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, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.

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 arising 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 twelve months.

The following summarizes the fair value of the Company’s derivative instruments and other financial instruments at September 30, 2013 and December 31, 2012:



	Assets					Liabilities
	Account	Fair Value				Account	Fair Value
Designated derivative instruments		9/30/13		12/31/12			9/30/13		12/31/12
Interest rate swap contracts	Other current assets	$	1	$	3	Other accruals	$	—	$	—
Interest rate swap contracts	Other assets	22		41		Other liabilities	—		—
Foreign currency contracts	Other current assets	9		7		Other accruals	10		10
Foreign currency contracts	Other assets	3		13		Other liabilities	1		—
Commodity contracts	Other current assets	—		1		Other accruals	—		—
Total designated		$	35	$	65		$	11	$	10

Derivatives not designated
Foreign currency contracts	Other current assets	$	—	$	—	Other accruals	$	1	$	1
Total not designated		$	—	$	—		$	1	$	1

Total derivative instruments		$	35	$	65		$	12	$	11

Other financial instruments
Marketable securities	Other current assets	$	146	$	116
Available-for-sale securities	Other assets	676		618
Total other financial instruments		$	822	$	734

The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of September 30, 2013 and December 31, 2012. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2013 and December 31, 2012, was $5,465 and $5,484, respectively, and the related carrying value was $5,265 and $5,176, 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.

Activity related to fair value hedges recorded during the three-month and nine-month periods ended September 30, 2013 and 2012 was as follows:



	2013									2012
	Foreign Currency Contracts			Interest Rate Swaps			Total			Foreign Currency Contracts			Interest Rate Swaps			Total
Notional Value at September 30,	$	1,568		$	1,088		$	2,656		$	944		$	1,338		$	2,282
Three months ended September 30:
Gain (loss) on derivative	(9		)	2			(7		)	(8		)	5			(3		)
Gain (loss) on hedged items	9			(2		)	7			8			(5		)	3
Nine months ended September 30:
Gain (loss) on derivative	3			(18		)	(15		)	2			12			14
Gain (loss) on hedged items	(3		)	18			15			(2		)	(12		)	(14		)

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, 2013 and 2012 was as follows:



	2013						2012
	Foreign Currency Contracts		Commodity Contracts		Total		Foreign Currency Contracts			Commodity Contracts		Total
Notional Value at September 30,	$	441	$	15	$	456	$	347		$	26	$	373
Three months ended September 30:
Gain (loss) recognized in OCI	2		—		2		(7		)	6		(1		)
Gain (loss) reclassified into Cost of sales	8		—		8		(1		)	4		3
Nine months ended September 30:
Gain (loss) recognized in OCI	13		—		13		(4		)	11		7
Gain (loss) reclassified into Cost of sales	12		1		13		—			4		4

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 contracts, option contracts and 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, 2013 and 2012 was as follows:



	2013									2012
	Foreign Currency Contracts			Foreign Currency Debt			Total			Foreign Currency Contracts			Foreign Currency Debt			Total
Notional Value at September 30,	$	557		$	238		$	795		$	527		$	296		$	823
Three months ended September 30:
Gain (loss) on instruments	(18		)	(9		)	(27		)	(6		)	(2		)	(8		)
Gain (loss) on hedged items	18			9			27			8			2			10
Nine months ended September 30:
Gain (loss) on instruments	(8		)	—			(8		)	2			2			4
Gain (loss) on hedged items	9			—			9			(5		)	(2		)	(7		)

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.

Activity related to these contracts during the three-month and nine-month periods ended September 30, 2013 and 2012 was as follows:



	2013			2012
	Cross-currency Swap			Cross-currency Swap
Notional Value at September 30,	$	96		$	96
Three months ended September 30:
Gain (loss) on instrument	(6		)	(3		)
Gain (loss) on hedged item	6			3
Nine months ended September 30:
Gain (loss) on instrument	—			(4		)
Gain (loss) on hedged item	—			4

Other Financial Instruments

Other financial instruments are classified as Other current assets or Other assets.

Other financial instruments classified as Other current assets include marketable securities, which consist of bank deposits of $122 with original maturities greater than 90 days (Level 1 valuation) and the current portion of bonds issued by the Venezuelan government (Level 2 valuation) in the amount of $24. The long-term portion of these bonds in the amount of $676 is included in Other assets.

Through its subsidiary in Venezuela, the Company is invested in U.S. dollar-linked, devaluation-protected bonds and fixed interest rate bonds, both of which are issued by the Venezuelan government. These bonds are actively traded and, therefore, are considered Level 2 investments as their values are determined based upon observable market-based inputs or unobservable inputs that are corroborated by market data. As of September 30, 2013, the U.S. dollar-linked, devaluation protected bonds and the fixed interest rate bonds had fair market values of $257 and $443, respectively. These investments are considered available-for-sale securities and, as noted above, $24 is included in Other current assets and $676 is included in Other assets.

The following table presents a reconciliation of the fair value of the Venezuelan bonds for the nine months ended September 30, 2013 and 2012:



	2013			2012
Beginning balance as of January 1,	$	642		$	236
Unrealized gain (loss) on investment	(124		)	14
Purchases and sales during the period	182			373
Ending balance as of September 30,	$	700		$	623

The Unrealized loss on investment consisted primarily of a one-time loss of $133 in the first quarter of 2013 related to the remeasurement of the fixed interest rate bonds at February 9, 2013, the date of the devaluation. For further information regarding Venezuela and the devaluation, refer to Note 15, Venezuela below.