Derivative Financial Instruments

6 Months Ended

Jun. 30, 2011

Derivative Financial Instruments

Derivative Financial Instruments

7. Derivative Financial Instruments

        We enter into derivative financial instruments to manage the volatility in natural gas prices. We report derivatives on the balance sheet at fair value. If the derivative is not designated as a hedging instrument, changes in fair value are recognized in the statement of operations in the period of change. Cash flows related to natural gas derivatives are reported as operating activities.

        Prior to the second quarter of 2010, we classified our natural gas derivatives as cash flow hedges if the item to be hedged exposed us to price risk, if it was probable that the results of the hedge position substantially offset the effects of the risk, and if the hedge designation occurred at the inception of the hedge. If the derivative was designated as a cash flow hedge, and to the extent such hedge was determined to be effective, changes in fair value were reported as a component of Accumulated Other Comprehensive Income (AOCI) in the period of change, and subsequently recognized in earnings in the period the offsetting hedged transaction occurred.

        In the second quarter of 2010, we discontinued hedge accounting. At that time, all open cash flow hedges were de-designated, resulting in changes in fair value thereafter being recognized in the statement of operations. The remaining balance in AOCI relating to derivatives that were originally designated as cash flow hedges was reclassified into earnings as derivatives settled during the second quarter of 2010.

        The gross fair values of derivatives on our Consolidated Balance Sheets are shown below. At June 30, 2011 and December 31, 2010, all balance sheet amounts from derivatives arose from commodity derivatives that are not designated as hedging instruments. For additional information on derivative fair values, see Note 8—Fair Value Measurements.

	June 30, 2011			December 31, 2010
	(in millions)
Unrealized gains in other current assets	$	0.2		$	0.7
Unrealized losses in other current liabilities		(2.9	)		(0.8	)
Net unrealized derivative gains (losses)	$	(2.7	)	$	(0.1	)

        The following table presents the effects of our commodity derivative instruments on the Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010.

Three Months Ended June 30
					Amount of Gain (Loss) Reclassified from AOCI into Income
Amount of Gain (Loss) Recognized in OCI											Amount of Gain (Loss) Recognized in Income
				Location of Gain (Loss) Reclassified from AOCI into Income(a)						Location of Gain (Loss) Recognized in Income
2011		2010(a)			2011		2010				2011			2010(a)
(in millions)
$	—	$	—	Cost of Sales	$	—	$	(4.0	)	Cost of Sales	$	(3.8	)	$	0.3

Six Months Ended June 30
					Amount of Gain (Loss) Reclassified from AOCI into Income
Amount of Gain (Loss) Recognized in OCI										Amount of Gain (Loss) Recognized in Income
				Location of Gain (Loss) Reclassified from AOCI into Income(a)					Location of Gain (Loss) Recognized in Income
2011		2010(a)			2011		2010			2011			2010(a)
(in millions)
$	—	$	—	Cost of Sales	$	—	$	3.2	Cost of Sales	$	(2.6	)	$	0.5

(a)

Gain (loss) recognized in AOCI, net of amounts reclassified from AOCI into earnings. For the three months ended June 30, 2010, $4.0 million of losses were reclassified into earnings related to cash flow hedges that were de-designated as a result of the discontinuance of hedge accounting. For the three and six months ended June 30, 2010, the amount of gain (loss) recognized in earnings includes a $4.0 million loss in the second quarter related to reclassification from AOCI into earnings following the discontinuance of hedge accounting, and a $4.3 million unrealized gain in the second quarter subsequent to the discontinuance of hedge accounting. Amounts representing the ineffective portion of the hedging relationships and amounts excluded from the assessment of hedge effectiveness prior to the discontinuance of hedge accounting were insignificant.

        At June 30, 2011, we had open derivative contracts for 9.6 million MMBtus of natural gas. For the six months ended June 30, 2011, we used derivatives to cover approximately 71% of our natural gas consumption.

        We purchase natural gas at market prices to meet production requirements at our manufacturing facility. Natural gas market prices are volatile and we effectively hedge a portion of our natural gas production requirements primarily through the use of swaps. These contracts reference physical natural gas prices or approximate NYMEX futures contract prices. Contract prices are frequently based on prices at the Henry Hub in Louisiana, the most common and financially liquid location of reference for financial derivatives related to natural gas. However, we purchase natural gas for our manufacturing facility at locations other than Henry Hub, which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the changes in the price of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period.

        Our derivatives do not have credit risk related contingent features that would require us to settle the derivatives or post collateral upon the occurrence of a credit event.