Fair Value Measurements.

U.S. GAAP requires enhanced disclosures about investments and non-recurring non-financial assets and non-financial liabilities that are measured and reported at fair value and has established a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments or non-financial assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments and non-financial assets and/or liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include listed equities and listed derivatives. We do not adjust the quoted price for these investments, even in situations where we hold a large position.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives. The inputs and assumptions of our Level 2 investments are derived from market observable sources including reported trades, broker/dealer quotes and other pertinent data.

Level 3 - Pricing inputs are unobservable for the investment and non-financial asset and/or liability and include situations where there is little, if any, market activity for the investment or non-financial asset and/or liability. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. Significant transfers, if any, between the levels within the fair value hierarchy are recognized at the beginning of the reporting period when changes in circumstances require such transfers.

Investment

The following table summarizes the valuation of the Investment Funds' investments and derivative contracts by the above fair value hierarchy levels as of June 30, 2013 and December 31, 2012:



	June 30, 2013								December 31, 2012
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Investments:
Equity securities:
Basic materials	$	47	$	26	$	—	$	73	$	144	$	9	$	—	$	153
Communications	1,161		14		—		1,175		560		16		—		576
Consumer, non-cyclical	2,093		—		—		2,093		1,340		—		—		1,340
Consumer, cyclical	271		—		—		271		261		—		—		261
Diversified	26		—		—		26		—		—		—		—
Energy	1,901		123		—		2,024		1,052		55		—		1,107
Financial	224		—		—		224		244		—		—		244
Funds	—		—		—		—		—		308		—		308
Technology	2,600		128		—		2,728		325		—		—		325
Utilities	—		—		—		—		208		—		—		208
	8,323		291		—		8,614		4,134		388		—		4,522
Corporate debt:
Consumer, cyclical	—		—		289		289		—		—		288		288
Financial	—		11		—		11		—		50		—		50
Sovereign debt	—		4		—		4		—		5		—		5
Utilities	—		30		—		30		—		31		—		31
	—		45		289		334		—		86		288		374
Mortgage-backed securities:
Financial	—		175		—		175		—		188		—		188
	8,323		511		289		9,123		4,134		662		288		5,084
Derivative contracts, at fair value⁽¹⁾	—		—		—		—		—		—		—		—
	$	8,323	$	511	$	289	$	9,123	$	4,134	$	662	$	288	$	5,084
Liabilities
Securities sold, not yet purchased, at fair value:
Equity securities:
Consumer, cyclical	$	667	$	—	$	—	$	667	$	473	$	—	$	—	$	473
Funds	—		—		—		—		—		60		—		60
	667		—		—		667		473		60		—		533
Derivative contracts, at fair value⁽²⁾	—		658		—		658		—		84		—		84
	$	667	$	658	$	—	$	1,325	$	473	$	144	$	—	$	617


⁽¹⁾	Included in other assets in our consolidated balance sheets.


⁽²⁾	Included in accrued expenses and other liabilities in our consolidated balance sheets.

The changes in investments measured at fair value for which our Investment segment has used Level 3 input to determine fair value are as follows:



	Six Months Ended June 30,
	2013			2012
	(in millions)
Balance at January 1	$	288		$	289
Gross realized and unrealized gains (losses)	4			2
Gross proceeds	(3		)	(4		)
Balance at June 30	$	289		$	287

Unrealized gains of $4 million are included in earnings related to Level 3 investments still held at June 30, 2013 by our Investment segment. Total realized and unrealized gains and losses recorded for Level 3 investments, if any, are reported in net gain from investment activities in our consolidated statements of operations.

The Investment Funds held one Level 3 corporate debt investment at June 30, 2013. Fair value was determined through yield analysis of comparable loans to which we applied a risk premium that we determined to be appropriate, which resulted in a lower valuation for our Level 3 investment. Increasing the risk premium by 1% would result in a 2% decrease in the fair value of the loan. Decreasing the risk premium by 1% would have no effect on the fair value of the loan.

Other Segments and Holding Company

The following table summarizes the valuation of our Automotive and Energy segments and our Holding Company investments, derivative contracts and other liabilities by the above fair value hierarchy levels as of June 30, 2013 and December 31, 2012:



	June 30, 2013								December 31, 2012
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Marketable equity and debt securities	$	22	$	—	$	—	$	22	$	1	$	—	$	—	$	1
Trading securities	—		—		114		114		—		—		60		60
Derivative contracts, at fair value⁽¹⁾	—		71		—		71		—		1		21		22
	$	22	$	71	$	114	$	207	$	1	$	1	$	81	$	83
Liabilities
Other liabilities	$	—	$	43	$	—	$	43	$	—	$	1	$	—	$	1
Derivative contracts, at fair value⁽²⁾	—		12		—		12		—		89		—		89
	$	—	$	55	$	—	$	55	$	—	$	90	$	—	$	90


⁽¹⁾	Amounts are classified within other assets in our consolidated balance sheets.


⁽²⁾	Amounts are classified within accrued expenses and other liabilities in our consolidated balance sheets.

The changes in trading securities measured at fair value for which our Holding Company have used Level 3 input to determine fair value are as follows:



	Six Months Ended June 30,
	2013
	(in millions)
Balance at January 1	$	81
Purchase	46
Gross unrealized losses	(13		)
Balance at June 30	$	114

A certain security and a related derivative held by the Holding Company was transferred from Level 2 to Level 3 during the fourth quarter of 2012 because there was a lack of observable market data due to a decrease in market activity for this security. This security was valued based on trading EBITDA multiples and enterprise value to resource ratios of market comparables.

Unrealized losses of $13 million are included in earnings related to Level 3 investments still held at June 30, 2013 by our Holding Company. Total realized and unrealized gains and losses recorded for Level 3 investments, if any, are reported in net (loss) gain from investment activities in our consolidated statements of operations.

Assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2013 and 2012 are set forth in the table below:



	June 30,
	2013				2012
Category	Fair Value of Level 3 Asset		Recognized Impairment		Fair Value of Level 3 Asset		Recognized Impairment
	(in millions)
Property, plant and equipment	$	23	$	5	$	29	$	19
Intangible assets	—		—		62		15

We determined the fair value of property, plant and equipment by applying probability weighted, expected present value techniques to the estimated future cash flows using assumptions a market participant would utilize and through the use of valuation specialists. The fair values of intangible assets, primarily related to certain trademarks and brand names, are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.