XML 35 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Instruments
 12 Months Ended
Dec. 31, 2017
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.
Derivative Instruments
Type
Hedged Item
Aggregate Notional Amount
Contracts Maturing Through
Commodity
Natural gas swaps
Purchases of natural gas
38 million mmBTUs*
December 31, 2022
Foreign Exchange
Forward contracts
Purchases of products and services denominated in a foreign currency
$95 million
December 31, 2018
* - millions of British Thermal Units
During 2015, we entered into foreign exchange forward contracts with a notional amount of $35 million to hedge a portion of our net investment in our Knauf-USG joint venture. These forward contracts were designated as net investment hedges and no ineffectiveness was recorded. On December 22, 2015, we completed the sale of our Knauf-USG joint venture and, as a result, we terminated the outstanding foreign exchange forward contracts and reclassified a $1 million net gain realized for these contracts from AOCI to earnings which increased the gain on the sale of the equity method investment. See Note 4 for further discussion on the sale.
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 December 31, 2017, our derivatives were in a $15 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 $13 million of collateral posted with our counterparties related to our derivatives as of December 31, 2017. Amounts paid as cash collateral are included in "Receivables" on our consolidated balance sheets.
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 pre-tax effects of derivative instruments on our consolidated statements of income and our consolidated statements of comprehensive income for the years ended December 31, 2017, 2016 and 2015:
 
Amount of Gain or (Loss)
Recognized in
Other Comprehensive Income (Loss) 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)
2017
 
2016
 
2015
 
 
 
2017
 
2016
 
2015
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
(19
)
 
$
6

 
$
(14
)
 
Cost of products sold
 
$
(4
)
 
$
(15
)
 
$
(15
)
Foreign exchange contracts
(5
)
 
(3
)
 
12

 
Cost of products sold
 
(2
)
 
5

 
7

Foreign exchange contracts
—

 
—

 
1

 
Income and gain from the sale of equity method investment to related party
 
—

 
—

 
1

Total
$
(24
)
 
$
3

 
$
(1
)
 
 
 
$
(6
)
 
$
(10
)
 
$
(7
)
 
 
Location of Gain or (Loss)
 Recognized in Income
on Derivatives
 
Amount of Gain or (Loss) Recognized in Income
on Derivatives
(millions)
 
 
 
2017
 
2016
 
2015
Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
Commodity contracts
Cost of products sold
 
$
(1
)
 
$
1

 
$
(3
)
Foreign exchange contracts
Other (income) expense, net
 
—

 
—

 
2

Total
 
 
 
$
(1
)
 
$
1

 
$
(1
)

For both commodity contracts and foreign exchange contracts, no ineffectiveness was recorded in 2017, 2016 or 2015.
The fair values of derivative instruments on the consolidated balance sheets are as follows:
 
Balance Sheet
Location
Fair Value
 
Balance Sheet
Location
Fair Value
 
 
(millions)
 
12/31/17
 
12/31/16
 
 
12/31/17
 
12/31/16
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
$
1

 
$
8

 
Accrued expenses
$
6

 
$
4

Commodity contracts
Other assets
1

 
3

 
Other liabilities
8

 
5

Foreign exchange contracts
Other current assets
—

 
1

 
Accrued expenses
3

 
1

Total derivatives in hedging relationships
 
$
2

 
$
12

 
 
$
17

 
$
10

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
$
—

 
$
1

 
Accrued expenses
$
—

 
$
—

Commodity contracts
Other assets
—

 
—

 
Other liabilities
—

 
—

Total derivatives not designated as hedging instruments
 
$
—

 
$
1

 
 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Total derivatives
Total assets
$
2

 
$
13

 
Total liabilities
$
17

 
$
10


As of December 31, 2017, we had no derivatives designated as net investment or fair value hedges.