuing certain properties based on recent offer prices for bulk-sale transactions and other price data for similar assets. During the three and nine months ended September 30, 2008, Crescent recorded impairment charges on certain of its property holdings, primarily in its residential division, of which Duke Energy’s proportionate pre-tax share was approximately $114 million and $238 million, respectively. Of the approximate $114 million of impairment charges recorded during the three months ended September 30, 2008, approximately $45 million related to impairments triggered by the consideration of capitalized interest costs. Had capitalized interest costs been properly considered during the second quarter of 2008, these charges would have been recorded in the second quarter of 2008. Duke Energy’s proportionate share of these impairment charges are recorded in Equity in Earnings (Losses) of Unconsolidated Affiliates in Duke Energy’s Consolidated Statements of Operations. As a result of the impairment charges recorded during the third quarter of 2008, the carrying value of Duke Energy’s investment in Crescent was reduced to zero. Accordingly, Duke Energy discontinued applying the equity method of accounting to its investment in Crescent in the third quarter of 2008 and did not record its proportionate share of any Crescent earnings or losses in subsequent periods. As a result of Duke Energy recording its proportionate share of the aforementioned impairment charges, the total amount of equity method losses recorded during the three months ended September 30, 2008 related to Crescent triggers disclosure of summarized income statement information for Crescent under the significant subsidiary rules in accordance with Rule 4-08 of Regulation S-X. Accordingly, summarized income statement information for Crescent for the three months ended September 30, 2008 is as follows:
See Note 15 for a discussion of a charge recorded in the first quarter of 2009 related to performance guarantees issued by Duke Energy on behalf of Crescent. Crescent filed Chapter 11 petitions in a U.S. Bankruptcy Court in June 2009.
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| 14 | ENTERPRISE PRODUCTS PARTNERS L P | We own interests in a number of related businesses that are accounted for using the equity method of accounting. Our investments in unconsolidated affiliates are grouped according to the business segment to which they relate. See Note 11 for a general discussion of our business segments. The following table shows our investments in unconsolidated affiliates at the dates indicated:
Our investments in Promix, La Porte, Neptune, Poseidon, Cameron Highway, Jonah and Skelly-Belvieu include excess cost amounts totaling $54.8 million and $56.6 million at September 30, 2009 and December 31, 2008, respectively, all of which are attributable to the fair value of the underlying tangible assets of these entities exceeding their book carrying values at the time of our acquisition of interests in these entities. To the extent that we attribute all or a portion of an excess cost amount to higher fair values, we amortize such excess cost as a reduction in equity earnings in a manner similar to depreciation. To the extent we attribute an excess cost amount to goodwill, we do not amortize this amount, but it is subject to evaluation for impairment. Amortization of excess cost amounts was $0.6 million and $0.5 million for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, amortization of such amounts was $1.8 million and $1.5 million, respectively. The following table presents our equity in income (loss) of unconsolidated affiliates by business segment for the periods indicated:
Exit from TOPS Partnership In August 2008, a wholly owned subsidiary of ours, together with a subsidiary of TEPPCO and Oiltanking Holding Americas, Inc. (“Oiltanking”), formed the TOPS partnership. Effective April 16, 2009, our wholly owned subsidiary dissociated from TOPS. As a result, equity earnings for the nine months ended September 30, 2009 reflects a non-cash charge of $34.2 million. This loss, which is classified within our Offshore Pipelines & Services business segment, represents our cumulative investment in TOPS through the date of dissociation and reflects our capital contributions to TOPS for construction in progress amounts. The wholly owned subsidiary of TEPPCO that was a partner in TOPS also dissociated from the partnership effective April 16, 2009 and recorded a $34.2 million non-cash charge. See Note 14 for litigation matters associated with TOPS. Summarized Financial Information of Unconsolidated Affiliates The following tables present unaudited income statement data for our current unconsolidated affiliates, aggregated by business segment, for the periods indicated (on a 100% basis):
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