Derivative Instruments and Hedging Activities

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Derivative Instruments and Hedging Activities

5. Derivative Instruments and Hedging Activities

Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange risk, interest rate risk and commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Exchange Rate Swaps

International operations account for a significant portion of the Company’s revenue and operating income. The Company’s policy is to reduce foreign currency cash flow exposure from exchange rate fluctuations by hedging anticipated and firmly committed transactions when it is economically feasible. The Company periodically enters into forward contracts to buy and sell foreign currencies to reduce foreign exchange exposure and protect the U.S. dollar value of certain transactions to the extent of the amount under contract. The counter-parties to our forward contracts are financial institutions with investment grade ratings. The Company does not apply hedge accounting to these derivative instruments.

Interest Rate Swaps

The Company periodically uses interest rate swaps to alter interest rate exposures between fixed and floating rates on certain long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated using an agreed-upon notional principal amount. The counter-parties to the interest rate swap agreements are financial institutions with investment grade ratings.

In July 2010, the Company entered into a two-year interest rate swap agreement, which matured on January 2, 2013. This swap was designed to offset the cash flow variability that resulted from interest rate fluctuations on the Company’s variable rate debt. This swap became effective on January 4, 2011 and had an initial notional amount of $350, which was subsequently amortized down to $325. The Company paid a fixed rate of 1.032% and received a variable one month LIBOR rate. The Company accounted for the swap as a qualifying cash flow hedge.

In December 2011, the Company entered into a three-year interest rate swap agreement with a notional amount of AUD $6, which became effective on January 3, 2012 and will mature on December 5, 2014. The Company pays a fixed rate of 4.140% and receives a variable rate based on the 3 month Australian Bank Bill Rate. The Company has not applied hedge accounting to this derivative instrument.

Commodity Contracts

The Company is exposed to price fluctuations associated with raw materials purchases, most significantly with methanol, phenol, urea, acetone, propylene, and chlorine. For these commodity raw materials, the Company has purchase contracts in place that contain periodic price adjustment provisions. The Company also adds selling price provisions to certain customer contracts that are indexed to publicly available indices for the associated commodity raw materials. The board of directors approves all commodity futures and commodity commitments based on delegation of authority documents.

The Company hedges a portion of its electricity purchases for certain manufacturing plants. The Company enters into forward contracts with fixed prices to hedge electricity pricing at these plants. Any unused electricity is net settled for cash each month based on the market electricity price versus the contract price. The Company also hedges a portion of its natural gas purchases for certain North American plants using futures contracts. The natural gas contracts are settled for cash each month based on the closing market price on the last day the contract trades on the New York Mercantile Exchange. The Company does not apply hedge accounting to these electricity or natural gas future contracts.

The following tables summarize the Company’s derivative financial instruments, which are recorded as “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets:

	March 31, 2013				December 31, 2012
Liability Derivatives	Notional Amount		Fair Value Liability		Notional Amount		Fair Value Liability
Derivatives designated as hedging instruments:
Interest Rate Swaps
Interest swap—2010	$	—	$	—	$	325	$	—
Total			$	—			$	—
Derivatives not designated as hedging instruments:
Interest Rate Swap
Australian dollar interest swap	$	6	$	—	$	6	$	—
Commodity Contracts
Electricity contracts		3		—		3		(1	)
Natural gas futures		2		—		3		—
Total			$	—			$	(1	)

Derivatives in Cash Flow Hedging Relationship	Loss Recognized in OCI  on Derivative for the Three Months Ended:					Location of Loss Reclassified from Accumulated OCI into Income	Loss Reclassified from Accumulated OCI into Income for the Three Months Ended:
	March 31, 2013		March 31, 2012				March 31, 2013			March 31, 2012
Interest Rate Swaps
Interest swap—2010	$	—	$	(1	)	Interest expense, net	$	(1	)	$	(1	)
Total	$	—	$	(1	)		$	(1	)	$	(1	)

As of March 31, 2013, there are no losses recognized in “Accumulated other comprehensive loss” which will be reclassified to earnings over the next twelve months.

Derivatives Not Designated as Hedging Instruments	Gain (Loss) Recognized in Income on Derivative for the Three Months Ended:					Location of Gain (Loss) Recognized in Income on Derivative
	March 31, 2013		March 31, 2012
Commodity Contracts
Electricity contracts	$	—	$	1		Cost of sales
Natural gas futures		—		(2	)	Cost of sales
Total	$	—	$	(1	)

8. Derivative Instruments and Hedging Activities

Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange risk, interest rate risk and commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Exchange and Interest Rate Swap

International operations account for a significant portion of the Company’s revenue and operating income. The Company’s policy is to reduce foreign currency cash flow exposure from exchange rate fluctuations by hedging anticipated and firmly committed transactions when it is economically feasible. The Company periodically enters into forward contracts to buy and sell foreign currencies to reduce foreign exchange exposure and protect the U.S. dollar value of certain transactions to the extent of the amount under contract. The counter-parties to our forward contracts are financial institutions with investment grade ratings. The Company does not apply hedge accounting to these derivative instruments.

In 2008, to offset the balance sheet and interest rate exposures and cash flow variability associated with a non-U.S. subsidiary’s U.S. dollar denominated term loan, the Company entered into a three-year cross-currency and interest rate swap agreement. The swap agreement required the Company to sell euros in exchange for U.S. dollars at a rate of 1.2038. The Company also paid a variable rate equal to Euribor plus 390 basis points and received a variable rate equal to the U.S. dollar LIBOR plus 250 basis points. The swap agreement had an initial notional amount of $25 that amortized quarterly on a straight line basis to $24, prior to maturing on September 30, 2011. The Company paid a weighted average interest rate of 5.0% and 4.6%, and received a weighted average interest rate of 2.8% during the years ended December 31, 2011 and 2010, respectively. During the year ended December 31, 2011, the Company paid $4 to settle the cross-currency and interest rate swap. This amount is recorded in “Other non-operating (income) expense, net” in the Consolidated Statements of Operations.

Interest Rate Swaps

The Company periodically uses interest rate swaps to alter interest rate exposures between fixed and floating rates on certain long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated using an agreed-upon notional principal amount. The counter-parties to the interest rate swap agreements are financial institutions with investment grade ratings.

In July 2010, the Company entered into a two-year interest rate swap agreement . This swap is designed to offset the cash flow variability that results from interest rate fluctuations on the Company’s variable rate debt. This swap became effective on January 4, 2011 upon the expiration of the January 2007 interest rate swap. The initial notional amount of the swap is $350, and will subsequently be amortized down to $325. The Company pays a fixed rate of 1.032% and will receive a variable one month LIBOR rate. The Company accounts for the swap as a qualifying cash flow hedge.

In December 2011, the Company entered into a three-year interest rate swap agreement with a notional amount of AUD $6, which became effective on January 3, 2012 and will mature on December 5, 2014. The Company pays a fixed rate of 4.140% and receives a variable rate based on the 3 month Australian Bank Bill Rate. The Company has not applied hedge accounting to this derivative instrument.

Commodity Contracts

The Company is exposed to price fluctuations associated with raw materials purchases, most significantly with methanol, phenol, urea, acetone, propylene, and chlorine. For these commodity raw materials, the Company has purchase contracts in place that contain periodic price adjustment provisions. The Company also adds selling price provisions to certain customer contracts that are indexed to publicly available indices for the associated commodity raw materials. The board of directors approves all commodity futures and commodity commitments based on delegation of authority documents.

The Company hedges a portion of its electricity purchases for certain manufacturing plants. The Company enters into forward contracts with fixed prices to hedge electricity pricing at these plants. Any unused electricity is net settled for cash each month based on the market electricity price versus the contract price. The Company also hedges a portion of its natural gas purchases for certain North American plants. The Company uses futures contracts to hedge natural gas pricing at these plants. The natural gas contracts are settled for cash each month based on the closing market price on the last day the contract trades on the New York Mercantile Exchange. The Company does not apply hedge accounting to these electricity or natural gas future contracts.

The following table summarizes the Company’s derivative financial instruments, which are recorded as “Other current liabilities” in the Consolidated Balance Sheets:

	2012									2011
Liability Derivatives	Average Days to Maturity		Average Contract Rate		Notional Amount		Fair  Value Liability			Average Days to Maturity		Average Contract Rate		Notional Amount		Fair  Value Liability
Derivatives designated as hedging instruments:
Interest Rate Swap
Interest swap—2010		2		—	$	325	$	—			367		—	$	350	$	(2	)
Total							$	—								$	(2	)
Derivatives not designated as hedging instruments:
Interest Rate Swap
Australian dollar interest swap		704		—	$	6	$	—			1,070		—	$	6	$	—
Commodity Contracts
Electricity contracts		—		—		3		(1	)		—		—		3		(1	)
Natural gas futures		—		—		3		—			—		—		5		—
Total							$	(1	)							$	(1	)

The following tables summarize gains and losses recognized on the Company’s derivative financial instruments:

Derivatives in Cash Flow Hedging Relationship	Amount of Loss Recognized in OCI on Derivative for the Year Ended December 31:									Location of Loss Reclassified from Accumulated OCI into Income		Amount of Loss Reclassified from Accumulated OCI into Income  for the Year Ended December 31:
	2012			2011			2010					2012			2011			2010
Interest Rate Swap
Interest swap—2010	$	(2	)	$	(2	)	$	(2	)		Interest expense, net	$	(2	)	$	(3	)	$	—
Total	$	(2	)	$	(2	)	$	(2	)			$	(2	)	$	(3	)	$	—

As of December 31, 2012, the Company expects to reclassify $1 of losses recognized in “Accumulated other comprehensive loss” to earnings over the next twelve months.

Derivatives Not Designated as Hedging Instruments	Amount of (Loss) Gain Recognized in Income on Derivative  for the Year Ended December 31:									Location of (Loss) Gain Recognized in Income on Derivative
	2012			2011			2010
Foreign Exchange and Interest Rate Swap
Cross-Currency and Interest Rate Swap	$	—		$	(1	)	$	2		Other non-operating expense, net
Interest Rate Swap
Australian dollar interest swap		—			—			—		Other non-operating expense, net
Commodity Contracts
Electricity contracts		—			(1	)		1		Cost of sales
Natural gas futures		(2	)		(1	)		(1	)	Cost of sales
Total	$	(2	)	$	(3	)	$	2