Johnson Controls 2013 Annual Report Download - page 81

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81
Fair Value Measurements Using:
Total as of
September 30, 2012
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other current assets
Foreign currency exchange derivatives $ 22 $ — $ 22 $ —
Commodity derivatives 11 — 11 —
Interest rate swaps 2 — 2 —
Cross-currency interest rate swaps 1 — 1 —
Other noncurrent assets
Interest rate swaps 6 — 6 —
Investments in marketable common stock 32 32 — —
Equity swap 123 123 — —
Total assets $ 197 $ 155 $ 42 $ —
Other current liabilities
Foreign currency exchange derivatives $ 26 $ — $ 26 $ —
Current portion of long-term debt
Fixed rate debt swapped to floating 401 — 401 —
Long-term debt
Fixed rate debt swapped to floating 456 — 456 —
Total liabilities $ 883 $ — $ 883 $ —
Valuation Methods
Foreign currency exchange derivatives - The Company selectively hedges anticipated transactions that are subject to foreign
exchange rate risk primarily using foreign currency exchange hedge contracts. The foreign currency exchange derivatives are
valued under a market approach using publicized spot and forward prices. As cash flow hedges under ASC 815, the effective
portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other
comprehensive income and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings.
Any ineffective portion of the hedge is reflected in the consolidated statement of income. These contracts were highly effective
in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2013 and 2012.
The fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the
consolidated statements of income.
Commodity derivatives - The Company selectively hedges anticipated transactions that are subject to commodity price risk,
primarily using commodity hedge contracts, to minimize overall price risk associated with the Company’s purchases of lead,
copper, tin and aluminum. The commodity derivatives are valued under a market approach using publicized prices, where available,
or dealer quotes. As cash flow hedges, the effective portion of the hedge gains or losses due to changes in fair value are initially
recorded as a component of accumulated other comprehensive income and are subsequently reclassified into earnings when the
hedged transactions, typically sales or cost related to sales, occur and affect earnings. Any ineffective portion of the hedge is
reflected in the consolidated statements of income. These contracts were highly effective in hedging the variability in future cash
flows attributable to changes in commodity prices at September 30, 2013 and 2012.
Interest rate swaps and related debt - The Company selectively uses interest rate swaps to reduce market risk associated with
changes in interest rates for its fixed-rate notes. As fair value hedges, the interest rate swaps and related debt balances are valued
under a market approach using publicized swap curves. Changes in the fair value of the swap and hedged portion of the debt are
recorded in the consolidated statements of income. In the second quarter of fiscal 2011, the Company entered into a fixed to floating
interest rate swap totaling $100 million to hedge the coupons of its 5.80% notes which matured on November 15, 2012, two fixed
to floating interest rate swaps totaling $300 million to hedge the coupon of its 4.875% notes which matured on September 15,
2013 and five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes maturing March 1,
2014. In the fourth quarter of fiscal 2013, the Company entered into a fixed to floating interest rate swap totaling approximately
$125 million to hedge the coupon of its 7.70% notes maturing March 1, 2015. Additionally, in the fourth quarter of fiscal 2013,
the Company entered into four fixed to floating interest rate swaps totaling $800 million to hedge the coupon of its 5.50% notes