FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair value information for those assets and liabilities measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | | |
| December 31, 2013 | December 31, 2012 |
$ in millions | Carrying Value | | Fair Value | Carrying Value | | Fair Value |
Financial Assets (Liabilities) | | | | | | | | |
Marketable securities | | | | | | | | |
Trading | |
| $ 308 |
| |
| $ 308 |
| |
| $ 259 |
| |
| $ 259 |
|
Available-for-sale | | 2 |
| | 2 |
| | 3 |
| | 3 |
|
Derivatives | | (2 | ) | | (2 | ) | | (1 | ) | | (1 | ) |
Long-term debt, including current portion | | (5,930 | ) | | (6,227 | ) | | (3,935 | ) | | (4,834 | ) |
There were no transfers of financial instruments between the three levels of fair value hierarchy during the years ended December 31, 2013 and 2012.
The carrying value of cash and cash equivalents approximate fair value.
Investments in Marketable Securities
The company holds a portfolio of marketable securities to partially fund long-term deferred compensation programs, consisting of equity securities that are classified as either trading or available-for-sale, which can be liquidated without restriction. These assets are recorded at fair value and substantially all of these instruments are valued using Level 1 inputs, with an immaterial amount valued using Level 2 inputs. As of December 31, 2013 and 2012, marketable securities of $310 million and $261 million, respectively, were included in other non-current assets in the consolidated statements of financial position.
Derivative Financial Instruments and Hedging Activities
The company's derivative portfolio consists primarily of foreign currency forward contracts, which are used to manage foreign currency exchange risk related to receipts from customers and payments to suppliers denominated in foreign currencies. The notional values for the company's derivative portfolio at December 31, 2013 and 2012, were $161 million and $164 million, respectively. The portion of the notional values designated as cash flow hedges at December 31, 2013 and 2012, were $77 million and $110 million, respectively.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value. Substantially all of these instruments are valued using Level 2 inputs. Where model-derived valuations are appropriate, the company utilizes the income approach to determine the fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rates.
Unrealized gains or losses on the effective portion of cash flow hedges are reclassified from other comprehensive income to operating income upon the settlement of the underlying transactions. The derivative fair values and related unrealized gains/losses at December 31, 2013 and 2012, were not material. Hedge contracts not designated for hedge accounting and the ineffective portion of cash flow hedges are recorded in other income.
Long-Term Debt
The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.
