Fair Value of Financial Investments and Liabilities

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value of Financial Investments and Liabilities

E. The Company has maintained investments in available-for-sale securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments included in other assets were as follows, in millions:

	June 30, 2013		December 31, 2012
Auction rate securities	$	22	$	22
Total recurring investments		22		22
Private equity funds		65		69
Other investments		4		4
Total non-recurring investments		69		73
Total	$	91	$	95

The Company’s investments in available-for-sale securities at June 30, 2013 and December 31, 2012 were as follows, in millions:

			Pre-tax
			Unrealized		Unrealized		Recorded
	Cost Basis		Gains		Losses		Basis
June 30, 2013	$	19	$	3	$	—	$	22
December 31, 2012	$	19	$	3	$	—	$	22

Recurring Fair Value Measurements. Financial investments measured at fair value on a recurring basis at each reporting period and the amounts for each level within the fair value hierarchy were as follows, in millions:

			Fair Value Measurements Using
	June 30, 2013		Quoted Market Prices (Level  1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Auction rate securities	$	22		—		—	$	22
Total	$	22	$	—	$	—	$	22

			Fair Value Measurements Using
	Dec. 31, 2012		Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Auction rate securities	$	22	$	—	$	—	$	22
Total	$	22	$	—	$	—	$	22

The fair value of the auction rate securities held by the Company have been estimated, on a recurring basis, using a discounted cash flow model (Level 3 input). The significant inputs in the discounted cash flow model used to value the auction rate securities include: expected maturity of auction rate securities, discount rate used to determine the present value of expected cash flows and the assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.

The following table summarizes the changes in Level 3 financial assets measured at fair value on a recurring basis for the six months ended June 30, 2013 and the year ended December 31, 2012, in millions:

	June 30, 2013 Auction Rate Securities		December 31, 2012 Auction Rate Securities
Fair value at beginning of period	$	22	$	22
Total losses included in earnings		—		—
Unrealized (losses)		—		—
Purchases		—		—
Settlements		—		—
Transfer from Level 3 to Level 2		—		—
Fair value at period end	$	22	$	22

Non-Recurring Fair Value Measurements. During the three months and six months ended June 30, 2013, the Company did not measure any financial investments at fair value on a non-recurring basis, as there was no other-than-temporary decline in the estimated value of private equity funds.

During the three months and six months ended June 30, 2012, the Company measured $4 million of private equity investments using level 3 inputs due to an other-than-temporary decline in the estimated value, resulting in a $2 million impairment.

The Company did not have any transfers between Level 1 and Level 2 financial assets in the three months or six months ended June 30, 2013 or 2012.

Realized Gains (Losses). Income (loss) from financial investments, net, included in other, net, within other income (expense), net, was as follows, in millions:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
Realized gains from private equity funds	$	4	$	2		$	7	$	18
Income from other investments, net		1		—			1		—
Total income from financial investments	$	5	$	2		$	8	$	18
Impairment charges – private equity funds	$	—	$	(2	)	$	—	$	(2	)

The fair value of the Company’s short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate estimated market value of short-term and long-term debt at June 30, 2013 was approximately $3.9 billion, compared with the aggregate carrying value of $3.6 billion. The aggregate estimated market value of short-term and long-term debt at December 31, 2012 was approximately $4.0 billion, compared with the aggregate carrying value of $3.6 billion.