16. FAIR VALUE
The fair values of our financial instruments were as follows (dollars in millions):
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December 31, |
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2012 |
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2011 |
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Carrying
Value |
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Estimated
Fair Value |
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Carrying
Value |
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Estimated
Fair Value |
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Non-qualified employee benefit plan investments
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$ |
14 |
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$ |
14 |
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$ |
12 |
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$ |
12 |
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Cross-currency interest rate contacts
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18 |
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18 |
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27 |
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27 |
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Interest rate contracts
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(18 |
) |
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(18 |
) |
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(17 |
) |
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(17 |
) |
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Long-term debt (including current portion)
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(3,702 |
) |
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(3,869 |
) |
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(3,942 |
) |
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(4,061 |
) |
The carrying amounts reported in the balance sheets of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of non-qualified employee benefit plan investments is obtained through market observable pricing using prevailing market prices. The estimated fair values of our long-term debt are based on quoted market prices for the identical liability when traded as an asset in an active market (Level 1).
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2012 and 2011. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2012, and current estimates of fair value may differ significantly from the amounts presented herein.
The following assets and liabilities are measured at fair value on a recurring basis (dollars in millions):
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Fair Value Amounts Using |
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Description
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December 31,
2012 |
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Quoted prices
in active
markets for
identical assets
(Level 1)(3) |
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Significant
other
observable
inputs
(Level 2)(3) |
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Significant
unobservable
inputs
(Level 3) |
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Assets:
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Available-for sale equity securities:
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Equity mutual funds
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$ |
14 |
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$ |
14 |
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$ |
— |
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$ |
— |
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Derivatives:
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Cross-currency interest rate contracts(1)
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18 |
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— |
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18 |
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— |
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| |
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Total assets
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$ |
32 |
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$ |
14 |
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$ |
18 |
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$ |
— |
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Liabilities:
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Derivatives:
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Interest rate contracts(2)
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$ |
(18 |
) |
$ |
— |
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$ |
(18 |
) |
$ |
— |
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Fair Value Amounts Using |
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Description
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December 31,
2011 |
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Quoted prices
in active
markets for
identical assets
(Level 1)(3) |
|
Significant
other
observable
inputs
(Level 2)(3) |
|
Significant
unobservable
inputs
(Level 3) |
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Assets:
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Available-for sale equity securities:
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Equity mutual funds
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$ |
12 |
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$ |
12 |
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$ |
— |
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$ |
— |
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Derivatives:
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Cross-currency interest rate contracts(1)
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27 |
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— |
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— |
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27 |
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| |
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Total assets
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$ |
39 |
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$ |
12 |
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$ |
— |
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$ |
27 |
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Liabilities:
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Derivatives:
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Interest rate contracts(2)
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$ |
(17 |
) |
$ |
— |
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$ |
(17 |
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$ |
— |
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- (1)
- The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates, exchange rates, and yield curves at stated intervals.
- (2)
- The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates and yield curves at stated intervals.
- (3)
- There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December 31, 2012 and 2011.
During the year ended December 31, 2012, no material changes were made to the valuation methods or assumptions used to determine fair value.
The following table shows a reconciliation of beginning and ending balances for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in millions):
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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Cross-Currency
Interest
Rate Contracts |
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Beginning balance, January 1, 2012
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$ |
27 |
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Transfers into Level 3
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— |
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Transfers out of Level 3(1)
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(27 |
) |
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Total gains (losses):
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Included in earnings
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— |
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Included in other comprehensive income (loss)
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— |
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Purchases, sales, issuances and settlements
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— |
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Ending balance, December 31, 2012
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$ |
— |
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The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at December 31, 2012
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$ |
— |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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Cross-Currency
Interest
Rate Contracts |
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Beginning balance, January 1, 2011
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$ |
19 |
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Transfers into or out of Level 3
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— |
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Total gains (losses):
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Included in earnings
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— |
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Included in other comprehensive income (loss)
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8 |
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Purchases, sales, issuances and settlements
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— |
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Ending balance, December 31, 2011
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$ |
27 |
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The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at December 31, 2011
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$ |
— |
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- (1)
- We are party to cross-currency interest rate contracts that are measured at fair value in our consolidated financial statements. These instruments have historically been categorized by us as Level 3 within the fair value hierarchy due to an unobservable input associated with the credit valuation adjustment, which we deemed to be a significant input to the overall measurement of fair value at inception. During 2012, this credit valuation adjustment has ceased to be a significant input to the entire fair value measurement of these instruments. The remaining inputs which are significant to the fair value measurement of these instruments represent observable market inputs that are inputs other than quoted prices (Level 2 inputs).
Our policy is to recognize transfers between levels within the fair value hierarchy as of the beginning of the reporting period. Due to the change in significance of the credit valuation adjustment to the entire fair value measurement of these instruments, effective January 1, 2012, we have categorized our cross-currency interest rate contracts as Level 2 within the fair value hierarchy.
Gains and losses (realized and unrealized) included in earnings for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are reported in interest expense and other comprehensive income (loss) as follows (dollars in millions):
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Interest expense |
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Other
comprehensive
income (loss) |
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2012
|
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Total net gains included in earnings
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$ |
— |
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$ |
— |
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Changes in unrealized gains relating to assets still held at December 31, 2012
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— |
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— |
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Interest expense |
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Other
comprehensive
income (loss) |
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2011
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Total net gains included in earnings
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$ |
— |
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$ |
— |
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Changes in unrealized gains relating to assets still held at December 31, 2011
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— |
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8 |
|
We also have assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include property, plant and equipment and those associated with acquired businesses, including goodwill and intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During 2012, we had no impairments related to these assets. During 2011, in connection with the restructuring of our Textile Effects segment we recorded a charge of $53 million for the impairment of long-lived assets at our Basel, Switzerland manufacturing facility.