Derivatives And Hedging Activities

6 Months Ended

Jun. 30, 2011

Derivatives And Hedging Activities

Derivatives And Hedging Activities

NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES

As a multinational company we are exposed to market risks, such as changes in interest rates, currency exchanges rates and commodity prices.

For information regarding the Company's hedging activities and related accounting, refer to Note 13 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The notional amounts of qualifying and non-qualifying financial instruments used in hedging transactions were as follows:

In millions, except for fuel oil contracts notional	June 30, 2011			December 31, 2010
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts (Sell / Buy; in sell notional): (a)
British pounds / Brazilian real		4			8
European euro/ Brazilian real		2			4
European euro / Polish zloty		215			223
U.S. dollar / Brazilian real		29			74
U.S. dollar / European euro		27			0
Fuel oil contracts (in barrels)		24,000	(b)		200,000
Natural gas contracts (in MMBTUs)		7	(c)		12
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts (in USD)		474			274
Derivatives Not Designated as Hedging Instruments:
Embedded derivative (in USD)		150			150
Foreign exchange contracts (Sell / Buy; in sell notional):
European euro / U.S. dollar		0			85
Indian rupee / U.S. dollar		4,813			0
South Korean won / U.S. dollar		8,076			8,076
U.S. dollar / Brazilian real		14			0
U.S. dollar / European euro		0			109
U.S. dollar / Indian rupee		320			0
Interest rate contracts (in USD)		154	(d)		154	(d)

(a) These contracts had maturities of three years or less as of June 30, 2011.

(b) These contracts had maturities of one year or less as of June 30, 2011.

(c) These contracts had maturities of two years or less as of June 30, 2011.

(d) Includes $150 million floating-to-fixed interest rate swap notional to offset the embedded derivative.

The following table shows gains or losses recognized in accumulated other comprehensive income (AOCI), net of tax, related to derivative instruments:

	Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
	Six Months Ended June 30,
In millions	2011			2010
Foreign exchange contracts	$	10		$	9
Fuel oil contracts		2			(3	)
Natural gas contracts		(2	)		(14	)
Total	$	10		$	(8	)

During the next 12 months, the amount of the June 30, 2011 AOCI balance, after tax, that will be reclassified to earnings is $4 million of a loss.

The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-qualifying financial instruments used in hedging transactions were as follows:

	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)												Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2011			2010			2011			2010
Derivatives in Cash Flow Hedging Relationships:
Foreign exchange contracts	$	5		$	8		$	12		$	16		Cost of products sold
Fuel oil contracts		1			0			3			1		Cost of products sold
Natural gas contracts		(4	)		(5	)		(10	)		(11	)	Cost of products sold
Total	$	2		$	3		$	5		$	6
	Amount of Gain (Loss) Recognized in Income												Location of Gain (Loss)
	Three Months Ended June 30,						Six Months Ended June 30,
In millions	2011			2010			2011			2010
Derivatives in Fair Value Hedging Relationships:
Interest rate contracts	$	8		$	12		$	7		$	26		Interest expense, net
Debt		(8	)		(12	)		(7	)		(26	)	Interest expense, net
Total	$	0		$	0		$	0		$	0
Derivatives Not Designated as Hedging Instruments:
Embedded Derivatives	$	0		$	2		$	(1	)	$	3		Interest expense, net
Foreign exchange contracts		(5	)		(2	)		(7	)		0		Cost of products sold
Interest rate contracts		0			6			1			12		Interest expense, net
Total	$	(5	)	$	6		$	(7	)	$	15

The following activity is related to fully effective interest rate swaps designated as fair value hedges:

	2011							2010
In millions	Issued			Terminated		Undesignated		Issued		Terminated		Undesignated
Second Quarter	$	100	(a)	$	0	$	0	$	0	$	100	$	2
First Quarter		100	(a)		0		0		0		700		0
Total	$	200		$	0	$	0	$	0	$	800	$	2

(a) Fixed-to-floating interest rate swaps were effective when issued and mature in June 2014 and April 2015.

Fair Value Measurements

For a discussion of the Company's fair value measurement policies under the fair value hierarchy, refer to Note 13 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The Company has not changed its valuation techniques for measuring the fair value of any financial assets and liabilities during the year. Transfers between levels, if any, are recognized at the end of the reporting period.

The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:

Fair Value Measurements

Level 2 – Significant Other Observable Inputs

	Assets						Liabilities
In millions	June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010
Derivatives designated as hedging instruments
Interest rate contracts – fair value	$	17	(a)	$	10	(e)	$	0		$	0
Foreign exchange contracts – cash flow		13	(b)		18	(f)		0			1	(h)
Fuel oil contracts – cash flow		1	(c)		3	(c)		0			0
Natural gas contracts – cash flow		0			0			18	(g)		32	(i)
Total derivatives designated as hedging instruments	$	31		$	31		$	18		$	33
Derivatives not designated as hedging instruments
Embedded derivatives	$	7	(d)	$	8	(d)	$	0		$	0
Foreign exchange contracts		3	(c)		1	(c)		3	(g)		5	(g)
Interest rate contracts		0			0			7	(h)		8	(h)
Total derivatives not designated as hedging instruments	$	10		$	9		$	10		$	13
Total derivatives	$	41		$	40		$	28		$	46

(a) Includes $2 million recorded in Accounts and notes receivable, net, and $15 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(b) Includes $9 million recorded in Other current assets and $4 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(c) Included in Other current assets in the accompanying consolidated balance sheet.

(d) Included in Deferred charges and other assets in the accompanying consolidated balance sheet.

(e) Includes $3 million recorded in Accounts and notes receivable, net, and $7 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(f) Includes $13 million recorded in Other current assets and $5 million recorded in Deferred charges and other assets in the accompanying consolidated balance sheet.

(g) Included in Other accrued liabilities in the accompanying consolidated balance sheet.

(h) Included in Other liabilities in the accompanying consolidated balance sheet.

(i) Includes $27 million recorded in Other accrued liabilities and $5 million recorded in Other liabilities in the accompanying consolidated balance sheet.

Credit-Risk-Related Contingent Features

Certain of the Company's financial instruments used in hedging transactions are governed by industry standard netting agreements with counterparties. If the lower of the Company's credit rating by Moody's or S&P were to drop below investment grade, the Company would be required to post collateral for all of its derivatives in a net liability position, although no derivatives would terminate. The fair values of derivative instruments containing credit risk-related contingent features in a net liability position were $21 million and $32 million as of June 30, 2011 and December 31, 2010, respectively. The Company was not required to post any collateral as of June 30, 2011 or December 31, 2010. For more information on credit-risk-related contingent features, refer to Note 13 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.