Derivative Instruments

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings and cash flow. At inception the derivative is designated as a cash flow hedge, a fair value hedge or a free standing derivative. We do not enter into derivative instruments for speculative purposes. We have not changed our hedging strategies, accounting practices, or objectives from those disclosed in our Annual Report on Form 10-K for 2015.

Designated Net Investment Hedges

We have designated certain long-term intercompany loans payable and forward exchange contracts as net investment hedges of our investments in certain international subsidiaries that use the Euro as their functional currency. The effective portion of derivatives designated as net investment hedges are reported as a component of AOCI. On March 31, 2016 the total after-tax amount in AOCI related to our designated net investment hedges was $5. For derivative instruments that are designated and qualify as a net investment hedge, the effective portion of the derivative's gain or loss is recognized in OCI and reported as a component of AOCI.

We use the forward method to measure ineffectiveness. Under this method, for each reporting period the change in the carrying value of the Euro-denominated amounts due to remeasurement of the effective portion is reported as a component of AOCI and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income (expense), net. The gain or loss related to settled net investment hedges will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. We evaluate the effectiveness of our net investment hedges quarterly and did not recognize any ineffectiveness in the three months 2016.

Designated and Non Designated Hedges

	Designated			Non-Designated			Total
March 31, 2016
Gross notional amount	$	840		$	2,673		$	3,513
Maximum term in days							546
Fair value:
Other current assets	$	5		$	7		$	12
Other noncurrent assets	—			—			—
Other current liabilities	(22		)	(6		)	(28		)
Other noncurrent liabilities	(1		)	—			(1		)
Total fair value	$	(18	)	$	1		$	(17	)
December 31, 2015
Gross notional amount	$	889		$	4,061		$	4,950
Maximum term in days							546
Fair value:
Other current assets	$	27		$	41		$	68
Other noncurrent assets	1			—			1
Other current liabilities	(6		)	(3		)	(9		)
Other noncurrent liabilities	(1		)	—			(1		)
Total fair value	$	21		$	38		$	59

We are exposed to credit loss in the event of nonperformance by counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default our maximum exposure to loss is the asset balance of the instrument.

Net Currency Exchange Rate Gains (Losses)

	Three Months
Recorded In:	2016			2015
Cost of sales	$	(6	)	$	—
Other income (expense), net	4			(4		)
Total	$	(2	)	$	(4	)

On March 31, 2016 and December 31, 2015 pretax (losses) gains on derivatives designated as hedges of ($4) and $17, which are reported in AOCI, are expected to be reclassified to earnings during the next 12 months. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases. There have been no ineffective portions of derivatives that have resulted in gains or losses in any of the periods presented.

Interest Rate Risk on Future Debt Issuance

In the three months 2016 we terminated multiple designated interest rate cash flow hedges and recognized $7 in OCI related to hedges on our debt issuances and recognized a nominal amount of ineffectiveness in interest expense. The remaining amounts in AOCI will be reclassified to interest expense over the term of the debt. The cash flow effect of these hedges is recognized in cash flow from operations.

Fair Value Hedges

On March 31, 2016 we had interest rate swaps with gross notional amounts of $500 designated as fair value hedges of underlying fixed rate obligations representing a portion of our $600 senior unsecured notes due in 2024. There was no hedge ineffectiveness recorded as a result of these fair value hedges.

Fair Value Interest Rate Hedge Instruments

	March 2016			December 2015
Gross notional amount	$	500		$	500
Fair value:
Other noncurrent assets	$	35		$	15
Long-term debt	(35		)	(15		)
Total	$	—		$	—