FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:

Hedging Activities – As of March 31, 2019, the notional amount of foreign currency hedge positions was approximately $2.3 billion, and commodity hedge contracts totaled approximately $118 (primarily 45 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of March 31, 2019 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge accounting. The following gains and losses are included in earnings and other comprehensive income (OCI) for the three and six months ended March 31, 2019 and 2018:



		Into Earnings									Into OCI
		2nd Quarter					Six Months				2nd Quarter			Six Months
Gains (Losses)	Location	2018			2019		2018		2019		2018		2019	2018		2019
Commodity	Cost of sales	$	6		(3	)	11		(6	)	(9	)	10	4		3
Foreign currency	Sales, cost of sales	—			4		—		6		8		22	(4	)	10
Foreign currency	Other deductions, net	(12		)	29		(12	)	40
Total		$	(6	)	30		(1	)	40		(1	)	32	—		13

Regardless of whether derivatives receive hedge accounting, the Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The amounts ultimately recognized will differ from those presented above for open positions, which remain subject to ongoing market price fluctuations until settlement. Derivatives receiving hedge accounting are highly effective and no amounts were excluded from the assessment of hedge effectiveness, including for the net investment hedge described below. Hedge ineffectiveness was immaterial for the three and six months ended March 31, 2019 and 2018.

Net Investment Hedge – In January 2019, the Company issued €500 of 1.25% notes due October 2025 and €500 of 2.0% notes due October 2029. The net proceeds from the sale of the notes were used to repay commercial paper borrowings and for general corporate purposes. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. A pretax gain of $6 ($5 after-tax) was recognized in other comprehensive income (loss) for the three months ended March 31, 2019 related to the net investment hedge. Amounts deferred in accumulated other comprehensive income (loss) will remain until the hedged investment is sold or substantially liquidated.

Fair Value Measurement – Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. As of March 31, 2019, the fair value of long-term debt was $4.9 billion, which exceeded the carrying value by $306.

The fair values of commodity and foreign currency contracts were reported in other current assets and accrued expenses as summarized below:



	September 30, 2018				March 31, 2019
	Assets			Liabilities	Assets	Liabilities
Commodity		$	1	10	4	3
Foreign Currency		$	35	11	28	15

Counterparties to derivatives arrangements are companies with investment-grade credit ratings. The Company has bilateral collateral arrangements with counterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below pre-established levels, counterparties can require immediate full collateralization of all derivatives in net liability positions. The maximum amount that could potentially have been required was $7. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. No collateral was posted with counterparties and none was held by the Company as of March 31, 2019.