ÐÇ¿Õ´«Ã½

Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments And Hedging Activities (Policy)

v2.3.0.15
Derivative Instruments And Hedging Activities (Policy)
 9 Months Ended
Sep. 30, 2011
Derivative Instruments And Hedging Activities [Abstract] Ìý
Australian Dollar Foreign Exchange Contracts

Australian Dollar Foreign Exchange Contracts

We are subject to changes in foreign currency exchange rates as a result of our operations in Australia. Foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore and coal sales. We use foreign currency exchange forward contracts, call options and collar options to hedge our foreign currency exposure for a portion of our sales receipts. U.S. currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and to protect against undue adverse movement in these exchange rates. Effective October 1, 2010, we elected hedge accounting for certain types of our foreign exchange contracts entered into subsequent to September 30, 2010. These instruments are subject to formal documentation, intended to achieve qualifying hedge treatment, and are tested for effectiveness at inception and at least once each reporting period. During the third quarter of 2011, we implemented a global foreign exchange hedging policy to apply to all of our operating segments and our wholly-owned subsidiaries that engage in foreign exchange risk mitigation. The policy allows for no more thanÌý75 percent, but not less thanÌý40 percent for up to 12 months and not less thanÌý10 percent for up to 15 months, of forecasted net currency exposures that are probable to occur. For our Asia Pacific operations, the forecasted net currency exposures are in relation to anticipated operating costs designated as cash flow hedges on future sales. Previously, our Asia Pacific operations had a policy in place that was specific to local operations and allowed for no more than 75 percent of anticipated operating costs for up to 12 months and no more thanÌý50 percent of operating costs for up to 24 months to be designated as cash flow hedges of future sales. If and when these hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.