Financial Instruments

9 Months Ended

Sep. 30, 2011

Financial Instruments [Abstract]

Financial Instruments

(2)   Financial Instruments

The carrying and estimated fair values of our financial instruments by class at September 30, 2011 and December 31, 2010 were as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Millions)
Long-term debt (including current maturities)	$	1,236	$	1,245	$	1,162	$	1,201
Instruments with off-balance sheet risk:
Foreign exchange forward contracts:
Asset derivative contracts		—		—		2		2
Liability derivative contracts		2		2		—		—

Asset and Liability Instruments — The fair value of cash and cash equivalents, short and long-term receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount.

Long-term Debt — The fair value of our public fixed rate senior notes is based on quoted market prices. The fair value of our private borrowings under our senior credit facility and other long-term debt instruments is based on the market value of debt with similar maturities, interest rates and risk characteristics.

Foreign exchange forward contracts — We use derivative financial instruments, principally foreign currency forward purchase and sales contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We manage counter-party credit risk by entering into derivative financial instruments with major financial institutions that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments for speculative purposes. The fair value of our foreign currency forward contracts is based on an internally developed model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. We record the change in fair value of these foreign exchange forward contracts as part of currency gains (losses) within cost of sales in the condensed consolidated statements of income. The fair value of foreign exchange forward contracts are recorded in prepayments and other current assets or other current liabilities in the condensed consolidated balance sheet. The fair value of our foreign exchange forward contracts, presented on a gross basis by derivative contract at September 30, 2011 and December 31, 2010, respectively, was as follows:

	Fair Value of Derivative Instruments
	September 30, 2011						December 31, 2010
	Asset		Liability				Asset		Liability
	Derivatives		Derivatives		Total		Derivatives		Derivatives		Total
	(Millions)
Foreign exchange forward contracts	$	—	$	2	$	2	$	2	$	—	$	2

The fair value of our recurring financial assets and liabilities at September 30, 2011 and December 31, 2010 are as follows:

September 30, 2011

December 31, 2010

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(Millions)

Financial Assets:

Foreign exchange contracts

n/a

$

—

n/a

n/a

$

2

n/a

Financial Liabilities:

Foreign exchange contracts

n/a

$

2

n/a

n/a

$

—

n/a

The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 — Unobservable inputs based on our own assumptions.

The following table summarizes by major currency the notional amounts for foreign currency forward purchase and sale contracts as of September 30, 2011 (all of which mature in 2011):

		Notional Amount
		in Foreign Currency
		(Millions)
Australian dollars	—Purchase		2
British pounds	—Purchase		4
European euro	—Sell		(9	)
Japanese Yen	—Purchase		442
South African rand	—Purchase		162
U.S. dollars	—Purchase		1
	—Sell		(23	)
Other	—Sell		(1	)