Derivative Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

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 three years. Cash flows from derivative instruments are included in net cash used for operating activities in the consolidated statements of cash flows.

COMMODITY DERIVATIVE INSTRUMENTS

As of June 30, 2015, we had 20 million mmBTUs (millions of British Thermal Units) in aggregate notional amount of outstanding natural gas swap contracts to hedge forecasted purchases. All of these contracts mature by December 31, 2017. For contracts designated as cash flow hedges, the net unrealized loss that remained in accumulated other comprehensive income (loss), or AOCI, as of June 30, 2015 was $16 million and as of December 31, 2014 was $20 million. No ineffectiveness was recorded on contracts designated as cash flow hedges in the first six months of both 2015 and 2014. 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 quarterly 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 a $4 million unrealized loss as of June 30, 2015 and a $5 million unrealized loss as of December 31, 2014.

FOREIGN EXCHANGE DERIVATIVE INSTRUMENTS

We have foreign exchange forward contracts to hedge forecasted purchases of products and services denominated in foreign currencies. The notional amount of these contracts was $99 million as of June 30, 2015, and they mature by December 23, 2016. These forward contracts are designated as cash flow hedges and no ineffectiveness was recorded in the first six months of both 2015 and 2014. 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 an unrealized gain of $4 million and $3 million as of June 30, 2015 and December 31, 2014, respectively.

COUNTERPARTY RISK, MASTER NETTING ARRANGEMENTS AND BALANCE SHEET OFFSETTING

We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instruments. As of June 30, 2015, our derivatives were in a $16 million net liability position. 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.

All of our derivative contracts 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 required by certain of our agreements, we had $25 million of collateral posted with our counterparties related to our derivatives as of June 30, 2015. Amounts paid as cash collateral are included in receivables on our accompanying consolidated balance sheet.

We have not adopted an accounting policy to offset fair value amounts related to derivative contracts under our master netting arrangements; therefore, individual derivative contracts are reflected on a gross basis, as either assets or liabilities, on our consolidated balance sheets, based on their fair value as of the balance sheet date.

FINANCIAL STATEMENT INFORMATION

The following are the pretax effects of derivative instruments on the consolidated statements of operations for the three months ended June 30,2015 and 2014.

	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)						Location of Gain or (Loss)  Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
(millions)	2015			2014				2015			2014
Derivatives in Cash Flow Hedging Relationships
Commodity contracts	$	1		$	(1	)	Cost of products sold	$	(4	)	$	1
Foreign exchange contracts	(2		)	(2		)	Cost of products sold	1			—
Total	$	(1	)	$	(3	)		$	(3	)	$	1

	Location of Gain or (Loss)  Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
(millions)		2015		2014
Derivatives Not Designated as Hedging Instruments
Commodity contracts	Cost of products sold	$	—	$	—
Total		$	—	$	—

The following are the pretax effects of derivative instruments on the consolidated statements of operations for the six months ended June 30,2015 and 2014.

	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)					Location of Gain or (Loss)  Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
(millions)	2015			2014			2015			2014
Derivatives in Cash Flow Hedging Relationships
Commodity contracts	$	(4	)	$	2	Cost of products sold	$	(7	)	$	2
Foreign exchange contracts	3			—		Cost of products sold	2			1
Total	$	(1	)	$	2		$	(5	)	$	3

	Location of Gain or (Loss)  Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
(millions)		2015			2014
Derivatives Not Designated as Hedging Instruments
Commodity contracts	Cost of products sold	$	(1	)	$	1
Total		$	(1	)	$	1

The following are the fair values of derivative instruments and the location on our accompanying consolidated balance sheets as of June 30, 2015 and December 31, 2014.

	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
(millions)		6/30/15		12/31/14			6/30/15		12/31/14
Derivatives in Cash Flow Hedging Relationships
Commodity contracts	Other current assets	$	1	$	1	Accrued expenses	$	11	$	14
Commodity contracts	Other assets	—		—		Other liabilities	6		7
Foreign exchange contracts	Other current assets	4		3		Accrued expenses	—		—
Total derivatives in cash flow hedging relationships		$	5	$	4		$	17	$	21

Derivatives Not Designated as Hedging Instruments
Commodity contracts	Other current assets	$	—	$	—	Accrued expenses	$	3	$	4
Commodity contracts	Other assets	—		—		Other liabilities	1		1
Total derivatives not designated as hedging instruments		$	—	$	—		$	4	$	5
Total derivatives	Total assets	$	5	$	4	Total liabilities	$	21	$	26

As of June 30, 2015, we had no derivatives designated as fair value hedges or net investment hedges.