Fair Value Measurements and Derivatives

12 Months Ended

Dec. 31, 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
December 31, 2014	Total		(Level 1)		(Level 2)		(Level 3)
Marketable securities - current asset	$	169	$	72	$	97	$	—
Currency forward contracts - current asset	2				2
Currency forward contracts - current liability	11				11
Currency swaps - current asset	—				—
Currency swaps - current liability	9				9

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 —



Notes receivable, including current portion	2014		2013			2012
Beginning of period	$	—	$	129		$	116
Accretion of value (interest income)			11			14
Payment received and other			(61		)	(1		)
Unrealized loss (OCI)			(4		)
Transfer out (to Level 2)			(75		)
End of period	$	—	$	—		$	129

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:



	2014				2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,580	$	1,643	$	1,500	$	1,567
Other indebtedness	79		77		99		98
Total	$	1,659	$	1,720	$	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). See Note 13 for additional information about financing arrangements.

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 $296 and $252 as of December 31, 2014 and December 31, 2013. The total notional amount of outstanding foreign currency swaps was $10 as of December 31, 2014, compared to $297 as of December 31, 2013. The following foreign currency derivatives were outstanding at December 31, 2014 and 2013:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
December 31, 2014:
U.S. dollar	Mexican peso, Euro	$	107	$	3	$	110	Mar-16
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble	69		19		88		Jun-16
British pound	U.S. dollar, Euro	20		2		22		Mar-16
Swedish krona	Euro	17				17		Mar-16
South African rand	U.S. dollar, Euro			14		14		Jun-15
Thai baht	U.S. dollar, Australian dollar			21		21		Nov-15
Brazilian real	U.S. dollar, Euro			12		12		Nov-15
Indian rupee	U.S. dollar, British pound, Euro			12		12		Nov-15
Total forward contracts		213		83		296

Indian rupee	U.S. dollar	—		10		10		Jun-15
Canadian dollar	Euro					—
Total currency swaps		—		10		10
Total foreign currency derivatives		$	213	$	93	$	306

December 31, 2013:
U.S. dollar	Mexican peso	$	97	$	—	$	97	Dec-14
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee	54		19		73		Dec-14
British pound	U.S. dollar, Euro	19		1		20		Dec-14
Swedish krona	Euro	14		1		15		Dec-14
South African rand	U.S. dollar			8		8		Mar-14
Thai baht	U.S. dollar, Australian dollar			28		28		Oct-14
Indian rupee	U.S. dollar, British pound, Euro			11		11		Jun-14
Total forward contracts		184		68		252

U.S. dollar	Canadian dollar, Euro			147		147		Feb-15
Canadian dollar	Euro			150		150		Mar-14
Total currency swaps		—		297		297
Total foreign currency derivatives		$	184	$	365	$	549

During the second quarter of 2014, concurrent with the cancellation of our Canadian dollar-denominated intercompany loan and one of our Euro-denominated intercompany loans, we terminated $225 of associated currency swaps. During the fourth quarter of 2014, concurrent with the refinancing of certain intercompany loans, we terminated the remainder of our U.S. dollar-Euro currency swaps. The liabilities associated with a portion of the terminated swaps had not been settled at December 31, 2014 and are presented in the Fair value measurements on a recurring basis table above. No portion of the fair value of these terminated swaps had been deferred in accumulated other comprehensive income (AOCI). During the fourth quarter of 2014, to mitigate the risk associated with another intercompany loan, we also executed a currency swap involving the exchange of U.S. dollars and Indian rupees.

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 OCI to the extent such contracts remain effective and the associated forecasted transactions remain probable. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. 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 December 31, 2014 market rates. Deferred losses of $10 at December 31, 2014 are expected to be reclassified to earnings during the next twelve months. Amounts deferred were not significant at December 31, 2013. See Note 8 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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