Risk Management

Derivative Financial Instruments

Foreign Currency Risk

At June 30, 2012, the Company had outstanding foreign exchange contracts with notional amounts totaling $360 million, compared to $524 million outstanding at December 31, 2011. The decrease in outstanding contracts is primarily related to the reduction of foreign assets due to repatriation activities. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.

The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of June 30, 2012 and the corresponding positions as of December 31, 2011:



	Notional Amount
Net Buy (Sell) by Currency	June 30, 2012			December 31, 2011
Chinese Renminbi	$	(144	)	$	(283	)
Euro	50			8
Israeli Shekel	(41		)	8
Japanese Yen	32			46
Australian Dollar	(16		)	(6		)

Interest Rate Risk

At June 30, 2012, the Company had $1.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.

As part of its liability management program, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. As of June 30, 2012, the fair value of the Interest Agreements was in a liability position of $4 million, compared to a liability position of $3 million at December 31, 2011.

Counterparty Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of June 30, 2012, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of June 30, 2012, the Company was exposed to an aggregate net credit risk of approximately $1 million with all counterparties.

The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, including amounts held for disposition, at June 30, 2012 and December 31, 2011:



	Fair Values of Derivative Instruments
	Assets			Liabilities
June 30, 2012	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	Other assets	$	1	Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		Other assets	2		Other liabilities
Interest agreement contracts	—		Other assets	4		Other liabilities
Total derivatives not designated as hedging instruments	1			6
Total derivatives	$	1		$	7



	Fair Values of Derivative Instruments
	Assets			Liabilities
December 31, 2011	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	Other assets	$	2	Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		Other assets	3		Other liabilities
Interest agreement contracts	—		Other assets	3		Other liabilities
Total derivatives not designated as hedging instruments	1			6
Total derivatives	$	1		$	8

The following tables summarize the effect of derivative instruments in our condensed consolidated statements of operations, including amounts related to discontinued operations, for the three and six months ended June 30, 2012 and July 2, 2011:



	Three Months Ended						Statement of Operations Location
Gain (loss) on Derivative Instruments	June 30, 2012			July 2, 2011			Statement of Operations Location
Derivatives not designated as hedging instruments:
Interest rate contracts	$	(4	)	$	(3	)	Other income (expense)
Foreign exchange contracts	1			(8		)	Other income (expense)
Total derivatives not designated as hedging instruments	$	(3	)	$	(11	)



	Six Months Ended						Statement of Operations Location
Gain (loss) on Derivative Instruments	June 30, 2012			July 2, 2011			Statement of Operations Location
Derivatives not designated as hedging instruments:
Interest rate contracts	$	(8	)	$	(5	)	Other income (expense)
Foreign exchange contracts	(3		)	(15		)	Other income (expense)
Total derivatives not designated as hedging instruments	$	(11	)	$	(20	)

The following tables summarize the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the three and six months ended June 30, 2012 and July 2, 2011:



	Three Months Ended					Financial Statement Location
Foreign Exchange Contracts	June 30, 2012			July 2, 2011		Financial Statement Location
Derivatives in cash flow hedging relationships:
Loss recognized in Accumulated other comprehensive loss	$	(2	)	$	—	Accumulated other comprehensive loss
Gain reclassified from Accumulated other comprehensive loss into Net earnings	—			2		Cost of sales



	Six Months Ended					Financial Statement Location
Foreign Exchange Contracts	June 30, 2012			July 2, 2011		Financial Statement Location
Derivatives in cash flow hedging relationships:
Gain recognized in Accumulated other comprehensive loss	$	1		$	3	Accumulated other comprehensive loss
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings	(1		)	2		Cost of sales