12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments has been estimated by the Company using available market information as of September 30, 2014 and December 31, 2013, and valuation methodologies considered appropriate. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange (in millions):



	September 30, 2014				December 31, 2013
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
Assets:
Cash and cash equivalents	$	221	$	221	$	373	$	373
Available-for-sale securities		256		256		65		65
Trading securities		52		52		38		38
Liabilities:
Contingent Value Right (CVR)		9		9		-		-
Credit Facility		7,198		7,168		4,050		4,085
8% Senior Notes		2,018		2,132		2,020		2,172
7⅛% Senior Notes		1,200		1,276		1,200		1,246
2018 Senior Secured Notes		1,600		1,647		1,600		1,662
2021 Senior Secured Notes		1,000		994		-		-
6⅞% Senior Notes		3,000		3,143		-		-
Receivables Facility and other debt		741		741		537		537

The estimated fair value is determined using the methodologies discussed below in accordance with accounting standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 13. The estimated fair value for financial instruments with a fair value that does not equal its carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing from the administrative agent to the Credit Facility to determine fair values, which are validated through publicly available subscription services such as Bloomberg where relevant.

Cash and cash equivalents. The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).

Available-for-sale securities. Estimated fair value is based on closing price as quoted in public markets or other various valuation techniques.

Trading securities. Estimated fair value is based on closing price as quoted in public markets.

Contingent Value Right. Estimated fair value is based on the closing price as quoted on the public market where the CVR is traded.

Credit Facility. Estimated fair value is based on information from the Company’s bankers regarding relevant pricing for trading activity among the Company’s lending institutions.

8% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.

7⅛% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.

2018 Senior Secured Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.

2021 Senior Secured Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.

6⅞% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.

Receivables Facility and other debt. The carrying amount of the Receivables Facility and all other debt approximates fair value due to the nature of these obligations.

Interest rate swaps. The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (“CVAs”) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements.

The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the nine months ended September 30, 2014 and 2013, the Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Company’s consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at September 30, 2014, all of the swap agreements entered into by the Company were in a net liability position such that the Company would be required to make the net settlement payments to the counterparties; the Company does not anticipate nonperformance by those counterparties. The Company does not hold or issue derivative financial instruments for trading purposes.

Interest rate swaps consisted of the following at September 30, 2014:



Swap #	Notional Amount (in millions)		Fixed Interest Rate		Termination Date	Fair Value of Liability (in millions)
1	$	200	2.693	%	October 26, 2014	$	-
2		300	3.447	%	August 8, 2016		15
3		200	3.429	%	August 19, 2016		10
4		100	3.401	%	August 19, 2016		5
5		200	3.500	%	August 30, 2016		10
6		100	3.005	%	November 30, 2016		5
7		200	2.055	%	July 25, 2019		2
8		200	2.059	%	July 25, 2019		2
9		200	2.613	%	August 30, 2019		1	(1)
10		200	2.515	%	August 30, 2019		1	(2)
11		300	2.892	%	August 30, 2020		4	(3)
12		300	2.738	%	August 30, 2020		2	(4)

___________________

(1) This interest rate swap becomes effective August 30, 2015.

(2) This interest rate swap becomes effective August 28, 2015.

(3) This interest rate swap becomes effective August 30, 2015.

(4) This interest rate swap becomes effective August 28, 2015.

The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated statement of financial position. The Company designates its interest rate swaps as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Assuming no change in September 30, 2014 interest rates, approximately $38 million of interest expense resulting from the spread between the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives’ gains or losses resulting from the change in fair value reported through OCI will be reclassified into earnings.

The following tabular disclosure provides the amount of pre-tax gain (loss) recognized as a component of OCI during the three and nine months ended September 30, 2014 and 2013 (in millions):



	Amount of Pre-Tax Gain (Loss) Recognized in OCI (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Interest rate swaps	$	2	$	(8)	$	(20)	$	(4)

The following tabular disclosure provides the location of the effective portion of the pre-tax loss reclassified from accumulated other comprehensive loss (“AOCL”) into interest expense on the condensed consolidated statements of income during the three and nine months ended September 30, 2014 and 2013 (in millions):



Location of Loss Reclassified from	Amount of Pre-Tax Loss Reclassified from AOCL into Income (Effective Portion)
AOCL into Income (Effective Portion)	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Interest expense, net	$	15	$	25	$	51	$	79

The fair values of derivative instruments in the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 were as follows (in millions):

Asset Derivatives

Liability Derivatives

September 30, 2014

December 31, 2013

September 30, 2014

December 31, 2013

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments

Other assets, net

Other long-term liabilities