Note 17: Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Text Block]

NOTE 17:  FINANCIAL INSTRUMENTS

The following table presents the carrying amounts, estimated fair values, and location in the Consolidated Statement of Financial Position for the Company’s financial instruments:

(in millions)		Value Of Items Recorded At Fair Value As of June 30, 2012
		Total		Level 1		Level 2		Level 3
ASSETS
Marketable securities
Short-term available-for-sale	Other current assets	$	6	$	6	$	-	$	-
Long-term available-for-sale	Other long-term assets		6		6		-		-
Derivatives
Short-term foreign exchange contracts	Receivables, net		4		-		4		-
Long-term foreign exchange contracts	Other long-term assets		2		-		2		-
LIABILITIES
Derivatives
Short-term foreign exchange contracts	Other current liabilities		2		-		2		-

			Value Of Items Not Recorded At Fair Value As of June 30, 2012
			Total		Level 1		Level 2		Level 3
ASSETS
Marketable securities
Long-term held-to-maturity	Other long-term assets	Carrying value	$	23	$	23	$	-	$	-
		Fair value		23		23		-		-
LIABILITIES
Debt
Short-term debt	Short-term borrowings and current portion of long-term debt	Carrying value		42		-		42		-
		Fair value		38		-		38		-
Long-term debt	Long-term debt, net of current portion	Carrying value		1,434		-		1,434		-
		Fair value		1,160		-		1,160		-
Debt subject to compromise	Liabilities subject to compromise	Carrying value		683		-		683		-
		Fair value		103		-		103		-

The Company does not utilize financial instruments for trading or other speculative purposes.

Fair Value

The fair values of marketable securities are determined using quoted prices in active markets for identical assets (Level 1 fair value measurements).  Fair values of the Company’s forward contracts are determined using other observable inputs (Level 2 fair value measurements), and are based on the present value of expected future cash flows (an income approach valuation technique) considering the risks involved and using discount rates appropriate for the duration of the contracts.  Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer.  There were no transfers between levels of the fair value hierarchy during the three and six months ended June 30, 2012.

Fair values of long-term borrowings are determined by reference to quoted market prices, if available, or by pricing models based on the value of related cash flows discounted at current market interest rates.  The carrying values of cash and cash equivalents and trade receivables (which are not shown in the table above) approximate their fair values.

Foreign Exchange

Foreign exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in Other income (charges), net in the accompanying Consolidated Statement of Operations.  The net effects of foreign currency transactions, including changes in the fair value of foreign exchange contracts, are shown below:

(in millions)	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Net loss (gain)	$	(6	)	$	20	$	(13	)	$	7

Derivative Financial Instruments

The Company, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates, commodity prices, and interest rates, which may adversely affect its results of operations and financial position.  The Company manages such exposures, in part, with derivative financial instruments.

Foreign currency forward contracts are used to mitigate currency risk related to foreign currency denominated assets and liabilities, especially those of the Company’s International Treasury Center.  Silver forward contracts are used to mitigate the Company’s risk to fluctuating silver prices.  The Company’s exposure to changes in interest rates results from its investing and borrowing activities used to meet its liquidity needs.

The Company’s financial instrument counterparties are high-quality investment or commercial banks with significant experience with such instruments.  The Company manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties.  The Company has procedures to monitor the credit exposure amounts.  The maximum credit exposure at June 30, 2012 was not significant to the Company.

In the event of a default under the Company’s DIP Credit Agreement, or one of the Company’s Indentures, or a default under any derivative contract or similar obligation of the Company, subject to certain minimum thresholds, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value, but with liability positions netted against asset positions with the same counterparty.  At June 30, 2012, the Company had open derivative contracts in liability positions with a total fair value of $2 million.

The location and amounts of pre-tax gains and losses related to derivatives reported in the Consolidated Statement of Operations are shown in the following tables:

Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)					Gain (Loss) Reclassified from Accumulated OCI Into Cost of Sales (Effective Portion)					Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(in millions)	For the three months ended June 30,					For the three months ended June 30,					For the three months ended June 30,
	2012		2011			2012			2011		2012		2011
Commodity contracts	$	-	$	(5	)	$	(3	)	$	7	$	-	$	-

	For the six months ended June 30,				For the six months ended June 30,					For the six months ended June 30,
	2012		2011		2012			2011		2012		2011
Commodity contracts	$	1	$	9	$	(5	)	$	7	$	-	$	-

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative
(in millions)		For the three months ended June 30,				For the six months ended June 30,
		2012		2011		2012			2011
Foreign exchange contracts	Other income (charges), net	$	4	$	10	$	(4	)	$	10

Foreign Currency Forward Contracts

The Company’s foreign currency forward contracts used to mitigate currency risk related to existing foreign currency denominated assets and liabilities are not designated as hedges, and are marked to market through net (loss) earnings at the same time that the exposed assets and liabilities are remeasured through net (loss) earnings (both in Other income (charges), net in the Consolidated Statement of Operations).  The notional amount of such contracts open at June 30, 2012 was approximately $712 million.  The majority of the contracts of this type held by the Company are denominated in euros and Swiss francs.

Silver Forward Contracts

The Company may enter into silver forward contracts that are designated as cash flow hedges of commodity price risk related to forecasted purchases of silver.  The Company had no open hedges as of June 30, 2012.

In January 2012, the Company terminated all its existing hedges at a loss of $5 million.  These hedges were designated as secured agreements under the Second Amended and Restated Credit Agreement and needed to be settled prior to the termination of that facility in conjunction with the Company’s DIP Credit Agreement.  Since the hedged transactions are still expected to occur in the originally specified time frame, this loss will remain in Accumulated other comprehensive loss in the Consolidated Statement of Financial Position until the related silver-containing products are sold to third parties.  Hedge gains and losses related to these silver forward contracts are reclassified into Cost of sales in the Consolidated Statement of Operations as the related silver-containing products are sold to third parties.  These gains or losses transferred to Cost of sales are generally offset by increased or decreased costs of silver purchased in the open market.  The amount of existing gains and losses at June 30, 2012 to be reclassified into earnings within the next 12 months is a net loss of $1 million.