Fair Value Measurements and Derivatives

12 Months Ended

Dec. 31, 2012

Fair Value Measurements and Derivatives

Note 14.  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
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Notes receivable - noncurrent asset	$	129	$	-	$	-	$	129
Marketable securities - current asset		60		37		23
Currency forward contracts - current asset		4				4
Currency forward contracts - current liability		1				1
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

Changes in Level 3 recurring fair value measurements —

Notes receivable	2012			2011		2010
Beginning of period	$	116		$	103	$	94
Accretion of value (interest income)		14			13		11
Note sold in Structures sale							(2	)
Other		(1	)
End of period	$	129		$	116	$	103

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 higher fair value measurement due to the callable value cap. The fair value of the note at December 31, 2012 and 2011 equaled 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.

Fair value of financial instruments — The fair values of financial instruments that do not approximate carrying values in our balance sheet are as follows:

	2012				2011
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Senior Notes	$	750	$	805	$	750	$	765
Other indebtedness		109		107		105		103
Total	$	859	$	912	$	855	$	868

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).

Foreign currency derivatives — The total notional amounts of outstanding foreign currency forward contracts, comprised of currency forward contracts involving the exchange of various currencies, were $217 and $213 as of December 31, 2012 and December 31, 2011.

The following currency forward contracts were outstanding at December 31, 2012 and 2011 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)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
December 31, 2012:
U.S. dollar	Mexican peso	$	93	$	-	$	93		Dec-13
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound		33				33		Dec-13
British pound	U.S. dollar, Euro		42		1		43		Dec-13
Swedish krona	Euro		14		4		18		Dec-13
Australian dollar	U.S. dollar		8		3		11		Nov-13
Indian rupee	U.S. dollar, British pound, Euro				19		19		Nov-13
Total forward contracts		$	190	$	27	$	217
December 31, 2011:
Mexican peso	U.S. dollar	$	101	$	-	$	101		Dec-12
Euro	U.S. dollar, Canadian dollar, Hungarian forint, Japanese yen		35		7		42		Dec-12
British pound	U.S. dollar, Euro		22		1		23		Dec-12
Swedish krona	Euro		17				17		Dec-12
Australian dollar	U.S. dollar		12				12		Dec-12
Indian rupee	U.S. dollar, British pound, Euro				18		18		Sep-12
Total forward contracts		$	187	$	26	$	213

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 $3 at December 31, 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 December 31, 2012 market rates. Deferred losses at December 31, 2011 were $13, of which $7 have been reclassified from AOCI to earnings in 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.