Fair Value Measurements and Financial Instruments

The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to credit losses in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely as it is the Company’s policy to contract only with diverse, highly rated counterparties.

The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, supplier agreements, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Hedge ineffectiveness, if any, is not material for any period presented.

The Company’s derivative instruments include interest rate swap contracts, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates (Level 2 valuation). Foreign currency contracts consist of forward, option and swap contracts utilized to hedge a portion of the Company’s foreign currency purchases, assets and liabilities created in the normal course of business as well as the net investment in certain foreign subsidiaries. These contracts are valued using observable market rates (Level 2 valuation). Commodity futures contracts are utilized to hedge the purchases of raw materials used in the Company’s operations. These contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of foreign currency and commodity contracts generally does not exceed 12 months.

The following summarizes the fair value of the Company’s derivative instruments and other financial instruments at September 30, 2011 and December 31, 2010:



	Assets					Liabilities
	Account	Fair Value				Account	Fair Value
Designated derivative instruments		9/30/11		12/31/10			9/30/11		12/31/10
Interest rate swap contracts	Other current assets & Other assets	$	45	$	22	Other liabilities	$	—	$	7
Foreign currency contracts	Other current assets	8		10		Other accruals	8		10
Commodity contracts	Other current assets	—		4		Other accruals	3		—
Total designated		$	53	$	36		$	11	$	17

Derivatives not designated
Foreign currency contracts	Other assets	$	2	$	—	Other accruals	$	—	$	2
Total not designated		$	2	$	—		$	—	$	2

Total derivative instruments		$	55	$	36		$	11	$	19

Other financial instruments
Marketable securities	Other current assets	$	72	$	74
Available-for-sale securities	Other assets	233		228
Total other financial instruments		$	305	$	302

The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of September 30, 2011 and December 31, 2010. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2011 and December 31, 2010, was $5,020 and $3,613, respectively, and the related carrying value was $4,689 and $3,376, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).

Fair value hedges

The Company has designated all interest rate swap contracts and certain foreign currency forward and option contracts as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings. The impact of foreign currency contracts is recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest expense, net.

During the second quarter of 2011, the Company issued $250 of six-year notes at a fixed rate of 2.625% and $250 of three-year notes at a fixed rate of 1.250% under the Company’s shelf registration statement. The Company simultaneously entered into interest rate swaps to effectively convert the fixed rate of the notes to a variable rate.

Activity related to fair value hedges recorded during the three-month and nine-month periods ended September 30, 2011 and 2010 was as follows:



	2011									2010
	Foreign Currency Contracts			Interest Rate Swaps			Total			Foreign Currency Contracts			Interest Rate Swaps			Total
Notional Value at September 30	$	619		$	1,288		$	1,907		$	1,080		$	600		$	1,680
Three-months ended September 30:
Gain (loss) on derivative	—			22			22			26			4			30
Gain (loss) on hedged items	—			(22		)	(22		)	(26		)	(4		)	(30		)
Nine-months ended September 30:
Gain (loss) on derivative	6			30			36			22			13			35
Gain (loss) on hedged items	(6		)	(30		)	(36		)	(22		)	(13		)	(35		)

Cash flow hedges

All of the Company’s commodity contracts and certain foreign currency forward contracts have been designated as cash flow hedges, for which the effective portion of the gain or loss is reported as a component of Other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Activity related to cash flow hedges recorded during the three-month and nine-month periods ended September 30, 2011 and 2010 was as follows:



	2011									2010
	Foreign Currency Contracts			Commodity Contracts			Total			Foreign Currency Contracts			Commodity Contracts			Total
Notional Value at September 30	$	326		$	32		$	358		$	292		$	16		$	308
Three-months ended September 30:
Gain (loss) recognized in OCI	(2		)	(2		)	(4		)	(11		)	5			(6		)
Gain (loss) reclassified into Cost of sales	(5		)	1			(4		)	(3		)	—			(3		)
Nine-months ended September 30:
Gain (loss) recognized in OCI	(9		)	(2		)	(11		)	(10		)	2			(8		)
Gain (loss) reclassified into Cost of sales	(13		)	6			(7		)	—			(1		)	(1		)

The net gain (loss) recognized in OCI for both foreign currency contracts and commodity contracts is expected to be recognized in Cost of sales within the next twelve months.

Net investment hedges

The Company has designated certain foreign currency forward and option contracts and certain foreign currency-denominated debt as net investment hedges, for which the gain or loss on the instrument is reported as a component of Currency translation adjustments within OCI, along with the offsetting gain or loss on the hedged items.

Activity related to net investment hedges recorded during the three-month and nine-month periods ended September 30, 2011 and 2010 was as follows:



	2011									2010
	Foreign Currency Contracts			Foreign Currency Debt			Total			Foreign Currency Contracts			Foreign Currency Debt			Total
Notional Value at September 30	$	32		$	348		$	380		$	76		$	279		$	355
Three-months ended September 30:
Gain (loss) on instruments	2			23			25			(10		)	(31		)	(41		)
Gain (loss) on hedged items	(2		)	(23		)	(25		)	10			31			41
Nine-months ended September 30:
Gain (loss) on instruments	(8		)	(10		)	(18		)	(6		)	3			(3		)
Gain (loss) on hedged items	8			10			18			6			(3		)	3

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedging instruments for each period consist of a cross-currency swap that serves as an economic hedge of a foreign currency deposit, for which the gain or loss on the instrument and the offsetting gain or loss on the hedged item are recognized in Other (income) expense, net for each period. The cross-currency swap outstanding at December 31, 2010 was settled during the second quarter of 2011, resulting in a realized loss of $6 which was offset by a corresponding gain on an underlying deposit. A new cross-currency swap with similar terms and an underlying foreign currency deposit was entered into during June 2011.

Activity related to these contracts during the three-month and nine-month periods ended September 30, 2011 and 2010 was as follows:



	2011			2010
	Cross-currency Swap			Cross-currency Swap
Notional Value at September 30	$	96		$	90
Three-months ended September 30:
Gain (loss) on instrument	2			(5		)
Gain (loss) on hedged item	(2		)	5
Nine-months ended September 30:
Gain (loss) on instrument	(2		)	1
Gain (loss) on hedged item	2			(1		)

Other Financial Instruments

Marketable securities consist of bank deposits with original maturities greater than 90 days (Level 1 valuation).

Available-for-sale securities consist of the fixed income investments discussed below.

In 2010, the Company invested in a portfolio of euro-denominated investment grade fixed income securities, including corporate bonds, with maturities generally ranging from one to three years. During the second quarter of 2011, the Company liquidated the investment portfolio as part of the cash management strategy to fund the acquisition of the Sanex business. The portfolio was considered a Level 1 investment as all of the securities had quoted prices on an active exchange with daily liquidity. At December 31, 2010, the portfolio’s fair value was $132 and was reported in Other assets in the Condensed Consolidated Balance Sheet.

Through its subsidiary in Venezuela, the Company has also invested in U.S. dollar-linked, devaluation-protected bonds issued by the Venezuelan government. As of December 31, 2010, these bonds were considered Level 3 as there was no trading activity in the market at the end of 2010 and their value was determined using unobservable inputs reflecting the Company’s own assumptions. As of September 30, 2011, these bonds are actively traded and, therefore, are considered Level 2 as their value is determined based upon observable market-based inputs or unobservable inputs that are corroborated by market data.

The following table presents a reconciliation of the Venezuelan investments at fair value for the nine months ended September 30:



	2011		2010
Beginning balance as of January 1	$	96	$	46
Unrealized gain (loss) on investment	60		(19		)
Purchases and sales during the period	77		23
Ending balance as of September 30	$	233	$	50

As a result of the Venezuelan government’s elimination of the two-tier exchange rate structure effective January 1, 2011, these bonds have revalued and the Company recorded an unrealized gain of $62 in the first quarter of 2011. For further information regarding Venezuela, refer to Note 12 below.