Johnson Controls 2014 Annual Report Download - page 83

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83
Fair Value Measurements Using:
Total as of
September 30, 2013
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 $ 33 $ — $ 33 $ —
Commodity derivatives 8 — 8 —
Interest rate swaps 2 — 2 —
Cross-currency interest rate swaps 7 — 7 —
Other noncurrent assets
Interest rate swaps 3 — 3 —
Investments in marketable common stock 30 30 — —
Equity swap 183 183 — —
Total assets $ 266 $ 213 $ 53 $ —
Other current liabilities
Foreign currency exchange derivatives $ 32 $ — $ 32 $ —
Commodity derivatives 3 — 3 —
Current portion of long-term debt
Fixed rate debt swapped to floating 452 — 452 —
Long-term debt
Fixed rate debt swapped to floating 927 — 927 —
Total liabilities $ 1,414 $ — $ 1,414 $ —
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, "Derivatives and
Hedging," 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,
2014 and 2013. 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, 2014 and 2013.
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 November 2012, two fixed to
floating interest rate swaps totaling $300 million to hedge the coupon of its 4.875% notes which matured September 2013 and
five fixed to floating interest rate swaps totaling $450 million to hedge the coupon of its 1.75% notes matured March 2014. In the
fourth quarter of fiscal 2013, the Company entered into a fixed to floating interest rate swap totaling approximately $125 million