Fair Value Measurements and Derivatives

3 Months Ended

Mar. 31, 2015

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
March 31, 2015	Total		(Level 1)		(Level 2)
Marketable securities - current asset	$	165	$	65	$	100
Currency forward contracts - current asset
Cash flow hedges	1				1
Net investment hedges	2				2
Undesignated	4				4
Currency forward contracts - current liability
Cash flow hedges	12				12
Undesignated	1				1

December 31, 2014
Marketable securities - current asset	$	169	$	72	$	97
Currency forward contracts - current asset
Cash flow hedges	1				1
Undesignated	1				1
Currency forward contracts - current liability
Cash flow hedges	11				11
Currency swaps - current liability
Undesignated	9				9

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



	March 31, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,525	$	1,600	$	1,580	$	1,643
Other indebtedness	81		76		79		77
Total	$	1,606	$	1,676	$	1,659	$	1,720

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 net investment hedges of certain of our investments in foreign operations. Our foreign currency derivatives also include currency swaps associated with certain recorded intercompany loans payable.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $324 as of March 31, 2015 and $296 as of December 31, 2014. The total notional amount of outstanding foreign currency swaps was $10 as of March 31, 2015 and December 31, 2014.

The following currency derivatives were outstanding at March 31, 2015:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Designated as Net Investment Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Euro	$	78	$	98	$	—	$	176	Jun-16
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble	22				33		55		Sep-16
British pound	U.S. dollar, Euro	13				1		14		Mar-16
Swedish krona	Euro	14						14		Jun-16
South African rand	U.S. dollar, Euro					13		13		Sep-15
Thai baht	U.S. dollar, Australian dollar					20		20		Feb-16
Brazilian real	U.S. dollar, Euro					10		10		Mar-16
Indian rupee	U.S. dollar, British pound, Euro					22		22		Feb-16
Total forward contracts		127		98		99		324

Indian rupee	U.S. dollar					10		10		Jun-15
Total currency swaps		—		—		10		10
Total foreign currency derivatives		$	127	$	98	$	109	$	334

During the first quarter of 2015, we executed a forward contract for a U.S. dollar equivalent notional amount of $98 involving the exchange of U.S. dollars and euros. This contract has been designated as a net investment hedge of the equivalent portion of certain of our European operations.

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 (expense), net.

Net investment hedges — With respect to contracts designated as net investment hedges, we apply the forward method and report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts remain effective. Amounts recorded in CTA remain deferred in AOCI until such time as the investments in the associated subsidiaries are substantially liquidated. At March 31, 2015, deferred gains of $2 have been recorded in AOCI. See also Note 5.

Amounts to be reclassified to earnings — Deferred gains or losses associated with effective cash flow hedges are reported in AOCI and 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 March 31, 2015 exchange rates. Deferred losses of $11 at March 31, 2015 are expected to be reclassified to earnings during the next twelve months, compared to deferred losses of $10 at December 31, 2014. See also Note 5.

- 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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