Derivative Instruments

6 Months Ended

Jun. 30, 2011

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 five 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 June 30, 2011, we had swap and option contracts to hedge $55 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 June 30, 2011 was $13 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 six months of 2011. 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 $2 million as of June 30, 2011.

FOREIGN EXCHANGE DERIVATIVE INSTRUMENTS

We have a foreign exchange forward contract in place to hedge changes in the value of an intercompany loan to a foreign subsidiary due to changes in foreign exchange rates. The notional amount of this contract was $8 million as of June 30, 2011, and it matures by August 26, 2011. We do not apply hedge accounting for this hedge contract and all changes in its fair value are recorded to earnings. As of June 30, 2011, the fair value of this contract was an unrealized loss of $1 million.

     We have foreign exchange forward contracts to hedge purchases of products and services denominated in non-functional currencies. The notional amount of these contracts was $59 million as of June 30, 2011, and they mature by March 28, 2012. These forward contracts are designated as cash flow hedges and no ineffectiveness was recorded in the first six months of 2011. 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 $5 million unrealized loss as of June 30, 2011.

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 June 30, 2011, our derivatives were in a net liability position of $17 million, and we provided $14 million of collateral to our counterparties related to our derivatives. If full collateralization of these agreements were to be required, an additional $4 million of collateral would be provided. 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 June 30, 2011 and 2010 (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)
	2011			2010			2011			2010
Commodity contracts	$	(1	)	$	—	Cost of products sold	$	(4	)	$	(5	)
Foreign exchange contracts		(1	)		2	Cost of products sold		(2	)		—
Total	$	(2	)	$	2		$	(6	)	$	(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
		2011			2010
Commodity contracts	Cost of products sold	$	(1	)	$	—
Foreign exchange contracts	Other expense (income), net		—			(1	)
Total		$	(1	)	$	(1	)

     The following are the pretax effects of derivative instruments on the condensed consolidated statement of operations for the six months ended June 30, 2011 and 2010 (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)
	2011			2010				2011			2010
Commodity contracts	$	(1	)	$	(12	)	Cost of products sold	$	(9	)	$	(10	)
Foreign exchange contracts		(4	)		1		Cost of products sold		(2	)		—
Total	$	(5	)	$	(11	)		$	(11	)	$	(10	)

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
		2011			2010
Commodity contracts	Cost of products sold	$	(1	)	$	(1	)
Foreign exchange contracts	Other expense (income), net		(1	)		(2	)
Total		$	(2	)	$	(3	)

     As of June 30, 2011, we had no derivatives designated as net investment or fair value hedges.

     The following are the fair values of derivative instruments on the condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 (dollars in millions):

Derivatives	Assets				Liabilities
Designated as Hedging	Balance Sheet				Balance Sheet
Instruments	Location	Fair Value			Location	Fair Value
		6/30/11		12/31/10		6/30/11		12/31/10
Commodity contracts	Other current assets	$	1	$—	Accrued expenses	$	11	$	16
Commodity contracts	Other assets		—	—	Other liabilities		3		5
Foreign exchange contracts	Other current assets		—	—	Accrued expenses		5		3
Foreign exchange contracts	Other assets		—	—	Other liabilities		—		1
Total		$	1	$—		$	19	$	25

Derivatives Not	Assets					Liabilities
Designated as Hedging	Balance Sheet					Balance Sheet
Instruments	Location	Fair Value				Location	Fair Value
		6/30/11		12/31/10			6/30/11		12/31/10
Commodity contracts	Other current assets	$	1	$	1	Accrued expenses	$	—	$	—
Commodity contracts	Other assets		1		—	Other liabilities		—		—
Foreign exchange contracts	Other current assets		—		—	Accrued expenses		1		—
Total		$	2	$	1		$	1	$	—
Total derivatives		$	3	$	1		$	20	$	25