Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair value measurements

FAIR VALUE MEASUREMENTS

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:

A. Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

B. Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

C. Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables classify assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018:

			Basis of fair value measurements
	Balance at December 31, 2019		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
(in millions)
Assets:
Net investment hedge contracts	$	3	$	—	$	3	$	—	A
Liabilities:
Foreign currency contracts	$	1	$	—	$	1	$	—	A
Net investment hedge contracts	$	8	$	—	$	8	$	—	A

			Basis of fair value measurements
(in millions)	Balance at December 31, 2018		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Foreign currency contracts	$	3	$	—	$	3	$	—	A
Other long-term receivables (insurance settlement agreement note receivable)	$	34	$	—	$	34	$	—	C
Net investment hedge contracts	$	12	$	—	$	12	$	—	A
Liabilities:
Foreign currency contracts	$	2	$	—	$	2	$	—	A

The following tables classify the Company's defined benefit plan assets measured at fair value on a recurring basis as of December 31, 2019 and 2018:

			Basis of fair value measurements
(in millions)	Balance at December 31, 2019		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3) (a)		Valuation technique	Assets measured at NAV (b)
U.S. Plans:
Fixed income securities	$	88	$	—	$	—	$	—	—	88
Equity securities	59		8		—		—		A	51
Real estate and other	29		15		—		—		A	14
	$	176	$	23	$	—	$	—		$	153
Non-U.S. Plans:
Fixed income securities	$	168	$	—	$	—	$	—	—	168
Equity securities	185		111		—		—		A	74
Insurance contract and other	152		—		—		110		C	42
	$	505	$	111	$	—	$	110		$	284

			Basis of fair value measurements
(in millions)	Balance at December 31, 2018		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique	Assets measured at NAV (b)
U.S. Plans:
Fixed income securities	$	122	$	1	$	—	$	—	A	121
Equity securities	71		11		—		—		A	60
Real estate and other	23		18		—		—		A	5
	$	216	$	30	$	—	$	—		$	186
Non-U.S. Plans:
Fixed income securities	$	239	$	—	$	—	$	—	—	239
Equity securities	163		93		—		—		A	70
Other	36		—		—		—		—	36
	$	438	$	93	$	—	$	—		$	345

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(a) In 2019, the BW Plan, a defined benefit plan in the United Kingdom, purchased an insurance contract that guarantees payment of specified pension liabilities. The Company measures the fair value of the insurance asset by projecting expected future cash flows from the contract and discounting them to present value based on current market rates, including an assessment for non-performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial estimates and are unobservable; therefore, the contract is categorized within Level 3 of the hierarchy.

(b) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These amounts represent investments in commingled and managed funds which have underlying assets in fixed income securities, equity securities, and other assets.

The reconciliation of Level 3 defined benefit plans assets was as follows:

	Fair Value Measurements
(in millions)	Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2018	$	—
Purchase of insurance contract	106
Unrealized gains on assets still held at the reporting date	2
Translation adjustment	2
Balance at December 31, 2019	$	110

Refer to Note 12, "Retirement Benefit Plans," to the Consolidated Financial Statements for more detail surrounding the defined plan’s asset investment policies and strategies, target allocation percentages and expected return on plan asset assumptions.