Fair Value Measurements and Financial Instruments

The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material, as it is the Company’s policy to contract only with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.

The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, sourcing strategies, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Hedge ineffectiveness, if any, is not material for any period presented.

The Company’s derivative instruments include interest rate swap contracts, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates (Level 2 valuation). The Company utilizes foreign currency contracts, including forward and swap contracts, option contracts, local currency deposits and local currency borrowings to hedge portions of its foreign currency purchases, assets and liabilities arising in the normal course of business and the net investment in certain foreign subsidiaries. These contracts are valued using observable market rates (Level 2 valuation). Commodity futures contracts are utilized to hedge the purchases of raw materials used in production. These contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of foreign currency and commodity contracts generally does not exceed 12 months.

The following table summarizes the fair value of the Company’s derivative instruments and other financial instruments which are carried at fair value in the Company’s Consolidated Balance Sheets at September 30, 2017 and December 31, 2016:



	Assets					Liabilities
	Account	Fair Value				Account	Fair Value
Designated derivative instruments		9/30/17		12/31/16			9/30/17		12/31/16
Interest rate swap contracts	Other current assets	$	—	$	1	Other accruals	$	—	$	—
Interest rate swap contracts	Other assets	—		1		Other liabilities	2		—
Foreign currency contracts	Other current assets	9		29		Other accruals	36		4
Foreign currency contracts	Other assets	—		5		Other liabilities	40		—
Commodity contracts	Other current assets	—		—		Other accruals	—		—
Total designated		$	9	$	36		$	78	$	4

Derivatives not designated
Foreign currency contracts	Other current assets	$	1	$	—	Other accruals	$	1	$	—
Total not designated		$	1	$	—		$	1	$	—

Total derivative instruments		$	10	$	36		$	79	$	4

Other financial instruments
Marketable securities	Other current assets	$	186	$	23
Total other financial instruments		$	186	$	23

The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of September 30, 2017 and December 31, 2016. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2017 and December 31, 2016, was $6,740 and $6,717, respectively, and the related carrying value was $6,520 as of each balance sheet date. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).

Fair Value Hedges

The Company has designated all interest rate swap contracts and certain foreign currency forward and option contracts as fair value hedges, for which the gain or loss on the derivative and the offsetting gain or loss on the hedged item are recognized in current earnings. The impact of foreign currency contracts is primarily recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest (income) expense, net.

Activity related to fair value hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:



	2017									2016
	Foreign Currency Contracts			Interest Rate Swaps			Total			Foreign Currency Contracts			Interest Rate Swaps			Total
Notional Value at September 30,	$	1,095		$	600		$	1,695		$	239		$	1,250		$	1,489
Three months ended September 30,
Gain (loss) on derivatives	(14		)	(1		)	(15		)	1			(6		)	(5		)
Gain (loss) on hedged items	14			1			15			(1		)	6			5
Nine months ended September 30,
Gain (loss) on derivatives	(15		)	(3		)	(18		)	(4		)	3			(1		)
Gain (loss) on hedged items	15			3			18			4			(3		)	1

Cash Flow Hedges

All of the Company’s commodity contracts and certain foreign currency forward contracts have been designated as cash flow hedges, for which the effective portion of the gain or loss is reported as a component of Other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Activity related to cash flow hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:



	2017								2016
	Foreign Currency Contracts			Commodity Contracts		Total			Foreign Currency Contracts			Commodity Contracts			Total
Notional Value at September 30,	$	724		$	1	$	725		$	690		$	8		$	698
Three months ended September 30,
Gain (loss) recognized in OCI	(8		)	—		(8		)	3			(2		)	1
Gain (loss) reclassified into Cost of sales	(4		)	—		(4		)	(1		)	—			(1		)
Nine months ended September 30,
Gain (loss) recognized in OCI	(28		)	—		(28		)	(6		)	—			(6		)
Gain (loss) reclassified into Cost of sales	(2		)	—		(2		)	(1		)	—			(1		)

The net gain (loss) recognized in OCI for both foreign currency contracts and commodity contracts is generally expected to be recognized in Cost of sales within the next twelve months.

Net Investment Hedges

The Company has designated certain foreign currency forward and option contracts and certain foreign currency-denominated debt as net investment hedges, for which the gain or loss on the instrument is reported as a component of Cumulative translation adjustments within OCI, along with the offsetting gain or loss on the hedged items.

Activity related to net investment hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:



	2017									2016
	Foreign Currency Contracts			Foreign Currency Debt			Total			Foreign Currency Contracts			Foreign Currency Debt			Total
Notional Value at September 30,	$	749		$	590		$	1,339		$	917		$	1,190		$	2,107
Three months ended September 30,
Gain (loss) on instruments	(23		)	(22		)	(45		)	(4		)	(13		)	(17		)
Gain (loss) on hedged items	22			22			44			4			13			17
Nine months ended September 30,
Gain (loss) on instruments	(69		)	(115		)	(184		)	(20		)	(36		)	(56		)
Gain (loss) on hedged items	69			115			184			20			36			56

Derivatives not Designated as Hedging Instruments

Derivatives not designated as hedging instruments for the third quarter of 2017 include foreign currency contracts for which the gain or loss on the instrument is recognized in Other (income) expense, net for the three and nine months ended September 30, 2017. During the second quarter of 2017, the Company de-designated foreign currency forward contracts previously designated as net investment hedges and entered into new derivative instruments with offsetting terms. Gains or losses on these de-designated derivatives were substantially offset by gains and losses on the new derivative instruments.

Derivatives not designated as hedging instruments for the third quarter of 2016 consist of a cross-currency swap that serves as an economic hedge of a foreign currency deposit, for which the gain or loss on the instrument and the offsetting gain or loss on the hedged item are recognized in Other (income) expense, net for each period.

Activity related to these contracts during the three and nine months ended September 30, 2017 and 2016 was as follows:



	2017		2016
	Foreign Currency Contracts		Foreign Currency Contracts
Notional Value at September 30,	$	42	$	6
Three months ended September 30,
Gain (loss) on instruments	—		—
Gain (loss) on hedged items	—		—
Nine months ended September 30,
Gain (loss) on instruments	—		5
Gain (loss) on hedged items	—		(5		)

Other Financial Instruments

Other financial instruments are classified as Other current assets or Other assets.

Other financial instruments classified as Other current assets include marketable securities consisting of bank deposits of $186 with original maturities greater than 90 days carried at fair value (Level 1 valuation) and the current portion of bonds issued by the Argentinian government in the amount of $36 classified as held-to-maturity and carried at amortized cost.

Through its subsidiary in Argentina, the Company has invested in U.S. dollar-linked, devaluation-protected bonds and Argentinian peso-denominated bonds issued by the Argentinian government. As of September 30, 2017, the amortized cost was $36 and their approximate fair value was $36 (Level 2 valuation).