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 the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material, 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, sourcing strategies, 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). The Company utilizes foreign currency contracts, including forward and swap contracts, option contracts, local currency deposits and local currency borrowings to hedge portions of its foreign currency purchases, assets and liabilities arising in the normal course of business and 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 production. 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, 2015 and December 31, 2014:



	Assets					Liabilities
	Account	Fair Value				Account	Fair Value
Designated derivative instruments		9/30/15		12/31/14			9/30/15		12/31/14
Interest rate swap contracts	Other current assets	$	—	$	1	Other accruals	$	—	$	—
Interest rate swap contracts	Other assets	19		12		Other liabilities	—		2
Foreign currency contracts	Other current assets	34		21		Other accruals	8		4
Foreign currency contracts	Other assets	102		60		Other liabilities	—		—
Commodity contracts	Other current assets	—		—		Other accruals	—		1
Total designated		$	155	$	94		$	8	$	7

Derivatives not designated
Foreign currency contracts	Other assets	$	11	$	8	Other liabilities	$	—	$	—
Total not designated		$	11	$	8		$	—	$	—

Total derivative instruments		$	166	$	102		$	8	$	7

Other financial instruments
Marketable securities	Other current assets	$	146	$	200
Note receivable	Other current assets	36		42
Available-for-sale securities	Other assets	370		322
Total other financial instruments		$	552	$	564

The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of September 30, 2015 and December 31, 2014. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2015 and December 31, 2014, was $7,016 and $6,346, respectively, and the related carrying value was $6,780 and $6,132, 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 gain or loss on the hedged item are recognized in current earnings. The impact of foreign currency contracts is primarily recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest (income) expense, net.

Activity related to fair value hedges recorded during the three and nine months ended September 30, 2015 and 2014 was as follows:



	2015									2014
	Foreign Currency Contracts			Interest Rate Swaps			Total			Foreign Currency Contracts			Interest Rate Swaps			Total
Notional Value at September 30,	$	899		$	1,438		$	2,337		$	1,372		$	1,438		$	2,810
Three months ended September 30:
Gain (loss) on derivatives	(1		)	7			6			7			(9		)	(2		)
Gain (loss) on hedged items	1			(7		)	(6		)	(7		)	9			2
Nine months ended September 30:
Gain (loss) on derivatives	(4		)	9			5			9			(12		)	(3		)
Gain (loss) on hedged items	4			(9		)	(5		)	(9		)	12			3

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 and nine months ended September 30, 2015 and 2014 was as follows:



	2015							2014
	Foreign Currency Contracts		Commodity Contracts			Total		Foreign Currency Contracts			Commodity Contracts			Total
Notional Value at September 30,	$	735	$	10		$	745	$	509		$	11		$	520
Three months ended September 30:
Gain (loss) recognized in OCI	17		(1		)	16		8			(3		)	5
Gain (loss) reclassified into Cost of sales	5		—			5		(1		)	(1		)	(2		)
Nine months ended September 30:
Gain (loss) recognized in OCI	18		(1		)	17		1			(2		)	(1		)
Gain (loss) reclassified into Cost of sales	13		(1		)	12		—			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 Cumulative 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 and nine months ended September 30, 2015 and 2014 was as follows:



	2015									2014
	Foreign Currency Contracts			Foreign Currency Debt			Total			Foreign Currency Contracts			Foreign Currency Debt			Total
Notional Value at September 30,	$	729		$	800		$	1,529		$	669		$	—		$	669
Three months ended September 30:
Gain (loss) on instruments	31			(2		)	29			44			1			45
Gain (loss) on hedged items	(32		)	2			(30		)	(44		)	(1		)	(45		)
Nine months ended September 30:
Gain (loss) on instruments	64			23			87			44			4			48
Gain (loss) on hedged items	(65		)	(23		)	(88		)	(44		)	(4		)	(48		)

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. Derivatives not designated as hedging instruments also include foreign currency contracts for which the gain or loss on the instrument is recognized in Other (income) expense, net for the nine months ended September 30, 2015.

Activity related to these contracts during the three and nine months ended September 30, 2015 and 2014 was as follows:



	2015								2014
	Foreign Currency Contracts		Cross-currency Swap			Total			Foreign Currency Contracts		Cross-currency Swap			Total
Notional Value at September 30,	$	—	$	102		$	102		$	—	$	102		$	102
Three months ended September 30:
Gain (loss) on instruments	6		3			9			—		5			5
Gain (loss) on hedged items	—		(3		)	(3		)	—		(5		)	(5		)
Nine months ended September 30:
Gain (loss) on instruments	7		2			9			—		2			2
Gain (loss) on hedged items	—		(2		)	(2		)	—		(2		)	(2		)

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 and a fixed interest rate note receivable. Marketable securities consist of bank deposits of $108 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 $38. As more fully discussed below, the long-term portion of these bonds in the amount of $370 is included in Other assets. The fixed interest rate note receivable of $36 is carried at cost, which approximated fair value as of September 30, 2015.

Through its subsidiary in Venezuela, the Company is invested in U.S. dollar-linked, devaluation-protected bonds and bolivar-denominated 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, 2015, the fair market value of the Company’s U.S. dollar-linked devaluation-protected bonds and bolivar-denominated fixed interest rate bonds was $64 and $344, respectively. These bonds are considered available-for-sale securities and, as noted above, the long-term portion in the amount of $370 is included in Other assets.

The following table presents a reconciliation of the Venezuelan bonds at fair value for the nine months ended September 30, 2015 and 2014:



	2015			2014
Beginning balance as of January 1,	$	399		$	685
Unrealized gain (loss) on investment	(27		)	(354		)
Purchases and sales during the period	36			54
Ending balance as of September 30,	$	408		$	385

Unrealized loss on investment for the nine months ended September 30, 2015 consisted primarily of a loss in the amount of $50 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela as a result of the effective devaluations in the second and third quarters of 2015. Unrealized loss on investment for the nine months ended September 30, 2014 consisted primarily of a loss in the amount of $324 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela as a result of the effective devaluations in the first and third quarters of 2014. For further information regarding Venezuela, refer to Note 15, Venezuela.

Other assets also include $48 of fixed income securities maturing in 2016 and 2017 with an approximate fair value of $53 as of September 30, 2015. These securities are considered held-to-maturity and are carried at amortized cost.