Fair Value Measurements and Derivatives

9 Months Ended

Sep. 30, 2012

Fair Value Measurements and Derivatives

Note 12. 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		Significant		Significant
			Active		Inputs		Inputs
			Markets		Observable		Unobservable
September 30, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Notes receivable - noncurrent asset	$	126	$	-	$	-	$	126
Marketable securities - current asset		64		36		28
Currency forward contracts - current asset		6				6
Currency forward contracts - current liability		2				2
December 31, 2011
Notes receivable - noncurrent asset	$	116	$	-	$	-	$	116
Marketable securities - current asset		56		33		23
Currency forward contracts - current asset		1				1
Currency forward contracts - current liability		16				16

Fair value of Senior Notes and other indebtedness – The fair value of our Senior Notes is estimated based upon a market approach (Level 2) and was $805 and $765 at September 30, 2012 and December 31, 2011. The fair value of our other indebtedness is based upon an income approach (Level 2) and was $116 and $103 at September 30, 2012 and December 31, 2011.

Foreign currency derivatives — The total notional amounts of outstanding foreign currency forward contracts as of September 30, 2012 and December 31, 2011 were $233 and $213 comprised of currency forward contracts involving the exchange of various currencies.

The following currency forward contracts were outstanding at September 30, 2012 and are primarily associated with forecasted transactions involving the purchases and sales of inventory through the next twelve months:

		Notional Amount (U.S. Dollar Equivalent)
		Designated as
		Cash Flow
Functional Currency	Traded Currency	Hedges		Undesignated		Total		Maturity
U.S. dollar	Mexican peso	$	97	$	-	$	97		Sep-13
Euro	U.S. dollar, Canadian dollar, Hungarian forint, Japanese yen, British pound		43		1		44		Sep-13
British pound	U.S. dollar, Euro		44		1		45		Sep-13
Swedish krona	Euro		12		7		19		Sep-13
Australian dollar	U.S. dollar		8		4		12		Sep-13
Indian rupee	U.S. dollar, British
	pound, Euro				16		16		Jul-13
Total forward contracts		$	204	$	29	$	233

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. 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 recorded in OCI are ultimately reclassified to earnings in the same periods in which the underlying transactions affect earnings.

Amounts to be reclassified to earnings — Deferred gains of $2 at September 30, 2012, which are reported in AOCI, are expected to be reclassified to earnings during the next twelve months. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to September 30, 2012 market rates. Deferred losses at December 31, 2011 were $13, of which $1 and $7 have been reclassified from AOCI to earnings in the three and nine months ended September 30, 2012. The remainder of the change in the amounts deferred in AOCI is primarily attributable to the fluctuation of the U.S. dollar against the Mexican peso during 2012.

Changes in Level 3 recurring fair value measurements —

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
Notes receivable	2012		2011			2012			2011
Beginning of period	$	122	$	109		$	116		$	103
Accretion of value (interest income)		4		3			11			9
Unrealized loss (OCI)				(2	)					(2	)
Other							(1	)
End of period	$	126	$	110		$	126		$	110

Substantially all of the notes receivable balance consists of a callable note, due 2019, obtained in connection with a divestiture in 2004. The fair value of the note is derived using a discounted cash flow technique and capped at the callable value. The discount rate used in the calculation is the current yield of the publically traded debt of the operating subsidiary of the obligor, adjusted by a 250 basis point risk premium. The significant unobservable input used to fair value the note is the risk premium. A significant increase in the risk premium may result in a lower fair value measurement. A significant decrease in the risk premium would not result in a significantly higher fair value measurement due to the callable value cap. The fair value of the note at September 30, 2011 was $2 lower than the callable value.

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.