Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:



Level 1	—	Quoted prices in active markets for identical assets or liabilities.

Level 2	—	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3	—	Unobservable inputs based on the Company's own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities included in the Company's consolidated balance sheets as of December 31, 2018 and 2017 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:



		December 31, 2018						December 31, 2017
	Fair value hierarchy	Carrying Amount			Fair Value			Carrying Amount		Fair Value
Derivative instruments:		(Millions)
Equity swap agreement	Level 2	$	4		$	4		$	4	$	4
Commodity contracts	Level 2	$	(2	)	$	(2	)	$	—	$	—

Asset and Liability Instruments — The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.

Cash-settled Share Swap Transactions — The fair value of the equity swap agreement is recorded in "Prepayments and other current assets" in the consolidated balance sheets. The fair value of the Company's equity swap agreement was a net asset position of $4 million at December 31, 2018 and 2017.

Commodity contracts — The Company calculates the fair value of its commodity contracts and foreign currency contracts using quoted commodity forward rates and quoted currency forward rates, to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on quoted bank deposit rates.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.

The Company has determined the fair value measurements related to each of these rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.

The Company evaluates the carrying value of its goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each year. These fair value measurements require the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, and growth rates, which are subject to a high degree of uncertainty. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable, but different assumptions could materially affect the estimated fair value.

During the year ended December 31, 2018, the Company recorded a $3 million impairment charge for one of its reporting units. See Note 7, Goodwill and Other Intangible Assets.

Financial Instruments Not Carried at Fair Value

Estimated fair values of the Company's outstanding debt were:



		December 31, 2018				December 31, 2017
	Fair value hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including current maturities):		(Millions)
Term loans and senior notes	Level 2	$	5,307	$	5,218	$	1,346	$	1,383

The fair value of the Company's public senior notes and private borrowings under its senior credit facility is based on observable inputs. The Company also had $106 million and $15 million in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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