Derivative Instruments

3 Months Ended

Mar. 31, 2012

Derivative Instruments [Abstract]

Derivative Instruments

9.     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 condensed consolidated statements of cash flows.

COMMODITY DERIVATIVE INSTRUMENTS

As of March 31, 2012, we had swap and option contracts to hedge $44 million notional amounts of natural gas. All of these contracts mature by December 31, 2012. For contracts designated as cash flow hedges, the unrealized loss that remained in AOCI as of March 31, 2012 was $9 million. AOCI also included $1 million of losses related to closed derivative contracts hedging underlying transactions that have not yet affected earnings. No ineffectiveness was recorded on contracts designated as cash flow hedges in the first three months of 2012. 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 regular 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 zero as of March 31, 2012.

FOREIGN EXCHANGE DERIVATIVE INSTRUMENTS

We have a foreign exchange forward contract to hedge changes in the value of an intercompany loan between certain foreign subsidiaries due to changes in foreign exchange rates. The notional amount of this contract was $32 million as of March 31, 2012, and it matures on March 27, 2013. We do not apply hedge accounting for this contract and all changes in the fair value are recorded to earnings. As of March 31, 2012, the fair value of this contract was zero.

We have foreign exchange forward contracts to hedge purchases of products and services denominated in foreign currencies. The notional amount of these contracts was $59 million as of March 31, 2012, and they mature by December 21, 2012. These forward contracts are designated as cash flow hedges and no ineffectiveness was recorded in the first three months of 2012. 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 $3 million unrealized gain as of March 31, 2012.

COUNTERPARTY RISK

We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instruments. 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. Additionally, the derivatives 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, 2012, our derivatives were in a net liability position of $6 million, and we provided $8 million of collateral to our counterparties related to our derivatives. No additional collateral is required under these agreements. We have not adopted an accounting policy to offset fair value amounts related to derivative contracts under our master netting arrangements. Amounts paid as cash collateral are included in receivables on our condensed consolidated balance sheets.

FINANCIAL STATEMENT INFORMATION

The following are the pretax effects of derivative instruments on the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 (dollars in millions):

	Amount of Gain or (Loss)
	Recognized in				Location of Gain or (Loss)		Amount of Gain or (Loss)
Derivatives in	Other Comprehensive				Reclassified from		Reclassified from
Cash Flow Hedging	Income on Derivatives				AOCI into Income		AOCI into Income
Relationships	(Effective Portion)				(Effective Portion)		(Effective Portion)
	2012		2011				2012		2011
Commodity contracts	$	(4)	$	-		Cost of products sold	$	(3)	$	(5)
Foreign exchange contracts		(2)		(3)		Cost of products sold		(1)		-
Total	$	(6)	$	(3)			$	(4)	$	(5)
Derivatives Not					Location of Gain or (Loss)		Amount of Gain or (Loss)
Designated as Hedging					Recognized in Income		Recognized in Income
Instruments					on Derivatives		on Derivatives
								2012		2011
Commodity contracts						Cost of products sold	$	-	$	-
Foreign exchange contracts						Other expense, net		-		(1)
Total							$	-	$	(1)

The following are the fair values of derivative instruments on the condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011 (dollars in millions):

	$000,000		$000,000		$000,000	$000,000	$000,000		$000,000		$000,000
Derivatives	Assets						Liabilities
Designated as Hedging	Balance Sheet						Balance Sheet
Instruments	Location	Fair Value					Location	Fair Value
		3/31/12		12/31/11				3/31/12		12/31/11
Commodity contracts	Other current assets	$	-	$	1		Accrued expenses	$	9	$	8
Commodity contracts	Other assets		-		-		Other liabilities		-		-
Foreign exchange contracts	Other current assets		3		3		Accrued expenses		-		-
Foreign exchange contracts	Other assets		-		-		Other liabilities		-		-
Total		$	3	$	4			$	9	$	8
Derivatives Not	Assets						Liabilities
Designated as Hedging	Balance Sheet						Balance Sheet
Instruments	Location	Fair Value					Location	Fair Value
		3/31/12		12/31/11				3/31/12		12/31/11
Commodity contracts	Other current assets	$	-	$	-		Accrued expenses	$	-	$	-
Foreign exchange contracts	Other current assets		-		-		Accrued expenses		-		-
Total		$	-	$	-			$	-	$	-
Total derivatives		$	3	$	4			$	9	$	8

As of March 31, 2012, we had no derivatives designated as net investment or fair value hedges.