Summary of Operating Data

A summary of operating data for 2000 and for the four years prior is shown on page 64.

Quantitative and Qualitative Disclosures about Market Risk

The Company, as a result of its global operating and financing activities, is exposed to changes in foreign currency exchange rates, commodity prices, and interest rates, which may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts. See also Note 9, Financial Instruments.

On January 1, 2000, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. If certain conditions are met, a derivative may be designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation

The transition adjustment was a pre-tax loss of $1 million ($1 million after tax) recorded in other income (charges) for marking foreign exchange forward contracts to fair value, and a pre-tax gain of $3 million ($2 million after tax) recorded in other comprehensive income for marking silver forward contracts to fair value. These items were not displayed in separate captions as cumulative effects of a change in accounting principle, due to their immateriality. The fair value of the contracts is reported in other current assets or in current payables.

The Company has entered into foreign currency forward contracts that are designated as cash flow hedges of exchange rate risk related to forecasted foreign currency denominated intercompany sales. At December 31, 2000, the Company had cash flow hedges for the Euro, the Canadian dollar, and the Australian dollar, with maturity dates ranging from January 2001 to December 2001.

At December 31, 2000, the fair value of open contracts was a pre-tax unrealized loss of $17 million, recorded in other comprehensive income. If this amount were to be realized, $16 million (pre-tax) of this loss would be reclassified into cost of goods sold within the next twelve months. During the year, a realized loss of $3 million (pre-tax) was recorded in cost of goods sold. At December 31, 2000, realized losses of $4 million (pre-tax), related to closed silver contracts, were recorded in other comprehensive income. These losses will be reclassified into cost of goods sold as silver-containing products are sold (all within the next twelve months). Hedge ineffectiveness was insignificant.

The Company does not apply hedge accounting to the foreign currency forward contracts used to offset currency-related changes in the fair value of foreign currency denominated assets and liabilities. These contracts are marked to market through earnings at the same time that the exposed assets and liabilities are remeasured through earnings (both in other income). The majority of the contracts held by the Company are denominated in Euros, Australian dollars, Chinese renminbi, Canadian dollars, and British pounds.

A sensitivity analysis indicates that if foreign currency exchange rates at December 31, 2000 and 1999 increased 10%, the Company would incur losses of $88 million and $87 million on foreign currency forward contracts outstanding at December 31, 2000 and 1999, respectively. Such losses would be substantially offset by gains from the revaluation or settlement of the underlying positions hedged.