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
September 30, 2016	Total		(Level 1)		(Level 2)
Marketable securities	$	126	$	26	$	100
Currency forward contracts - Accounts receivable other
Cash flow hedges	1				1
Undesignated	2				2
Currency forward contracts - Other accrued liabilities
Cash flow hedges	3				3
Undesignated	2				2
Currency swaps - Accounts receivable other
Undesignated	1				1
Currency swaps - Other accrued liabilities
Undesignated	12				12
Currency swaps - Other noncurrent liabilities
Cash flow hedges	28				28

December 31, 2015
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

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



	September 30, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,550	$	1,611	$	1,525	$	1,552
Other indebtedness*	119		97		66		56
Total	$	1,669	$	1,708	$	1,591	$	1,608


*	The carrying value 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).

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. As of September 30, 2016, no fixed-to-floating interest rate swaps remain outstanding. However, an $8 fair value adjustment to the carrying amount of our December 2024 Notes, associated with a fixed-to-floating interest rate swap that had been executed but was subsequently terminated during 2015, remains deferred at September 30, 2016. This amount 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 as a reduction of interest expense was not material during the quarter or nine months ended September 30, 2016.

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

During May 2016, in conjunction with the issuance of the U.S. dollar-denominated June 2026 Notes by euro-functional Dana Financing Luxembourg S.à r.l. (euro-functional subsidiary), we executed two fixed-to-fixed cross-currency swaps with the same critical terms as the June 2026 Notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in the U.S. dollar / euro exchange rates associated with the forecasted principal and interest payments. Designated as a cash flow hedge of the forecasted principal and interest payments of the June 2026 Notes, or subsequent replacement debt, the swaps economically convert the June 2026 Notes from $375 of U.S. dollar-denominated debt at a fixed rate of 6.500% to €338 of euro-denominated debt at a fixed rate of 5.140%. The June 2026 Notes and any subsequent replacement debt have both been designated as the hedged items (collectively, the "designated debt") in the cash flow hedge relationship. See Note 11 for additional information about the June 2026 Notes.

The swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the designated debt. Based on our qualitative assessment that the critical terms of the June 2026 Notes and the swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As an effective cash flow hedge, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying U.S. dollar-denominated debt by the euro-functional subsidiary.

In the event our ongoing assessment demonstrates that the critical terms of either the swaps or the designated debt have changed, or that there have been adverse developments regarding counterparty risk, we will use the long haul method to assess ineffectiveness of the hedging relationship. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings. At September 30, 2016, a deferred loss of $24 associated with the fixed-to-fixed cross-currency swaps remains in AOCI. The deferred loss represents the unfavorable fair value of the swaps, net of a $4 reclassification from AOCI to earnings as an offset to a foreign exchange remeasurement gain during the quarter and nine months ended September 30, 2016.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $136 as of September 30, 2016 and $212 as of December 31, 2015. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $519 as of September 30, 2016 and $219 as of December 31, 2015.

The following currency derivatives were outstanding at September 30, 2016:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, euro	$	40	$	1	$	41	Sep-17
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble	28		6		34		Sep-17
British pound	U.S. dollar, Euro	3				3		Sep-17
Swedish krona	Euro	10				10		Sep-17
South African rand	U.S. dollar, Euro			10		10		Dec-16
Thai baht	U.S. dollar, Australian dollar			14		14		Jun-17
Canadian dollar	U.S. dollar			2		2		May-17
Brazilian real	Euro			1		1		May-17
Indian rupee	U.S. dollar, British pound, Euro			21		21		Dec-17
Total forward contracts		81		55		136

U.S. dollar	Mexican peso			76		76		Oct-16
Euro	U.S. dollar, Canadian dollar, British pound	375		68		443		Jun-26
Total currency swaps		375		144		519
Total currency derivatives		$	456	$	199	$	655

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.

Amounts to be reclassified to earnings — Deferred gains or losses associated with effective cash flow hedges of forecasted transactions 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 September 30, 2016 exchange rates. Deferred losses of $1 at September 30, 2016 are expected to be reclassified to earnings during the next twelve months, compared to deferred losses of $4 at December 31, 2015. Amounts reclassified from AOCI to earnings arising from the discontinuation of cash flow hedge accounting treatment were not material during the first nine months of 2016.