Fair Value Measurements and Derivatives

9 Months Ended

Sep. 30, 2014

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, 2014	Total		(Level 1)		(Level 2)		(Level 3)
Marketable securities - current asset	$	169	$	70	$	99	$	—
Currency forward contracts - current asset	2				2
Currency forward contracts - current liability	5				5
Currency swaps - current liability	8				8

December 31, 2013
Notes receivable - current asset	$	75	$	—	$	75	$	—
Marketable securities - current asset	110		33		77
Currency forward contracts - current asset	3				3
Currency forward contracts - current liability	2				2
Currency swaps - noncurrent asset	2				2
Currency swaps - noncurrent liability	2				2

Changes in Level 3 recurring fair value measurements —



	Three Months Ended September 30,				Nine Months Ended September 30,
Notes receivable, including current portion	2014		2013		2014		2013
Beginning of period	$	—	$	75	$	—	$	129
Accretion of value (interest income)			2				9
Payment received							(61		)
End of period	$	—	$	77	$	—	$	77

During January 2014, we sold our interest in a payment-in-kind callable note to a third party for $75. Accordingly, we reclassified the note to current assets and, with observable market value readily available, we reduced the unrealized gain and transferred the note from Level 3 to Level 2 at December 31, 2013.

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



	September 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,500	$	1,568	$	1,500	$	1,567
Other indebtedness	86		84		99		98
Total	$	1,586	$	1,652	$	1,599	$	1,665

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 eighteen months, as well as currency swaps associated with certain recorded intercompany loans receivable and payable.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $262 as of September 30, 2014 and $252 as of December 31, 2013. The total notional amount of outstanding foreign currency swaps was $81 as of September 30, 2014 and $297 as of December 31, 2013.

The following foreign currency derivatives were outstanding at September 30, 2014:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Euro	$	107	$	3	$	110	Nov-15
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee	60		21		81		Mar-16
British pound	U.S. dollar, Euro	18		1		19		Sep-15
Swedish krona	Euro	17				17		Nov-15
South African rand	U.S. dollar, Euro			15		15		Mar-15
Thai baht	U.S. dollar, Australian dollar			8		8		Apr-15
Indian rupee	U.S. dollar, British pound, Euro			12		12		Jul-15
Total forward contracts		202		60		262

U.S. dollar	Euro			81		81		Feb-15
Total currency swaps		—		81		81
Total foreign currency derivatives		$	202	$	141	$	343

During May 2014, concurrent with the cancellation of two of our Euro-denominated and Canadian dollar-denominated intercompany loans, we terminated $225 of associated currency swaps. No portion of the fair value of these currency swaps had been deferred in accumulated other comprehensive income (AOCI).

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 to be reclassified to earnings — Deferred gains or losses, which are reported in AOCI, are reclassified to earnings in the same periods in which the underlying transactions affect earnings. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to September 30, 2014 market rates. Deferred losses of $4 at September 30, 2014 are expected to be reclassified to earnings during the next twelve months. Amounts deferred were not significant at December 31, 2013. 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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