Derivative Financial Instruments and Hedge Activities

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedge Activities

Financial Instruments and Hedging Activities

The Company has exposure to market risk from changes in foreign currency rates and interest rates. As a result, certain derivative financial instruments may be used when available on a cost effective basis to hedge the underlying economic exposure. Certain of these instruments qualify as cash flow, fair value and net investment hedges upon meeting the requisite criteria, including effectiveness of offsetting hedge exposures. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in income from continuing operations in the period incurred.

PPG’s policies do not permit speculative use of derivative financial instruments. PPG enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties in order to reduce its exposure to credit losses. The Company did not realize a credit loss on derivatives during the three-year period ended December 31, 2013.

All of PPG's outstanding derivative instruments are subject to accelerated settlement in the event of PPG’s failure to meet its debt obligations or payment obligations under the terms of the instruments’ contractual provisions. In addition, should the Company be acquired and its payment obligations under the derivative instruments’ contractual arrangements not be assumed by the acquirer, or should PPG enter into bankruptcy, receivership or reorganization proceedings, the instruments would also be subject to accelerated settlement.

No derivative instrument initially designated as a hedge instrument was undesignated or discontinued as a hedging instrument during the three-year period ended December 31, 2013. Additionally, no amounts deferred in AOCI were reclassified to income from continuing operations during the three-year period ended December 31, 2013 related to hedges of anticipated transactions that were no longer expected to occur.

Refer to Note 9, “Fair Value Measurement,” for additional disclosures related to the Company’s derivative instruments outstanding as of December 31, 2013 and 2012.

Fair Value Hedges:

PPG designates forward currency contracts as hedges against the Company’s exposure to future changes in fair value related to certain firm sales commitments denominated in foreign currencies. As of December 31, 2013, these contracts converted $28 million to the South Korean won over the 24 month period ending December 31, 2015. As of December 31, 2012, contracts converted $56 million to the South Korean won over the 21 month period ending September 30, 2014. As of December 31, 2013 and 2012, the fair value of the contracts was a net asset of $1 million and $3 million, respectively.

Interest rate swaps are used from time to time to manage the Company's exposure to changing interest rates. During the year ended December 31, 2012, PPG settled all outstanding interest rate swaps, which had converted $445 million of fixed rate debt to variable rate debt, and received $29 million from such settlements.

PPG has entered into renewable equity forward arrangements to hedge the impact to PPG's income from continuing operations for changes in the fair value of 1,388,889 shares of PPG stock that are to be contributed to the asbestos settlement trust as discussed in Note 14, “Commitments and Contingent Liabilities.” This financial instrument is recorded at fair value as an asset or liability and changes in the fair value of this financial instrument are reflected in the “Asbestos settlement – net” caption of the accompanying consolidated statement of income. The total principal amount payable for these shares is $62 million. PPG will pay to the counterparty interest based on the principal amount and the counterparty will pay to PPG an amount equal to the dividends paid on these shares during the period this financial instrument is outstanding. The difference between the principal amount and any amounts related to unpaid interest or dividends and the current market price for these shares, adjusted for credit risk, represents the fair value of the financial instrument as well as the amount that PPG would pay or receive if the counterparty chose to net settle the financial instrument. Alternatively, the bank may, at its option, require PPG to purchase the shares covered by the arrangement at the principal amount adjusted for unpaid interest and dividends as of the date of settlement. As of December 31, 2013 and 2012, the fair value of this contract was an asset of $207 million and $130 million, respectively.

Cash Flow Hedges:

PPG designates certain forward currency contracts and forward starting swaps as cash flow hedges of the Company’s exposure to variability in exchange rates on intercompany and third party transactions denominated in foreign currencies and interest rates. As of December 31, 2013 and 2012, the fair value of the forward currency contracts was a net asset of $8 million and a net liability of $1 million, respectively.

The Company entered into forward starting swaps in 2009 and 2010 to effectively lock-in a fixed interest rate for future debt refinancings with an anticipated term of ten years based on the ten year swap rate, to which was added a corporate spread. The swaps had a total notional amount of $400 million and were settled on July 30, 2012, resulting in a cash payment of $121 million. As of December 31, 2013, the amount of loss recorded in AOCI was $104 million, which is being amortized to interest expense over the remaining term of the ten-year debt that was issued on July 31, 2012.

Natural gas swaps have historically been used to manage the Company's exposure to fluctuating natural gas prices. As of December 31, 2013 and 2012, there were no natural gas swap contracts outstanding because the separation and merger of the former commodity chemicals business (See Note 22, "Separation and Merger Transaction") significantly reduced PPG's annual natural gas usage.

Net Investment Hedges:

PPG uses cross currency swap contracts to hedge certain of its net investments in European operations. In 2008, PPG entered into U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.16 billion, of which $600 million were to settle on March 15, 2013 and $560 million were to settle on March 15, 2018. In June 2012, $600 million of swaps, with a settlement date of March 15, 2013, were settled with PPG receiving $1 million in cash. On settlement of the remaining outstanding contracts, PPG will receive $560 million U.S. dollars and pay euros to the counterparties to the contracts. During the term of these contracts, PPG will receive semiannual payments in March and September of each year based on U.S. dollar, long-term fixed interest rates, and PPG will make annual payments in March of each year to the counterparties based on euro, long-term fixed interest rates. As of December 31, 2013 and December 31, 2012, the fair value of these contracts was a net liability of $120 million and $95 million, respectively.

As of December 31, 2013 and 2012, PPG designated €300 million euro-denominated borrowings as a hedge of a portion of PPG’s net investment in the Company’s European operations.

As of December 31, 2013 and December 31, 2012, the Company had accumulated pretax unrealized translation losses in AOCI of $35 million and accumulated pretax unrealized translation gains of $9 million, respectively, related to both the euro-denominated borrowings and the cross currency swaps that have been designated as hedges of net investments.

The following tables provide details for the years ended December 31, 2013, 2012 and 2011 related to PPG's hedging activities. All dollar amounts are pretax.

	December 31, 2013
Hedge Type (Millions)		Gain (Loss) Deferred in OCI			Gain (Loss) Recognized
					Amount			Caption
Fair Value
	Foreign currency contracts	Not applicable			$	1		Sales
	Equity forward arrangements	Not applicable			77			Asbestos - net
	Total Fair Value				$	78
Cash Flow
	Forward starting swaps				$	(12	)	Interest expense
	Foreign currency contracts(a)	33			33			Other charges
	Total Cash Flow	$	33		$	21
Net Investment
	Cross currency swaps	$	(28	)	$	—		Other charges
	Foreign denominated debt	(16		)				Other charges
	Total Net Investment	$	(44	)	$	—

(a) The ineffective portion related to this item was $8 million of expense.

	December 31, 2012
Hedge Type (Millions)		Gain (Loss) Deferred in OCI			Gain (Loss) Recognized
					Amount			Caption
Fair Value
	Foreign currency contracts	Not applicable			$	1		Sales
	Equity forward arrangements	Not applicable			74			Asbestos - net
	Total Fair Value				$	75
Cash Flow
	Natural gas swaps	$	(2	)	$	(11	)	Cost of sales and Income from Discontinued operations, net of tax
	Interest rate swaps	(1		)	(2		)	Income from Discontinued operations, net of tax
	Forward starting swaps(a)	(26		)	(5		)	Interest expense
	Foreign currency contracts(b)	(9		)	(9		)	Other charges
	Total Cash Flow	$	(38	)	$	(27	)
Net Investment
	Cross currency swaps	$	3		$	—		Other charges
	Foreign denominated debt	(7		)				Other charges
	Total Net Investment	$	(4	)	$	—

(a) The ineffective portion related to this item was $4 million of expense.

(b) The ineffective portion related to this item was $8 million of expense.

	December 31, 2011
Hedge Type (Millions)		Gain (Loss) Deferred in OCI			Gain (Loss) Recognized
					Amount			Caption
Fair Value
	Interest rate swaps	Not applicable			$	16		Interest expense
	Foreign currency contracts	Not applicable			2			Sales
	Equity forward arrangements	Not applicable			1			Asbestos - net
	Total Fair Value				$	19
Cash Flow
	Natural gas swaps	$	(10	)	$	(32	)	Cost of sales and Income from Discontinued operations, net of tax
	Interest rate swaps	(2		)	(2		)	Income from Discontinued operations, net of tax
	Forward starting swaps	(73		)	—			Interest expense
	Foreign currency contracts(a)	6			6			Other charges
	Total Cash Flow	$	(79	)	$	(28	)
Net Investment
	Cross currency swaps	$	34		$	—		Other charges
	Foreign denominated debt	13						Other charges
	Total Net Investment	$	47		$	—

(a) The ineffective portion related to this item was $6 million of expense.