Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 18 – Derivative Financial Instruments

Cash Flow Hedges

Our cash flow hedges include foreign currency forward contracts, foreign currency option contracts, commodity swaps, and commodity purchase contracts. We use foreign currency forward and option contracts to manage currency risk associated with certain transactions, specifically forecasted sales and purchases made in foreign currencies. Our foreign currency contracts hedge forecasted transactions principally occurring within five years in the future, with certain contracts hedging transactions up to 2021. We use commodity derivatives, such as swaps and fixed-price purchase commitments, to hedge against potentially unfavorable price changes for items used in production. These include commitments to purchase electricity at fixed prices through 2016.

Fair Value Hedges

Interest rate swaps under which we agree to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and the hedged items is reported in BCC interest expense.

Derivative Instruments Not Receiving Hedge Accounting Treatment

We also hold certain derivative instruments, primarily foreign currency forward contracts, for risk management purposes but without electing any form of hedge accounting.

Notional Amounts and Fair Values

The notional amounts and fair values of derivative instruments in the Consolidated Statements of Financial Position as of December 31 were as follows:

	Notional amounts(1)				Other assets						Accrued liabilities
	2011		2010		2011			2010			2011			2010
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	2,536	$	2,001	$	185		$	266		$	(33	)	$	(15	)
Interest rate contracts		388		875		29			24
Commodity contracts		102		144								(112	)		(113	)
Derivatives not receiving hedge accounting treatment:
Foreign exchange contracts		605		646		2			8			(47	)		(58	)
Total derivatives		3,631		3,666		216			298			(192	)		(186	)
Netting arrangements						(61	)		(71	)		61			71
Net recorded balance					$	155		$	227		$	(131	)	$	(115	)

⁽¹⁾  Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effect on other comprehensive loss and Net earnings were as follows:

Years ended December 31,	2011			2010
Effective portion recognized in other comprehensive loss, net of taxes:
Foreign exchange contracts	$	12		$	67
Commodity contracts		(25	)		(30	)
Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes:
Foreign exchange contracts		42			25
Commodity contracts		(26	)		(16	)
Forward points recognized in Other income/(expense), net:
Foreign exchange contracts		37			(3	)
Undesignated derivatives recognized in Other income/(expense), net:
Foreign exchange contracts	$	(21	)	$	(33	)

Based on our portfolio of cash flow hedges, we expect to reclassify gains of $4 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges was insignificant for the years ended December 31, 2011 and 2010.

We have derivative instruments with credit-risk-related contingent features. For foreign exchange contracts with original maturities of at least five years, our derivative counterparties could require settlement if we default on our five-year credit facility, expiring November 2016. For commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. The fair value of foreign exchange and commodity contracts that have credit-risk-related contingent features that are in a net liability position at December 31, 2011 was $39. At December 31, 2011, there was no collateral posted related to our derivatives.