DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2012

DERIVATIVE INSTRUMENTS

NOTE 12. DERIVATIVE INSTRUMENTS

The following disclosures summarize the fair value of derivative instruments not designated as hedging instruments in the condensed consolidated balance sheets and the effect of changes in fair value related to those derivative instruments not designated as hedging instruments on the condensed consolidated statements of operations (in millions).

Derivative Instruments Not Designated As Hedging Instruments		Fair Value as of
	Balance Sheet Location	March 31, 2012		December 31, 2011
Asset Derivatives:
Note Hedge	Other noncurrent assets	$	74	$	47
Liability Derivatives:
Cash Conversion Option	Long-term debt	$	75	$	49
Contingent interest features of the Debentures and 3.25% Notes	Other noncurrent liabilities	$	0	$	0

Effect on Income of Derivative Instruments Not Designated As Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized In Income on Derivative For the Three Months Ended March 31,
		2012			2011
Note Hedge	Non-cash convertible debt related expense	$	27		$	(9	)
Cash Conversion Option	Non-cash convertible debt related expense		(27	)		10
Contingent interest features of the 3.25% Notes and Debentures	Non-cash convertible debt related expense		—			—
Effect on income of derivative instruments not designated as hedging instruments		$	—		$	1

Cash Conversion Option, Note Hedge and Contingent Interest features related to the 3.25% Cash Convertible Senior Notes

The cash conversion option is a derivative instrument which is recorded at fair value quarterly with any change in fair value being recognized in our condensed consolidated statements of operations as non-cash convertible debt related expense. The note hedge is accounted for as a derivative instrument and, as such, is recorded at fair value quarterly with any change in fair value being recognized in our condensed consolidated statements of operations as non-cash convertible debt related expense.

We expect the gain or loss associated with changes to the valuation of the note hedge to substantially offset the gain or loss associated with changes to the valuation of the cash conversion option. However, they will not be completely offsetting as a result of changes in the credit valuation adjustment related to the note hedge. Our most significant credit exposure arises from the note hedge. The fair value of the note hedge reflects the maximum loss that would be incurred should the option counterparties fail to perform according to the terms of the note hedge agreement. For specific details related to the cash conversion option, note hedge and contingent interest features of the 3.25% Notes, refer to Note 11 of the Notes to Consolidated Financial Statements in our Form 10-K.

Energy Price Risk

Following the expiration of certain long-term energy sales contracts, we may have exposure to market risk, and therefore revenue fluctuations, in energy markets. We have entered into contractual arrangements that will mitigate our exposure to this volatility through a variety of hedging techniques, and will continue to do so in the future. Our efforts in this regard will involve only mitigation of price volatility for the energy we produce, and will not involve speculative energy trading. Consequently, we have entered into swap agreements with various financial institutions to hedge our exposure to market risk. As of March 31, 2012, the fair value of the energy derivatives of $5 million, pre-tax, was recorded as a current asset and as a component of AOCI.