DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments Abstract

DERIVATIVE FINANCIAL INSTRUMENTS

4.       DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to, among other risks, the impact of changes in commodity prices, foreign currency exchange rates, interest rates, and precious metals lease rates in the normal course of business. The Company's risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks, and does not enter into such transactions for trading purposes.

The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. Contracts with counterparties generally contain right of setoff provisions. These provisions effectively reduce the Company's exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is the Company's policy to offset on the Consolidated Balance Sheets the amounts recognized for derivative instruments with any cash collateral arising from derivative instruments executed with the same counterparty under a master netting agreement. As of September 30, 2011 and December 31, 2010the Company did not have any amounts on deposit with any of its counterparties, nor did any of its counterparties have any amounts on deposit with the Company.

Assets and liabilities designated as hedged items are assessed for impairment or for the need to recognize an increased obligation.Such assessments are made after hedge accounting has been applied to the asset or liability and exclude consideration of (1) any anticipated effects of hedge accounting and (2) the fair value of any related hedging instrument that is recognized as a separate asset or liability. The assessment for an impairment of an asset, however, includes a consideration of the losses that have been deferred in other comprehensive deficit (“OCI”) as a result of a cash flow hedge of that asset.

The following table presents the fair value of derivatives and hedging instruments and the respective location on the Consolidated Balance Sheets (in millions):
				Fair Value at
				Sept. 30,		Dec. 31,
		Location		2011		2010
Derivative assets designated as hedging instruments:
Cash flow hedges:
	Natural gas	Other current assets		$	-	$	2
	Amount of gain recognized in OCI (effective portion)	OCI		$	-	$	2
Fair value hedges:
		Other non-current
	Interest rate swaps		assets	$	41	$	12
Derivative liabilities designated as hedging instruments:
Cash flow hedges:
		Accounts payable and
	Natural gas		accrued liabilities	$	2	$	3
	Amount of loss recognized in OCI (effective portion)	OCI		$	2	$	3
Derivative assets not designated as hedging instruments:
Cash flow hedges:
	Natural gas	Other current assets		$	2	$	-
Other derivatives:
	Foreign exchange contracts	Other current assets		$	-	$	3
Derivative liabilities not designated as hedging instruments:
Cash flow hedges:
		Accounts payable and
	Natural gas		accrued liabilities	$	1	$	2
Other derivatives:
		Accounts payable and
	Energy supply contract		accrued liabilities	$	1	$	1

The following table presents the impact and respective location of derivative activities on the Consolidated Statements of Earnings (in millions):
					Three Months Ended				Nine Months Ended
					Sept. 30,				Sept. 30,
			Location		2011		2010		2011		2010
Derivative activity designated as hedging instruments:
Natural gas:
	Amount of loss reclassified from OCI into earnings
		(effective portion)	Cost of sales		$	-	$	2	$	2	$	6
Interest rate swaps:
	Amount of loss recognized in earnings		Interest
		(ineffective portion)		expense, net	$	1	$	2	$	-	$	5
Derivative activity not designated as hedging instruments:
Natural gas:
	Amount of (gain) loss recognized in earnings		Other expenses		$	-	$	-	$	(1)	$	2
Energy supply contract:
	Amount of loss recognized in earnings		Other expenses		$	-	$	-	$	-	$	1
Foreign currency exchange contract:
	Amount of (gain) loss recognized in earnings		Other expenses		$	(1)	$	(1)	$	-	$	3

Cash Flow Hedges

The Company uses forward and swap contracts, which qualify as cash flow hedges, to manage forecasted exposure to natural gas price and foreign exchange risk. The effective portion of the change in the fair value of cash flow hedges is deferred in accumulated OCI and is subsequently recognized in other expenses on the Consolidated Statements of Earnings for foreign exchange hedges, and in cost of sales on the Consolidated Statements of Earnings for commodity hedges, when the hedged item impacts earnings. Cash flow hedges related to foreign exchange risk were immaterial for all periods presented. Changes in the fair value of derivative assets and liabilities designated as hedging instruments are shown in other on the Consolidated Statement of Cash Flows. Any portion of the change in fair value of derivatives designated as hedging instruments that is determined to be ineffective is recorded in other (income) expenses on the Consolidated Statements of Earnings.

The Company currently has natural gas derivatives designated as hedging instruments that mature within 15 months. The Company's policy is to hedge up to 75% of its total forecasted natural gas exposures for the next two months, up to 50% of its total forecasted natural gas exposures for the following four months, and lesser amounts for the remaining periods. The Company performs an analysis for effectiveness of its derivatives designated as hedging instruments at the end of each quarter based on the terms of the contract and the underlying item being hedged.

As of September 30, 2011, $1 million of gains included in accumulated OCI on the Consolidated Balance Sheets relate to contracts that will impact earnings during the next 12 months. Transactions and events that are expected to occur over the next 12 months that will necessitate recognizing these deferred amounts include the recognition of the hedged item through earnings.

Fair Value Hedges

The Company uses forward currency exchange contracts, some of which qualify as fair value hedges, to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on the Consolidated Balance Sheets. Gains and losses resulting from the changes in fair value of these instruments are recorded in other (income) expenses on the Consolidated Statements of Earnings.

The Company manages its interest rate exposure by balancing the mixture of its fixed and variable rate instruments.The Company has entered into several interest rate swaps to manage its interest rate exposure by converting fixed rate debt to variable rate debt. These swaps are carried at fair value and recorded as other non-current assets or other liabilities, with the offset to long-term debt on the Consolidated Balance Sheets. Changes in the fair value of these swaps and that of the related debt are recorded in interest expense, net on the Consolidated Statements of Earnings.

Other Derivatives

The Company uses forward currency exchange contracts to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on the Consolidated Balance Sheets. Gains and losses resulting from the changes in fair value of these instruments are recorded in other (income) expenses on the Consolidated Statements of Earnings.

Separately, as a result of first quarter 2009 capacity curtailments taken at certain facilities, the normal purchase scope exception was no longer met for one of the Company's energy supply contracts. The contract is now required to be marked to market each quarter through its termination date of January 31, 2012. Going forward, the impact of this contract could be positive, neutral or negative in any period depending on market fluctuations.