4. Fair Value
Fair Value Measurements
ASC 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
Level 1 |
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. |
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Level 2 |
Inputs to the valuation methodology include: |
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- quoted prices for similar assets or liabilities in active markets;
- quoted prices for identical or similar assets or liabilities in inactive markets;
- inputs other than quoted prices that are observable for the asset or liability;
- inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
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Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The asset's or liability's fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Other than those assets and liabilities described below that approximate fair value, there were no assets or liabilities measured at fair value on a recurring basis at December 31, 2013 or 2012.
Fair Values of Financial Instruments
We have evaluated the fair values of financial instruments and methods used to determine those fair values. The fair values of “Cash and cash equivalents,” “Short-term investments,” “Accounts receivable,” “Accounts payable,” and “Short-term debt” approximate carrying values because of the short maturity of these financial instruments. The carrying value of corporate-owned life insurance is recorded at cash surrender value and, accordingly, approximates fair value. The carrying amounts and estimated fair values for the remaining financial instruments, excluding investments accounted for under the equity method, consisted of the following at December 31:
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2013 |
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2012 |
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Carrying |
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Fair |
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Carrying |
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Fair |
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Amount |
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Value |
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Amount |
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Value |
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($ in millions) |
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Long-term investments |
$ |
148 |
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$ |
177 |
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$ |
139 |
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$ |
174 |
Long-term debt, including current maturities |
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(9,348) |
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(10,673) |
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(8,482) |
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(10,734) |
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Underlying net assets were used to estimate the fair value of investments with the exception of notes receivable, which are based on future discounted cash flows. The fair values of long-term debt were estimated based on quoted market prices or discounted cash flows using current interest rates for debt with similar terms, company rating, and remaining maturity.
The following tables set forth the fair value of long-term investment and long-term debt balances disclosed above by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets or liabilities).
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December 31, 2013 |
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Level 1 |
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Level 2 |
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Total |
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($ in millions) |
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Long-term investments |
$ |
47 |
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$ |
130 |
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$ |
177 |
Long-term debt, including current maturities |
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(10,449) |
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(224) |
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(10,673) |
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December 31, 2012 |
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Level 1 |
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Level 2 |
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Total |
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($ in millions) |
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Long-term investments |
$ |
41 |
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$ |
133 |
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$ |
174 |
Long-term debt, including current maturities |
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(10,450) |
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(284) |
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(10,734) |
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Sales of available-for-sale securities were zero for years ended December 31, 2013 and 2012, and $81 million for the year ended December 31, 2011.
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