Fair Value Measurements and Derivatives

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 Other Observable Inputs
December 31, 2015	Total		(Level 1)		(Level 2)
Marketable securities	$	162	$	64	$	98
Currency forward contracts - Accounts receivable other
Cash flow hedges	1				1
Undesignated	2				2
Currency forward contracts - Other accrued liabilities
Cash flow hedges	5				5
Undesignated	1				1
Currency swaps - Accounts receivable other
Undesignated	4				4
Currency swaps - Other accrued liabilities
Undesignated	9				9

December 31, 2014
Marketable securities	$	169	$	72	$	97
Currency forward contracts - Accounts receivable other
Cash flow hedges	1				1
Undesignated	1				1
Currency forward contracts - Other accrued liabilities
Cash flow hedges	11				11
Currency swaps - Other accrued liabilities
Undesignated	9				9

Changes in Level 3 recurring fair value measurements —



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

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:



	2015				2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,525	$	1,552	$	1,580	$	1,643
Other indebtedness*	66		56		79		77
Total	$	1,591	$	1,608	$	1,659	$	1,720

* The carrying value at December 31, 2015 includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap.

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 12 for additional information about financing arrangements.

Fair value measurements on a nonrecurring basis — Certain assets are measured at fair value on a nonrecurring basis. These are long-lived assets that are subject to fair value adjustments only in certain circumstances. These assets include intangible assets and property, plant and equipment which may be written down to fair value when they are held for sale or as a result of impairment.

Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps designed to mitigate our interest rate risk. Near the end of the third quarter of 2015, we terminated a fixed-to-floating interest rate swap on our December 2024 Notes. This interest rate swap served to convert the designated fixed-rate debt into variable-rate debt, using the 3-month U.S. LIBOR as the benchmark interest rate plus a spread of 307 basis points. Of the $425 total notional amount of the interest rate swap, $340 had been designated as a fair value hedge of the December 2024 Notes.

During the third quarter of 2015, prior to its termination, we realized a $2 interest expense reduction and cash savings from the interest rate swap. Upon termination, we also received a cash settlement of $4, indicative of the swap's favorable market value at that date. As a fair value hedge of the December 2024 Notes, the difference between the changes in fair value of the designated portion of the interest rate swap and the December 2024 Notes was treated as ineffectiveness and was recorded in the income statement as an adjustment to interest expense. Changes in the fair value associated with the undesignated portion of the interest rate swap did not represent ineffectiveness but were also recorded as an adjustment to interest expense. The total amount recorded as ineffectiveness and other such costs was $4 during the third quarter of 2015.

At December 31, 2015, no interest rate swaps remain outstanding. However, at that date, $8 remains on the balance sheet as the unamortized portion of the fair value adjustment to the carrying amount of the December 2024 Notes. The balance is being amortized as a reduction of interest expense through the period ending December 2024, the scheduled maturity date of the December 2024 Notes. The amount amortized during the fourth quarter of 2015 was not material.

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 sixteen months, as well as currency swaps associated with certain recorded intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $212 at December 31, 2015 and $296 at December 31, 2014. The total notional amount of outstanding foreign currency swaps was $219 at December 31, 2015 and $10 at December 31, 2014.

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



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Euro	$	47	$	2	$	49	Mar-17
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble	46		30		76		Apr-17
British pound	U.S. dollar, Euro	12		1		13		Mar-17
Swedish krona	Euro	13				13		Mar-17
South African rand	U.S. dollar, Euro			15		15		Jun-16
Thai baht	U.S. dollar, Australian dollar			25		25		Dec-16
Brazilian real	U.S. dollar, Euro			2		2		Jun-16
Indian rupee	U.S. dollar, British pound, Euro			19		19		Feb-17
Total forward contracts		118		94		212

U.S. dollar	Mexican peso, Euro			139		139		Aug-16
Euro	Canadian dollar, British pound			80		80		Dec-16
Total currency swaps		—		219		219
Total currency derivatives		$	118	$	313	$	431

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. 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 contracts not designated as cash flow hedges or as net investment hedges are recognized in other income, net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in other income, 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 CTA component of OCI during the period in which the contracts remain outstanding to the extent such contracts remain effective.

During the second quarter of 2015, we settled a $98 forward contract that had been executed and designated as a net investment hedge of the equivalent portion of certain of our European operations during the first quarter of 2015. Although no net investment hedges remain outstanding at December 31, 2015, a deferred loss of $2 associated with this settled contract has been recorded in AOCI as of that date and will remain deferred until such time as the investment in the associated subsidiary is substantially liquidated.

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 December 31, 2015 exchange rates. Deferred losses of $4 at December 31, 2015 are expected to be reclassified to earnings during the next twelve months, compared to deferred losses of $10 at December 31, 2014. Amounts reclassified from AOCI to earnings arising from the discontinuation of cash flow hedge accounting treatment were not material during 2015.