Derivative Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

We use derivative instruments to manage selected commodity price and foreign currency exposures as described below. We do not use derivative instruments for speculative trading purposes, and we typically do not hedge beyond two years. Cash flows from derivative instruments are included in net cash used for operating activities in the consolidated statements of cash flows.

COMMODITY DERIVATIVE INSTRUMENTS

As of March 31, 2013, we had swap and option contracts to hedge $44 million notional amounts of natural gas. All of these contracts mature by December 31, 2013. For contracts designated as cash flow hedges, the unrealized gain that remained in AOCI as of March 31, 2013 was $2 million. No ineffectiveness was recorded on contracts designated as cash flow hedges in the first three months of 2013. Gains and losses on contracts designated as cash flow hedges are reclassified into earnings when the underlying forecasted transactions affect earnings. For contracts designated as cash flow hedges, we reassess the probability of the underlying forecasted transactions occurring on a quarterly basis. Changes in fair value on contracts not designated as cash flow hedges are recorded to earnings. The fair value of those contracts not designated as cash flow hedges was a $4 million unrealized gain as of March 31, 2013.

FOREIGN EXCHANGE DERIVATIVE INSTRUMENTS

We have foreign exchange forward contracts to hedge purchases of products and services denominated in foreign currencies. The notional amount of these contracts was $63 million as of March 31, 2013, and they mature by December 31, 2013. These forward contracts are designated as cash flow hedges and no ineffectiveness was recorded in the first three months of 2013. Gains and losses on the contracts are reclassified into earnings when the underlying transactions affect earnings. The fair value of these contracts that remained in AOCI was a $2 million unrealized gain as of March 31, 2013.

COUNTERPARTY RISK, MASTER NETTING ARRANGEMENTS AND BALANCE SHEET OFFSETTING

We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instruments. As of March 31, 2013, our derivatives were in a net asset position of $8 million. All of our counterparties have investment grade credit ratings; accordingly, we anticipate that they will be able to fully satisfy their obligations under the contracts.

Our derivative contracts are governed by master netting agreements negotiated between us and the counterparties that reduce our counterparty credit exposure. The agreements outline the conditions (such as credit ratings and net derivative fair values) upon which we, or the counterparties, are required to post collateral. As of March 31, 2013, we were not required to have any collateral posted with our counterparties related to our derivatives. As of December 31, 2012, as required by certain terms of our agreements, we had $1 million of collateral provided to our counterparties related to our derivatives. Amounts paid as cash collateral are included in receivables on our consolidated balance sheets.

We have not adopted an accounting policy to offset fair value amounts related to derivative contracts under our master netting arrangements; therefore, individual derivative contracts are reflected on a gross basis, as either assets or liabilities, on our consolidated balance sheets, based on their fair value as of the balance sheet date.

FINANCIAL STATEMENT INFORMATION

The following are the pretax effects of derivative instruments on the consolidated statements of operations for the three months ended March 31,2013 and 2012.

	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)					Location of Gain or (Loss)  Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
(millions)	2013		2012				2013			2012
Derivatives in Cash Flow Hedging Relationships
Commodity contracts	$	2	$	(4	)	Cost of products sold	$	(1	)	$	(3	)
Foreign exchange contracts	2		(2		)	Cost of products sold	—			(1		)
Total	$	4	$	(6	)		$	(1	)	$	(4	)

	Location of Gain or (Loss)  Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
(millions)		2013		2012
Derivatives Not Designated as Hedging Instruments
Commodity contracts	Cost of products sold	$	3	$	—
Foreign exchange contracts	Other expense, net	—		—
Total		$	3	$	—

The following are the fair values of derivative instruments and the location on our consolidated balance sheets as of March 31, 2013 and December 31, 2012.

	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
(millions)		3/31/13		12/31/12			3/31/13		12/31/12
Derivatives in Cash Flow Hedging Relationships
Commodity contracts	Other current assets	$	2	$	1	Accrued expenses	$	—	$	2
Foreign exchange contracts	Other current assets	2		1		Accrued expenses	—		—
Total derivatives in hedging relationships		$	4	$	2		$	—	$	2

Derivatives Not Designated as Hedging Instruments
Commodity contracts	Other current assets	$	4	$	1	Accrued expenses	$	—	$	—
Total derivatives not designated as hedging instruments		$	4	$	1		$	—	$	—
Total derivatives	Total assets	$	8	$	3	Total liabilities	$	—	$	2

As of March 31, 2013, we had no derivatives designated as fair value hedges or net investment hedges.