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Annual report pursuant to Section 13 and 15(d)

FAIR VALUE (Tables)

v2.4.0.6
FAIR VALUE (Tables)
12 Months Ended
Dec. 31, 2012
FAIR VALUE Ìý
Fair values of financial instruments

The fair values of our financial instruments were as follows (dollars in millions):

Ìý
Ìý DecemberÌý31, Ìý
Ìý
Ìý 2012 Ìý 2011 Ìý
Ìý
Ìý Carrying
Value
Ìý Estimated
Fair Value
Ìý Carrying
Value
Ìý Estimated
Fair Value
Ìý

Non-qualified employee benefit plan investments

Ìý $ 14 Ìý $ 14 Ìý $ 12 Ìý $ 12 Ìý

Cross-currency interest rate contacts

Ìý Ìý 18 Ìý Ìý 18 Ìý Ìý 27 Ìý Ìý 27 Ìý

Interest rate contracts

Ìý Ìý (18 ) Ìý (18 ) Ìý (17 ) Ìý (17 )

Long-term debt (including current portion)

Ìý Ìý (3,702 ) Ìý (3,869 ) Ìý (3,942 ) Ìý (4,061 )

ÌýÌýÌýÌýÌýÌýÌýÌý

Assets and liabilities are measured at fair value on a recurring basis

ÌýThe following assets and liabilities are measured at fair value on a recurring basis (dollars in millions):

Ìý
Ìý Ìý
Ìý Fair Value Amounts Using Ìý
Description
Ìý DecemberÌý31,
2012
Ìý Quoted prices
in active
markets for
identical assets
(LevelÌý1)(3)
Ìý Significant
other
observable
inputs
(LevelÌý2)(3)
Ìý Significant
unobservable
inputs
(LevelÌý3)
Ìý

Assets:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Available-for sale equity securities:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Equity mutual funds

Ìý $ 14 Ìý $ 14 Ìý $ â€� Ìý $ â€� Ìý

Derivatives:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Cross-currency interest rate contracts(1)

Ìý Ìý 18 Ìý Ìý â€� Ìý Ìý 18 Ìý Ìý â€� Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Total assets

Ìý $ 32 Ìý $ 14 Ìý $ 18 Ìý $ â€� Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Liabilities:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Derivatives:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Interest rate contracts(2)

Ìý $ (18 ) $ â€� Ìý $ (18 ) $ â€� Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý


Ìý

Ìý
Ìý Ìý
Ìý Fair Value Amounts Using Ìý
Description
Ìý DecemberÌý31,
2011
Ìý Quoted prices
in active
markets for
identical assets
(LevelÌý1)(3)
Ìý Significant
other
observable
inputs
(LevelÌý2)(3)
Ìý Significant
unobservable
inputs
(LevelÌý3)
Ìý

Assets:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Available-for sale equity securities:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Equity mutual funds

Ìý $ 12 Ìý $ 12 Ìý $ â€� Ìý $ â€� Ìý

Derivatives:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Cross-currency interest rate contracts(1)

Ìý Ìý 27 Ìý Ìý â€� Ìý Ìý â€� Ìý Ìý 27 Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Total assets

Ìý $ 39 Ìý $ 12 Ìý $ â€� Ìý $ 27 Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Liabilities:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Derivatives:

Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Interest rate contracts(2)

Ìý $ (17 ) $ â€� Ìý $ (17 ) $ â€� Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý Ìý

(1)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates, exchange rates, and yield curves at stated intervals.

(2)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates and yield curves at stated intervals.

(3)
There were no transfers between LevelsÌý1 and 2 within the fair value hierarchy for the years ended DecemberÌý31, 2012 and 2011.
Reconciliation of beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3)

The following table shows a reconciliation of beginning and ending balances for instruments measured at fair value on a recurring basis using significant unobservable inputs (LevelÌý3) (dollars in millions):

Fair Value Measurements Using Significant Unobservable Inputs (LevelÌý3)
Ìý Cross-Currency
Interest
Rate Contracts
Ìý

Beginning balance, JanuaryÌý1, 2012

Ìý $ 27 Ìý

Transfers into LevelÌý3

Ìý Ìý â€� Ìý

Transfers out of LevelÌý3(1)

Ìý Ìý (27 )

Total gains (losses):

Ìý Ìý Ìý Ìý

Included in earnings

Ìý Ìý â€� Ìý

Included in other comprehensive income (loss)

Ìý Ìý â€� Ìý

Purchases, sales, issuances and settlements

Ìý Ìý â€� Ìý
Ìý Ìý Ìý Ìý

Ending balance, DecemberÌý31, 2012

Ìý $ â€� Ìý
Ìý Ìý Ìý Ìý

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at DecemberÌý31, 2012

Ìý $ â€� Ìý
Ìý Ìý Ìý Ìý


Ìý

Fair Value Measurements Using Significant Unobservable Inputs (LevelÌý3)
Ìý Cross-Currency
Interest
Rate Contracts
Ìý

Beginning balance, JanuaryÌý1, 2011

Ìý $ 19 Ìý

Transfers into or out of LevelÌý3

Ìý Ìý â€� Ìý

Total gains (losses):

Ìý Ìý Ìý Ìý

Included in earnings

Ìý Ìý â€� Ìý

Included in other comprehensive income (loss)

Ìý Ìý 8 Ìý

Purchases, sales, issuances and settlements

Ìý Ìý â€� Ìý
Ìý Ìý Ìý Ìý

Ending balance, DecemberÌý31, 2011

Ìý $ 27 Ìý
Ìý Ìý Ìý Ìý

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at DecemberÌý31, 2011

Ìý $ â€� Ìý
Ìý Ìý Ìý Ìý

(1)
We are party to cross-currency interest rate contracts that are measured at fair value in our consolidated financial statements. These instruments have historically been categorized by us as LevelÌý3 within the fair value hierarchy due to an unobservable input associated with the credit valuation adjustment, which we deemed to be a significant input to the overall measurement of fair value at inception. During 2012, this credit valuation adjustment has ceased to be a significant input to the entire fair value measurement of these instruments. The remaining inputs which are significant to the fair value measurement of these instruments represent observable market inputs that are inputs other than quoted prices (LevelÌý2 inputs).

ÌýÌýÌýÌýÌýÌýÌýÌý

Schedule of gains and losses (realized and unrealized) included in earnings reported in interest expense and other comprehensive (loss) income

ÌýGains and losses (realized and unrealized) included in earnings for instruments measured at fair value on a recurring basis using significant unobservable inputs (LevelÌý3) are reported in interest expense and other comprehensive income (loss) as follows (dollars in millions):

Ìý
Ìý Interest expense Ìý Other
comprehensive
income (loss)
Ìý

2012

Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Total net gains included in earnings

Ìý $ â€� Ìý $ â€� Ìý

Changes in unrealized gains relating to assets still held at DecemberÌý31, 2012

Ìý Ìý â€� Ìý Ìý â€� Ìý

Ìý

Ìý
Ìý Interest expense Ìý Other
comprehensive
income (loss)
Ìý

2011

Ìý Ìý Ìý Ìý Ìý Ìý Ìý

Total net gains included in earnings

Ìý $ â€� Ìý $ â€� Ìý

Changes in unrealized gains relating to assets still held at DecemberÌý31, 2011

Ìý Ìý â€� Ìý Ìý 8 Ìý

ÌýÌýÌýÌýÌýÌýÌýÌý