Under GAAP a framework exists for measuring fair value, providing a three-tier hierarchy of pricing inputs used to report assets and liabilities that are adjusted to fair value. Level 1 includes inputs such as quoted prices which are available in active markets for identical assets or liabilities as of the report date. Level 2 includes inputs other than those available in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 includes unobservable pricing inputs that are not corroborated by market data or other objective sources. The Company has no recurring items valued using Level 3 inputs other than certain pension plan assets.

The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities measured at fair value and their placement within the fair value hierarchy.

The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 2. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.

In the normal course of business the Company is subject to risk from adverse fluctuations in currency exchange rates, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.

The Company’s objective in managing exposure to market and interest rate risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk, using sales agreements that permit the pass-through of commodity price and foreign exchange rate risk to customers and borrowing both fixed and floating debt instruments to manage interest rate risk.

For derivative financial instruments accounted for in hedging relationships, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. When a hedge no longer qualifies for hedge accounting, the change in fair value from the date of the last effectiveness test is recognized in earnings. Any gain or loss which has accumulated in other comprehensive income at the date of the last effectiveness test is reclassified into earnings at the same time of the underlying exposure.

The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges are recorded in accumulated other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon reclassification from accumulated comprehensive income is the same as that of the underlying exposure. Contracts outstanding at September 30, 2019 mature between one and thirty months.

When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to the fair value accumulated in other comprehensive income are recognized immediately in earnings.

The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Foreign currency risk is generally hedged with the related commodity price risk.

The following tables set forth financial information about the impact on other comprehensive income ("OCI"), accumulated other comprehensive income (“AOCI”) and earnings from changes in the fair value of derivative instruments.



	Amount of gain/(loss)						Amount of gain/(loss)
	recognized in OCI						recognized in OCI
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Derivatives in cash flow hedges	2019			2018			2019			2018
Foreign exchange	$	(2	)	$	(3	)	$	(4	)	$	(5	)
Interest Rate	(1		)	—			(1		)	—
Commodities	(11		)	(2		)	(19		)	(4		)
	$	(14	)	$	(5	)	$	(24	)	$	(9	)

	Amount of gain/						Amount of gain/
	(loss) reclassified from						(loss) reclassified from
	AOCI into income						AOCI into income
	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Affected line items in the
Derivatives in cash flow hedges	2019			2018			2019			2018			Statement of Operations
Foreign exchange	$	(2	)	$	(6	)	$	(3	)	$	(7	)	Net sales
Commodities	4			(1		)	10			(6		)	Net sales
Foreign exchange	1			5			—			4			Cost of products sold
Commodities	(16		)	9			(37		)	33			Cost of products sold
	(13		)	7			(30		)	24			Income before taxes
	3			(1		)	7			(6		)	Provision for income taxes
Total reclassified	$	(10	)	$	6		$	(23	)	$	18		Net income

For the twelve-month period ending September 30, 2020, a net loss of $26 ($21, net of tax) is expected to be reclassified to earnings for commodity and foreign exchange contracts. No amounts were reclassified during the nine months ended September 30, 2019 and 2018 in connection with anticipated transactions that were no longer considered probable.

The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items.

For the three and nine months ended September 30, 2019 and 2018, the Company recorded a gain of $2 and a loss of $1 from foreign exchange contracts designated as fair value hedges. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations.

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated in hedge relationships; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes arising from re-measurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in currencies other than the entity's functional currency.



	Pre-tax amount of gain/						Pre-tax amount of gain/
	(loss) recognized in income						(loss) recognized in
	on derivative						income on derivative
	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Affected line item in the
Derivatives not designated as hedges	2019			2018			2019			2018			Statement of Operations
Foreign exchange	$	(2	)	$	4		$	(3	)	$	7		Net sales
Foreign exchange	1			(4		)	3			(6		)	Cost of products sold
Foreign exchange	(14		)	(8		)	(25		)	(17		)	Foreign exchange
	$	(15	)	$	(8	)	$	(25	)	$	(16	)

The Company designates certain debt and derivative instruments as net investment hedges to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows.

During the three and nine months ended September 30, 2019, the Company recorded a gain of $58 ($58, net of tax) and a gain of $67 ($67, net of tax) in other comprehensive income for certain debt instruments that are designated as hedges of its net investment in a euro-based subsidiary. For the three and nine months ended September 30, 2018, the Company recorded gains of $9 ($9, net of tax) and $22 ($26, net of tax) in other comprehensive income for these net investment hedges. As of September 30, 2019 a cumulative gain of $8 ($31, net of tax) and as of December 31, 2018, a cumulative loss of $59 ($36, net of tax) were recognized in accumulated other comprehensive income related to these net investment hedges. As of September 30, 2019, the carrying amount of the hedged net investment was $1,312 (€1,204 at September 30, 2019).

In May 2019, the Company entered into a cross-currency swap with an aggregate notional value of $200 (€179). The swap is designated as a hedge of the Company's net investment in a euro-based subsidiary. Under the cross-currency contracts, the Company receives quarterly variable U.S. dollar payments at a rate of LIBOR plus a floating rate spread on the dollar notional value and pays EURIBOR plus a floating rate spread on the euro notional value.



	Amount of gain/(loss)					Amount of gain/(loss)
	recognized in OCI					recognized in OCI
	Three months ended					Nine months ended
	September 30,					September 30,
Derivatives designated as net investment hedges	2019		2018			2019		2018
Foreign exchange	$	40	$	(2	)	$	47	$	6

The following table sets forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, respectively. The fair values of these financial instruments were reported under Level 2 of the fair value hierarchy.



	Balance Sheet classification	September 30, 2019		December 31, 2018		Balance Sheet classification	September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments
Foreign exchange contracts cash flow	Other current assets	$	3	$	6	Accrued liabilities	$	4	$	5
	Other non-current assets	1		3		Other non-current liabilities	1		1
Foreign exchange contracts fair value	Other current assets	4		1		Accrued liabilities	1		1
Commodities contracts cash flow	Other current assets	16		16		Accrued liabilities	43		42
	Other non-current assets	2		2		Other non-current liabilities	4		6
Net investment hedge	Other non-current assets	76		15		Other non-current liabilities	—		—
		$	102	$	43		$	53	$	55

	Balance Sheet classification	September 30, 2019		December 31, 2018		Balance Sheet classification	September 30, 2019		December 31, 2018
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	7	$	4	Accrued liabilities	$	17	$	4
	Other non-current assets	2		—		Other non-current liabilities	1		—
		$	9	$	4		$	18	$	4

Total derivatives		$	111	$	47		$	71	$	59

As of September 30, 2019, the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities were a gain of $3. As of December 31, 2018, the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities were less than $1.

Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.



	Gross amounts recognized in the Balance Sheet	Gross amounts not offset in the Balance Sheet	Net amount
Balance at September 30, 2019
Derivative assets	$111	$22	$89
Derivative liabilities	71	22	49

Balance at December 31, 2018
Derivative assets	47	19	28
Derivative liabilities	59	19	40



	September 30, 2019		December 31, 2018
Derivatives designated as cash flow hedges:
Foreign exchange	$	406	$	820
Commodities	387		428
Interest rate	200		—
Derivatives designated as fair value hedges:
Foreign exchange	142		74
Derivatives designated as net investment hedges:
Foreign exchange	1,075		875
Derivatives not designated as hedges:
Foreign exchange	1,090		796