Fair Value Measurements and Derivatives

9 Months Ended

Sep. 30, 2013

In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.

Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:



			Fair Value Measurements Using
			Quoted Prices in Active Markets		Significant Inputs Observable		Significant Inputs Unobservable
September 30, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Notes receivable - noncurrent asset	$	77	$	—	$	—	$	77
Marketable securities - current asset	105		61		44
Currency forward contracts - current asset	2				2
Currency forward contracts - current liability	3				3
Currency swaps - noncurrent asset	1				1

December 31, 2012
Notes receivable - noncurrent asset	$	129	$	—	$	—	$	129
Marketable securities - current asset	60		37		23
Currency forward contracts - current asset	4				4
Currency forward contracts - current liability	1				1

Changes in Level 3 recurring fair value measurements —



	Three Months Ended September 30,				Nine Months Ended September 30,
Notes receivable, including current portion	2013		2012		2013			2012
Beginning of period	$	75	$	122	$	129		$	116
Accretion of value (interest income)	2		4		9			11
Payment received					(61		)
Other								(1		)
End of period	$	77	$	126	$	77		$	126

The notes receivable balance represents a payment-in-kind callable note, due 2019, obtained in connection with a divestiture in 2004. The fair value of the note is derived using a discounted cash flow technique and capped at the callable value. The discount rate used in the calculation is the current yield of the publicly traded debt of the operating subsidiary of the obligor, adjusted by a 250 basis point risk premium. The significant unobservable input used to fair value the note is the risk premium. A significant increase in the risk premium may result in a lower fair value measurement. A significant decrease in the risk premium would not result in a higher fair value measurement due to the callable value cap. The fair value of the note at September 30, 2013 equaled the callable value.

Fair value of financial instruments – The financial instruments that are not carried in our balance sheet at fair value are as follows:



	September 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,500	$	1,551	$	750	$	805
Other indebtedness	102		100		109		107
Total	$	1,602	$	1,651	$	859	$	912

The fair value of our senior notes is estimated based upon a market approach (Level 2) while the fair value of our other indebtedness is based upon an income approach (Level 2).

Fair value measurements on a nonrecurring basis — In addition to items that are measured at fair value on a recurring basis, we also have long-lived assets that may be measured at fair value on a nonrecurring basis. These assets include intangible assets and property, plant and equipment which may be written down to fair value as a result of impairment.

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions primarily involving the purchases and sales of inventory through the next twelve months as well as currency swaps associated with recorded intercompany loans payable.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $225 as of September 30, 2013 and $217 as of December 31, 2012. During the third quarter of 2013, we executed foreign currency swaps associated with intercompany loans payable. The total notional amount of outstanding foreign currency swaps was $148 as of September 30, 2013. The following foreign currency derivatives were outstanding at September 30, 2013:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso	$	98	$	—	$	98	Sep-14
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee	53		15		68		Sep-14
British pound	U.S. dollar, Euro	18		1		19		Sep-14
Swedish krona	Euro	15		2		17		Sep-14
South African rand	U.S. dollar, Euro			12		12		Mar-14
Indian rupee	U.S. dollar, British pound, Euro			11		11		Apr-14
Total forward contracts		184		41		225

U.S. dollar	Canadian dollar, Euro			148		148		Feb-15
Total currency swaps				148		148

Total foreign currency derivatives		$	184	$	189	$	373

Cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in other comprehensive income (OCI) to the extent such contracts remain effective. Changes in fair value of those contracts that are not designated as cash flow hedges are reported in income in the period in which the changes occur. Forward contracts associated with product-related transactions are marked to market in cost of sales while other contracts are marked to market through other income, net. Amounts recorded in AOCI are ultimately reclassified to earnings in the same periods in which the underlying transactions affect earnings.

Amounts to be reclassified to earnings — Deferred gains or losses, which are reported in AOCI, are expected to be reclassified to earnings during the next twelve months. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to September 30, 2013 market rates. Amounts deferred at September 30, 2013 were not significant compared to deferred gains of $3 at December 31, 2012. See Note 6 for additional details.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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