Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Financial Instruments

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options to manage certain foreign currency, interest rate and commodity price exposures.

The four quarter rolling average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $14.5 billion and $13.9 billion at March 31, 2015 and December 31, 2014, respectively.

The following table summarizes the fair value of derivative instruments as of March 31, 2015 and December 31, 2014 which consist solely of foreign exchange contracts:

	Asset Derivatives				Liability Derivatives
(Dollars in millions)	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
Derivatives designated as hedging instruments	$	34	$	3	$	380	$	248
Derivatives not designated as hedging instruments	97		139		230		71

The impact from foreign exchange derivative instruments that qualified as cash flow hedges was as follows:

	Quarter Ended March 31,
(Dollars in millions)	2015			2014
Loss recorded in Accumulated other comprehensive loss	$	(184	)	$	(80	)
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)	$	57		$	18

Assuming current market conditions continue, a $176 million pre-tax loss is expected to be reclassified from Accumulated other comprehensive loss into Product sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At March 31, 2015, all derivative contracts accounted for as cash flow hedges will mature by April2017.

We recognized gains of $18 million and $26 million in Other income, net on the Condensed Consolidated Statement of Comprehensive Income from foreign exchange contracts not designated as hedging instruments in the quarters ended March 31, 2015 and 2014, respectively. During the quarter ended March 31, 2015, we received $569 million from settlements of derivative contracts. During the quarter ended March 31, 2014, we made payments of $113 million to settle derivative contracts.