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Equity Method Investments
9 Months Ended
Sep. 30, 2015
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Equity Method Investments

Equity method investments as of September 30, 2015 and December 31, 2014, were as follows:
 
 
September 30, 2015
 
December 31, 2014
(dollars in millions)
 
Carrying Value
 
Ownership Percentage
 
Carrying Value
 
Ownership Percentage
USG Boral Building Products
 
$
650

 
50%
 
$
689

 
50%
Other equity method investments (a)
 
44

 
33% - 50%
 
46

 
33% - 50%
     Total equity method investments
 
$
694

 
 
 
$
735

 
 

(a)
This amount includes our investment in Knauf-USG of $37 million which as of September 30, 2015 is classified as assets held for sale and is included in other current assets.

Investment in USG Boral Building Products ("UBBP")
On February 27, 2014, we formed the 50/50 joint ventures, USG Boral Building Products Pte. Limited, a company organized under the laws of Singapore, and USG Boral Building Products Pty Limited, a company organized under the laws of Australia, with Boral Limited ("Boral"). These joint ventures are herein referred to as USG Boral Building Products, or UBBP. UBBP manufactures, distributes and sells certain building products, mines raw gypsum and sells natural and synthetic gypsum throughout Asia, Australasia and the Middle East (the "Territory"). The products that UBBP manufactures and distributes include products for wall, ceiling, floor lining and exterior systems that utilize gypsum, wallboard, referred to as plasterboard in the Territory, mineral fiber ceiling tiles, steel grid and studs and joint compound.
As consideration for our 50% ownership in UBBP, we (i) made a cash payment of $515 million to Boral, which includes a $500 million base price and $15 million of customary estimated working capital and net debt adjustments, (ii) contributed to UBBP our subsidiaries and joint venture investments in China, Singapore, India, Malaysia, New Zealand, Australia, the Middle East and Oman, see Note 15, and (iii) granted to UBBP licenses to use certain of our intellectual property rights in the Territory. We funded our cash payments with the net proceeds from our October 2013 issuance of $350 million of 5.875% senior notes and cash on hand.
In the event certain performance targets are satisfied by UBBP, we will be obligated to pay Boral scheduled earnout payments in an aggregate amount up to $75 million, comprised first of $25 million based on performance during the first three years after closing and then up to $50 million based on performance during the first five years after closing. We recorded a liability representing the present value of the first earnout payment. We have not recorded a liability for the second earnout payment as we have concluded that it is currently not probable that the five-year performance target will be achieved. If our conclusion on the probability of achievement were to change, we will record a liability representing the present value of the second earnout payment with a corresponding increase to our investment. As of September 30, 2015 and December 31, 2014, our liability for the earnout payments totaled $24 million and $23 million, respectively, and is included in other liabilities on our accompanying consolidated balance sheets.
We account for our 50% investment in UBBP using the equity method of accounting, and we initially measured its carrying value at cost of approximately $676 million as of February 27, 2014. Our existing wholly-owned subsidiaries and consolidated variable interest entities that were contributed into the joint ventures were deconsolidated resulting in a gain of $27 million, which is included in our consolidated statement of operations for the nine months ended September 30, 2014. Approximately $11 million of the gain relates to the remeasurement of our retained investment in the contributed subsidiaries to a fair value, determined using a discounted cash flow model with several inputs, including a weighted-average discount rate of approximately 11% and a weighted-average long-term growth rate of approximately 2%.
All of our investments accounted for under the equity method of accounting are initially recorded at cost, and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Because the underlying net assets in our investments are denominated in a foreign currency, translation gains or losses will impact the recorded value of our investments. Translation gains or losses recorded in other comprehensive income were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Translation loss
$
(35
)
 
$
(24
)
 
$
(54
)
 
$
(13
)

During the second quarter of 2015, UBBP's Board of Directors declared and UBBP paid cash dividends on earnings through March 2015 of which our 50% share totaled $18 million. We recorded the cash dividend in operating activities on our cash flow and intend to use the cash dividends to fund the first earnout payment described above. As of September 30, 2015, the amount of consolidated retained earnings which represents undistributed earnings from UBBP is $48 million.
Summarized financial information for our equity method investments is as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014 (a)
USG Boral Building Products:
 
 
 
 
 
 
 
Net sales
$
250

 
$
286

 
$
742

 
$
655

Gross profit
69

 
77

 
200

 
179

Operating profit
30

 
31

 
87

 
57

Income from continuing operations
25

 
25

 
71

 
42

Net income
25

 
25

 
71

 
42

Net income attributable to USG Boral Building Products
24

 
24

 
66

 
39

USG share of income from investment accounted for using the equity method
12

 
12

 
33

 
19

Other equity method investments:
 
 
 
 
 
 
 
USG share of income from investments accounted for using the equity method
1

 

 
2

 
1

 
 
 
 
 
 
 
 
Total income from equity method investments
13

 
12

 
35

 
20

(a)
Operating results are presented for UBBP for the seven months ended September 30, 2014.
Investment in Knauf-USG
On September 15, 2015, we entered into an agreement to sell our 50% interest in the Knauf-USG joint venture to our 50/50 joint venture partner, Knauf Aquapanel GmbH, a subsidiary of Gebr. Knauf Verwaltungsgesellschaft KG (Knauf) for €48 million in cash, approximately $54 million (as calculated using the exchange rate as of September 30, 2015). The Knauf-USG joint venture manufactures and distributes Aquapanel® brand cement-based panels in Europe (excluding Turkey) and all countries that were part of the former Soviet Union. Affiliates of Knauf are the beneficial owners of approximately 10% of USG's outstanding shares of common stock.
The sale is expected to close in the fourth quarter of 2015 pending regulatory approval. Upon close of the sale, we anticipate recording a net gain in the range of $3 million to $7 million on disposition.
During the second quarter of 2015, our investment in the Knauf-USG joint venture met the criteria for asset held for sale. Accordingly, we have recorded our investment of $37 million as asset held for sale in other current assets on the consolidated balance sheet as of September 30, 2015. Our equity method income in the Knauf-USG joint venture was $2 million for both the nine months ended September 30, 2015 and 2014, respectively.