Financial Instruments and Related Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Activity Relating to Securitization Arrangement

The following is a summary of the activity relating to the securitization arrangement.

as of and for the years ended December 31 (in millions)	2012			2011			2010
Sold receivables at beginning of year	$	160		$	157		$	147
Proceeds from sales of receivables		630			615			557
Cash collections (remitted to the owners of the receivables)		(624	)		(622	)		(555	)
Effect of currency exchange rate changes		(9	)		10			8
Sold receivables at end of year	$	157		$	160		$	157

Summary of Gains and Losses on Derivative Instruments

The following tables summarize the gains and losses on the company’s derivative instruments for the years ended December 31, 2012 and 2011.

	Gain (loss) recognized in OCI						Location of gain (loss) in income statement		Gain (loss) reclassified from AOCI into income
(in millions)	2012			2011					2012			2011
Cash flow hedges
Interest rate contracts		$(10	)		$(11	)		Net interest expense		$ —			$ —
Foreign exchange contracts		(3	)		(1	)		Net sales		(3	)		(2	)
Foreign exchange contracts		—			(14	)		Cost of sales		3			(34	)
Total		$(13	)		$(26	)				$ —			$(36	)

	Location of gain (loss) in income statement		Gain (loss) recognized in income
(in millions)			2012			2011
Fair value hedges
Interest rate contracts		Net interest expense		$11			$62
Undesignated derivative instruments
Foreign exchange contracts		Other (income) expense, net		$ (7	)		$ (6	)

Net of Tax Activity in Accumulated Other Comprehensive Income Related to Cash Flow Hedges

The following table summarizes net-of-tax activity in AOCI, a component of shareholders’ equity, related to the company’s cash flow hedges.

as of and for the years ended December 31 (in millions)	2012			2011			2010
Accumulated other comprehensive income (loss) balance at beginning of year		$  2			$  (3	)		$   3
(Loss) gain in fair value of derivatives during the year		(7	)		(31	)		45
Amount reclassified to earnings during the year		—			36			(51	)
Accumulated other comprehensive (loss) income balance at end of year		$ (5	)		$   2			$  (3	)

Classification and Fair Value Amounts of Derivative Instruments

The following table summarizes the classification and fair value amounts of derivative instruments reported in the consolidated balance sheet as of December 31, 2012.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other long-term assets	$	67	Accounts payable and accrued liabilities	$	21
Foreign exchange contracts	Prepaid expenses and other		28	Accounts payable and accrued liabilities		5
Total derivative instruments designated as hedges		$	95		$	26
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other	$	47	Accounts payable and accrued liabilities	$	11
Total derivative instruments		$	142		$	37

The following table summarizes the classification and fair value amounts of derivative instruments reported in the consolidated balance sheet as of December 31, 2011.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other long-term assets	$	77	Other long-term liabilities	$	11
Foreign exchange contracts	Prepaid expenses and other		54	Accounts payable and accrued liabilities		3
Foreign exchange contracts	Other long-term assets		1	Other long-term liabilities		—
Total derivative instruments designated as hedges		$	132		$	14
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other	$	—	Accounts payable and accrued liabilities	$	1
Total derivative instruments		$	132		$	15

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the bases used to measure financial assets and liabilities that are carried at fair value on a recurring basis in the consolidated balance sheets. 

		Basis of fair value measurement
(in millions)	Balance at December 31, 2012	Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Assets
Foreign currency hedges	$  75	$—	$  75	$—
Interest rate hedges	67	—	67	—
Available-for-sale securities
Equity securities	15	15	—	—
Preferred stock	51	—	—	51
Foreign government debt securities	16	—	16	—
Total assets	$224	$15	$158	$51
Liabilities
Foreign currency hedges	$  16	$—	$  16	$—
Interest rate hedges	21	—	21	—
Contingent payments related to acquisitions and investments	86	—	—	86
Total liabilities	$123	$—	$  37	$86
		Basis of fair value measurement
(in millions)	Balance at December 31, 2011	Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Assets
Foreign currency hedges	$  55	$—	$  55	$  —
Interest rate hedges	77	—	77	—
Available-for-sale securities
Equity securities	21	21	—	—
Total assets	$153	$21	$132	$  —
Liabilities
Foreign currency hedges	$    4	$—	$    4	$  —
Interest rate hedges	11	—	11	—
Contingent payments related to acquisitions and investments	234	—	—	234
Total liabilities	$249	$—	$  15	$234

Reconciliation of Fair Value Measurements that Use Significant Unobservable Inputs

The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and investments and preferred stock.

(in millions)	Contingent payments			Preferred stock
Fair value as of December 31, 2010		$ 125			$—
Additions, net of payments of $13		102			—
Loss recognized in earnings		7			—
Fair value as of December 31, 2011		234			—
Purchases		—			50
Payments		(40	)		—
Gains recognized in earnings		(108	)		—
CTA		—			1
Fair value as of December 31, 2012		$   86			$51

Book Values and Fair Values of Financial Instruments

In addition to the financial instruments that the company is required to recognize at fair value on the consolidated balance sheets, the company has certain financial instruments that are recognized at historical cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized on the consolidated balance sheets and the approximate fair values.

	Book values				Approximate fair values
as of December 31 (in millions)	2012		2011		2012		2011
Assets
Long-term insurance receivables	$	2	$	15	$	2	$	15
Investments		46		85		49		94
Liabilities
Short-term debt		27		256		27		256
Current maturities of long-term debt and lease obligations		323		190		324		190
Long-term debt and lease obligations		5,580		4,749		6,201		5,312
Long-term litigation liabilities		32		63		31		62

Summarization of Bases Used to Measure Fair Value of Financial Instruments

The following table summarizes the bases used to measure the approximate fair value of the financial instruments as of December 31, 2012.

		Basis of fair value measurement
(in millions)	Balance as of December 31, 2012	Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Assets
Long-term insurance receivables	$       2	$—	$       2	$—
Investments	49	—	19	30
Total assets	$     51	$—	$     21	$30
Liabilities
Short-term debt	$     27	$—	$     27	$—
Current maturities of long-term debt and lease obligations	324	—	324	—
Long-term debt and lease obligations	6,201	—	6,201	—
Long-term litigation liabilities	31	—	31	—
Total liabilities	$6,583	$—	$6,583	$—