Fair Value Measurements and Derivatives

12 Months Ended

Dec. 31, 2013

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 Active Markets		Significant Inputs Observable		Significant Inputs Unobservable
December 31, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Notes receivable - current asset	$	75	$	—	$	75	$	—
Marketable securities - current asset	110		33		77
Currency forward contracts - current asset	3				3
Currency forward contracts - current liability	2				2
Currency swaps - noncurrent asset	2				2
Currency swaps - noncurrent liability	2				2

December 31, 2012
Notes receivable - noncurrent asset	$	129	$	—	$	—	$	129
Marketable securities - current asset	60		26		34
Currency forward contracts - current asset	4				4
Currency forward contracts - current liability	1				1

Changes in Level 3 recurring fair value measurements —



Notes receivable, including current portion	2013			2012			2011
Beginning of period	$	129		$	116		$	103
Accretion of value (interest income)	11			14			13
Payment received	(61		)
Unrealized loss (OCI)	(4		)
Transfer out (to Level 2)	(75		)
Other				(1		)
End of period	$	—		$	129		$	116

During January 2014, we sold our interest in a payment-in-kind callable note to a third party for $75. Accordingly, we have reclassified the note to current assets and, with observable market value readily available, we have reduced the unrealized gain and transferred the note from Level 3 to Level 2 at December 31, 2013.

Prior to December 31, 2013, the fair value of the payment-in-kind callable note had been 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 publicly 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 had been the risk premium. A significant increase in the risk premium may have resulted in a lower fair value measurement. A significant decrease in the risk premium would not have resulted 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 of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:



	2013				2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior notes	$	1,500	$	1,567	$	750	$	805
Other indebtedness	99		98		109		107
Total	$	1,599	$	1,665	$	859	$	912

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).

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.

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory through the next twelve months, as well as currency swaps associated with recorded intercompany loans receivable and payable.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $252 and $217 as of December 31, 2013 and December 31, 2012. During the second half of 2013, we began to execute foreign currency swaps associated with intercompany loans receivable and payable. The total notional amount of outstanding foreign currency swaps was $297 as of December 31, 2013. The following foreign currency derivatives were outstanding at December 31, 2013 and 2012:



		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated as Cash Flow Hedges		Undesignated		Total		Maturity
December 31, 2013:
U.S. dollar	Mexican peso	$	97	$	—	$	97	Dec-14
Euro	U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee	54		19		73		Dec-14
British pound	U.S. dollar, Euro	19		1		20		Dec-14
Swedish krona	Euro	14		1		15		Dec-14
South African rand	U.S. dollar			8		8		Mar-14
Thai baht	U.S. dollar, Australian dollar			28		28		Oct-14
Indian rupee	U.S. dollar, British pound, Euro			11		11		Jun-14
Total forward contracts		184		68		252

U.S. dollar	Canadian dollar, Euro			147		147		Feb-15
Canadian dollar	Euro			150		150		Mar-14
Total currency swaps		—		297		297
Total foreign currency derivatives		$	184	$	365	$	549

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 foreign currency derivatives		$	190	$	27	$	217

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 and the associated forecasted transactions remain probable. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. 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 AOCI are ultimately reclassified to earnings in the same periods in which the underlying transactions affect earnings.

Amounts to be reclassified to earnings — Deferred gains or losses, 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, 2013 market rates. Amounts deferred at December 31, 2013 were not significant, compared to deferred gains of $3 at December 31, 2012. See Note 8 for additional details.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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