Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement ("FASB ASC Topic 820") for financial assets and liabilities. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. Valuations for fund investments such as common/collective trusts and registered investment companies, which do not have readily determinable fair values, are typically estimated using a net asset value provided by a third party as a practical expedient.

The three levels of inputs are defined as follows:

Level 1 - unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company

Level 2 - inputs that are observable in the marketplace other than those inputs classified as Level 1

Level 3 - inputs that are unobservable in the marketplace and significant to the valuation

The Company’s financial assets and liabilities are measured at fair value on a recurring basis and include securities available for sale and derivative financial instruments. Securities available for sale include mutual funds. Derivative financial instruments include interest rate swaps, cross-currency swaps and foreign currency forwards and swaps.

Marketable Securities. Where possible, the Company utilizes quoted prices in active markets to measure debt and equity securities; such items are classified as Level 1 in the hierarchy and include equity securities. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Common inputs in valuing these assets include, among others, benchmark yields, issuer spreads and recently reported trades. Such assets are classified as Level 2 in the hierarchy and typically include corporate bonds. Mutual funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.

Derivatives. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps, cross-currency swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows:

		Fair Value Measurement
	Balance Sheet Classification	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Total
		(In $ millions)
Mutual funds	Marketable securities, at fair value	39	—		39
Derivatives Designated as Cash Flow Hedges
Cross-currency swap	Current Other assets	—	2		2
Cross-currency swap	Noncurrent Other assets	—	3		3
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current Other assets	—	1		1
Total assets as of June 30, 2014		39	6		45
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	Current Other liabilities	—	(4	)	(4	)
Interest rate swaps	Noncurrent Other liabilities	—	(2	)	(2	)
Cross-currency swap	Current Other liabilities	—	(1	)	(1	)
Cross-currency swap	Noncurrent Other liabilities	—	(4	)	(4	)
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current Other liabilities	—	(2	)	(2	)
Total liabilities as of June 30, 2014		—	(13	)	(13	)
Mutual funds	Marketable securities, at fair value	41	—		41
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current Other assets	—	1		1
Total assets as of December 31, 2013		41	1		42
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	Current Other liabilities	—	(5	)	(5	)
Interest rate swaps	Noncurrent Other liabilities	—	(3	)	(3	)
Derivatives Not Designated as Hedges
Interest rate swaps	Current Other liabilities	—	(2	)	(2	)
Foreign currency forwards and swaps	Current Other liabilities	—	(5	)	(5	)
Total liabilities as of December 31, 2013		—	(15	)	(15	)

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:

		Fair Value Measurement
	Carrying Amount	Significant Other Observable Inputs (Level 2)	Unobservable Inputs (Level 3)	Total
		(In $ millions)
As of June 30, 2014
Cost investments	145	—	—	—
Insurance contracts in nonqualified trusts	57	57	—	57
Long-term debt, including current installments of long-term debt	2,903	2,718	263	2,981
As of December 31, 2013
Cost investments	145	—	—	—
Insurance contracts in nonqualified trusts	62	62	—	62
Long-term debt, including current installments of long-term debt	2,911	2,696	264	2,960

In general, the cost investments included in the table above are not publicly traded and their fair values are not readily determinable; however, the Company believes the carrying values approximate or are less than the fair values. Insurance contracts in nonqualified trusts consist of long-term fixed income securities, which are valued using independent vendor pricing models with observable inputs in the active market and therefore represent a Level 2 measurement. The fair value of long-term debt is based on valuations from third-party banks and market quotations and is classified as Level 2 in the hierarchy. The fair value of obligations under capital leases is based on lease payments and discount rates, which are not observable in the market and therefore represents a Level 3 measurement.

As of June 30, 2014 and December 31, 2013, the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt.