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Financial Instruments

6 Months Ended

Jun. 30, 2011

2.	FINANCIAL INSTRUMENTS

Derivative Financial Instruments

We periodically use derivative financial instruments as part of our overall strategy to manage exposure to market risks associated with foreign currency exchange rate and natural gas price fluctuations. We do not hold or issue derivative financial instruments for trading purposes. We regularly monitor the credit-worthiness of the counterparties to our derivative instruments in order to manage our credit risk exposures under these agreements. Our risk of loss in the event of nonperformance by any counterparty under derivative financial instrument agreements is not considered material by management. These derivative instruments are measured at fair value and are classified as other assets or other long-term obligations on our balance sheets depending on the fair value of the instrument.

If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash-flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income (loss) and is recognized in the consolidated statements of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash-flow hedges and financial instruments not designated as hedges are recognized in earnings.

Interest Rates

We measure the fair values of our interest rate swaps using observable interest-rate yield curves for comparable assets and liabilities at commonly quoted intervals. As of June 30, 2011 and December 31, 2010, we had no interest rate swaps outstanding. We recognized in interest expense a (gain) loss of $(1) and $3 for the second quarter and first half ended June 30, 2010, for interest rate swaps that did not qualify for hedge accounting. We paid cash of $6 and $13 on our interest rate agreements for the second quarter and first half ended June 30, 2010. Also, during the first quarter of 2010, we locked in the floating rate components of the remaining interest rate swaps and subsequently settled the remaining liability in the third quarter of 2010.

Natural Gas

In order to hedge the future cost of natural gas consumed at our mills, we engage in financial hedging of future gas purchase prices, designated as cash flow hedges. We hedge with financial instruments that are priced based on New York Mercantile Exchange natural gas futures contracts. We do not hedge basis (the effect of varying delivery points or locations) or transportation costs (the cost to transport the gas from the delivery point to a company location) under these transactions. As of June 30, 2011 and December 31, 2010, we were party to natural gas futures contracts for notional amounts aggregating 320,000 and 800,000 MMBTUs, which expire through October 2011. We measure the fair values of our natural gas contracts based on natural gas futures contracts priced on the New York Mercantile Exchange.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, 2011 and December 31, 2010, the fair values and carrying amounts of our financial assets and liabilities measured on a recurring basis are as follows:


Significant other observable inputs (Level 2)	June 30, 2011			Dec. 31, 2010

Qualifying as hedges—
Other long-term liabilities—natural gas contracts	$	(1	)	$	(2	)

The amount of gain (loss) on cash flow hedges recognized in accumulated other comprehensive income (loss) ("AOCI") and the amount reclassified to income (loss) during the second quarter and first half ended June 30, 2011 and 2010 are as follows:


Derivative Type	Amount of gain (loss) recognized in OCI			Location of gain (loss) reclassified from AOCI to income (loss)		Amount of gain (loss) reclassified from AOCI to income (loss)

*Second Quarter Ended June 30, 2011*
Natural gas contracts	$	—			Cost of sales	$	—

*First Half Ended June 30, 2011*
Natural gas contracts		—			Cost of sales		(1	)

*Second Quarter Ended June 30, 2010*
Natural gas contracts		—			Cost of sales		(1	)

*First Half Ended June 30, 2010*
Natural gas contracts		(2	)		Cost of sales		(2	)

Assets and Liabilities Not Carried at Fair Value

The fair value of long-term debt is based upon quoted market prices for the same or similar issues or on the current interest rates available to us for debt of similar terms and maturities. At June 30, 2011 and December 31, 2010, the carrying amounts of all other assets and liabilities that qualify as financial instruments approximated their fair value. Details of our long-term debt are as follows:


	June 30, 2011						December 31, 2010
	Fair Value			Carrying Amount			Fair Value			Carrying Amount
Long-term debt:
NewPage Holding	$	(2,125	)	$	(3,282	)	$	(2,456	)	$	(3,224	)
NewPage		(2,118	)		(3,054	)		(2,425	)		(3,005	)

Other Fair Value Disclosures

See Note 4 for fair value information of assets held for sale recorded at fair value.