Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

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FAIR VALUE
 3 Months Ended
Mar. 31, 2013
FAIR VALUE  
FAIR VALUE

9. FAIR VALUE

        The fair values of financial instruments were as follows (dollars in millions):

 
   March 31, 2013   December 31, 2012  
 
   Carrying
Value		   Estimated
Fair Value		   Carrying
Value		   Estimated
Fair Value		  

Non-qualified employee benefit plan investments

   $ 17   $ 17   $ 14   $ 14  

Cross-currency interest rate contracts

     29     29     18     18  

Interest rate contracts

     (16 )   (16 )   (18 )   (18 )

Long-term debt (including current portion)

     (3,787 )   (3,928 )   (3,702 )   (3,869 )

        The carrying amounts reported in our condensed consolidated balance sheets (unaudited) 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 March 31, 2013 and December 31, 2012. 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 March 31, 2013 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):

 
    
   Fair Value Amounts Using  
Description
  March 31,
2013		   Quoted prices in active
markets for identical
assets (Level 1)(3)		   Significant other
observable inputs
(Level 2)(3)		   Significant
unobservable inputs
(Level 3)		  

Assets:

                          

Available-for sale equity securities:

                          

Equity mutual funds

   $ 17   $ 17   $ —   $ —  

Derivatives:

                          

Cross-currency interest rate contracts(1)

     29     —     29     —  
                   

Total assets

   $ 46   $ 17   $ 29   $ —  
                   

Liabilities:

                          

Derivatives:

                          

Interest rate contracts(2)

     (16 ) $ —     (16 ) $ —  
                   

 

 
    
   Fair Value Amounts Using  
Description
  December 31,
2012		   Quoted prices in active
markets for identical
assets (Level 1)(3)		   Significant other
observable inputs
(Level 2)(3)		   Significant
unobservable inputs
(Level 3)		  

Assets:

                          

Available-for sale equity securities:

                          

Equity mutual funds

   $ 14   $ 14   $ —   $ —  

Derivatives:

                          

Cross-currency interest rate contracts(1)

     18     —     18     —  
                   

Total assets

   $ 32   $ 14   $ 18   $ —  
                   

Liabilities:

                          

Derivatives:

                          

Interest rate contracts(2)

   $ (18 ) $ —   $ (18 ) $ —  
                   
(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. There were no material changes to the valuation methods or assumptions used to determine the fair value during the current period.

(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. There were no material changes to the valuation methods or assumptions used to determine the fair value during the current period.

(3)
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three months ended March 31, 2013 and December 31, 2012.

        The following table shows a reconciliation of beginning and ending balances for the three months ended March 31, 2012 for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in millions). During the three months ended March 31, 2013, there were no instruments categorized as Level 3 within the fair value hierarchy.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
  Cross-Currency Interest
Rate Contracts		  

Beginning balance, January 1, 2012

   $ 27  

Transfers into Level 3

     —  

Transfers out of Level 3(1)

     (27 )

Total gains (losses):

        

Included in earnings

     —  

Included in other comprehensive (loss) income

     —  

Purchases, sales, issuances and settlements

     —  
       

Ending balance, March 31, 2012

   $ —  
       

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 March 31, 2012

   $ —  
       
(1)
We are party to cross-currency interest rate contracts that are measured at fair value in the 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 the three months ended March 31, 2012, this credit valuation adjustment had 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.

        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 the three months ended March 31, 2013 and 2012, we had no impairments related to these assets.