Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. We show the carrying values and the fair values of noncurrent financial assets and liabilities that qualify as financial instruments, determined under current guidance for disclosures on the fair value of financial instruments, in the following table:

	At June 30, 2014						At December 31, 2013
($ in millions)	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Senior, mezzanine, and other loans	$	220		$	221		$	142		$	145
Marketable securities and other debt securities	114			114			111			111
Total long-term financial assets	$	334		$	335		$	253		$	256
Senior Notes	$	(2,187	)	$	(2,319	)	$	(2,185	)	$	(2,302	)
Commercial paper	(1,086		)	(1,086		)	(834		)	(834		)
Other long-term debt	(119		)	(122		)	(123		)	(124		)
Other long-term liabilities	(57		)	(57		)	(50		)	(50		)
Total long-term financial liabilities	$	(3,449	)	$	(3,584	)	$	(3,192	)	$	(3,310	)

We estimate the fair value of our senior, mezzanine, and other loans, including the current portion, by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs.

We carry our marketable securities at fair value. Our marketable securities include debt securities of the U.S. Government, its sponsored agencies and other U.S. corporations invested for our self-insurance programs, as well as shares of a publicly traded company, which we value using directly observable Level 1 inputs. The carrying value of these marketable securities at the end of our 2014second quarter was $41 million. We also have a $65 million mandatorily redeemable preferred equity ownership interest in an entity that owns three hotels that we manage. We account for this investment as a debt security (with an amortized cost of $73 million at the end of the 2014second quarter, including accrued interest income), and we included it in the "Marketable securities and other debt securities" caption in the preceding table. We estimated the $73 million fair value of this debt security by discounting cash flows using risk-adjusted rates, both of which are Level 3 inputs. The debt security matures in 2015 subject to annual extensions through 2018. We do not intend to sell the debt security and it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost basis, which may be maturity.

In the 2013 second quarter, we received $22 million in net cash proceeds for the sale of a portion of our shares of a publicly traded company (with an amortized cost of $14 million at the date of sale) and recognized an $8 million gain in the "Gains and other income" caption of our Income Statements. This gain included recognition of unrealized gains that we recorded in other comprehensive income as of the end of the 2013 first quarter. See Footnote No. 12, "Comprehensive Income and Shareholders' (Deficit) Equity" of the 2013 Form 10-K for additional information on our reclassification of these unrealized gains from accumulated other comprehensive income.

We estimate the fair value of our other long-term debt, including the current portion and excluding leases, using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. We determine the fair value of our senior notes using quoted market prices, which are directly observable Level 1 inputs. As noted in Footnote No. 8, "Long-term Debt," even though our commercial paper borrowings generally have short-term maturities of 30 days or less, we classify outstanding commercial paper borrowings as long-term based on our ability and intent to refinance them on a long-term basis. As we are a frequent issuer of commercial paper, we use pricing from recent transactions as Level 2 inputs in estimating fair value. At the end of the 2014second quarter and year-end 2013, we determined that the carrying value of our commercial paper approximated its fair value due to the short maturity. Our other long-term liabilities largely consist of guarantees. As noted in Footnote No. 10, "Contingencies," we measure our liability for guarantees at fair value on a nonrecurring basis, that is when we issue or modify a guarantee, using Level 3 internally developed inputs. At the end of the 2014second quarter and year-end 2013, we determined that the carrying values of our guarantee liabilities approximated their fair values based on Level 3 inputs.

See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” of our 2013 Form 10-K for more information on the input levels we use in determining fair value.