2. Fair value measurements
FASB guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Financial assets accounted for at fair value on a recurring basis include cash equivalents of $845.2 million and $1,572.3 million, restricted cash and investments of $22.8 million and $19.6 million, and trading securities (included in other assets) of $18.7 million and $15.8 million, at December 31, 2013 and 2012, respectively. These assets are carried at fair value based on quoted market prices in active markets for identical securities (Level 1 inputs). Cash equivalents include investments in AAA-rated money market mutual funds with maturities of less than 90 days.
FASB guidance allows a company to elect to measure eligible financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, equity method investments, accounts payable, guarantees, issued debt and firm commitments. Currently, we have not elected to account for any of our eligible items using the fair value option under this guidance.
The carrying value of cash and cash equivalents (Level 1), restricted cash and investments (Level 1), accounts receivable, claims and rebates payable, and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value, which approximates the carrying value, of our bank credit facility (Level 2) was estimated using the current rates offered to us for debt with similar maturity. The carrying values and the fair values of our senior notes are shown, net of unamortized discounts and premiums, in the following table:
|
| | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
(in millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
March 2008 Senior Notes | | | | | | | |
7.125% senior notes due 2018 | $ | 1,378.5 |
| | $ | 1,420.4 |
| | $ | 1,417.2 |
| | $ | 1,497.3 |
|
6.125% senior notes due 2013 | — |
| | — |
| | 303.3 |
| | 303.0 |
|
| 1,378.5 |
| | 1,420.4 |
| | 1,720.5 |
| | 1,800.3 |
|
June 2009 Senior Notes | | | | | | | |
6.250% senior notes due 2014 | — |
| | — |
| | 998.7 |
| | 1,076.4 |
|
7.250% senior notes due 2019 | 497.9 |
| | 607.8 |
| | 497.6 |
| | 645.1 |
|
| 497.9 |
| | 607.8 |
| | 1,496.3 |
| | 1,721.5 |
|
September 2010 Senior Notes | | | | | | | |
2.750% senior notes due 2015 | 506.9 |
| | 514.9 |
| | 510.9 |
| | 522.4 |
|
4.125% senior notes due 2020 | 506.8 |
| | 519.7 |
| | 507.6 |
| | 546.1 |
|
| 1,013.7 |
| | 1,034.6 |
| | 1,018.5 |
| | 1,068.5 |
|
May 2011 Senior Notes | | | | | | | |
3.125% senior notes due 2016 | 1,497.0 |
| | 1,566.2 |
| | 1,495.8 |
| | 1,590.2 |
|
| | | | | | | |
November 2011 Senior Notes | | | | | | | |
3.500% senior notes due 2016 | 1,249.8 |
| | 1,324.4 |
| | 1,249.7 |
| | 1,347.8 |
|
4.750% senior notes due 2021 | 1,241.2 |
| | 1,325.4 |
| | 1,240.3 |
| | 1,425.7 |
|
2.750% senior notes due 2014 | 899.7 |
| | 917.1 |
| | 899.4 |
| | 930.8 |
|
6.125% senior notes due 2041 | 698.4 |
| | 801.0 |
| | 698.4 |
| | 894.6 |
|
| 4,089.1 |
| | 4,367.9 |
| | 4,087.8 |
| | 4,598.9 |
|
February 2012 Senior Notes | | | | | | | |
2.650% senior notes due 2017 | 1,490.7 |
| | 1,548.0 |
| | 1,487.9 |
| | 1,559.6 |
|
2.100% senior notes due 2015 | 998.1 |
| | 1,014.4 |
| | 996.5 |
| | 1,023.7 |
|
3.900% senior notes due 2022 | 981.9 |
| | 1,003.4 |
| | 980.0 |
| | 1,073.3 |
|
| 3,470.7 |
| | 3,565.8 |
| | 3,464.4 |
| | 3,656.6 |
|
Total | $ | 11,946.9 |
| | $ | 12,562.7 |
| | $ | 13,283.3 |
| | $ | 14,436.0 |
|
The fair values of our senior notes were estimated based on observable market information (Level 2). In determining the fair value of liabilities, we took into consideration the risk of nonperformance. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability would be transferred to a market participant. This risk did not have a material impact on the fair value of our liabilities.
