Financial Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments [Text Block]

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 $18.0 billion and $15.6 billion at September 30, 2016 and December 31, 2015, respectively.

The following table summarizes the fair value of derivative instruments as of September 30, 2016 and December 31, 2015 which consist solely of foreign exchange contracts:

	Asset Derivatives				Liability Derivatives
(Dollars in millions)	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
Derivatives designated as hedging instruments	$	30	$	4	$	130	$	428
Derivatives not designated as hedging instruments	71		97		51		105

As discussed in Note 5, we have issued approximately €2.95 billion of Euro-denominated debt, which qualifies as a net investment hedge against our investments in European businesses. As of September 30, 2016, the net investment hedge is deemed to be effective.

The amount of gains and losses related to the Company's derivative financial instruments was as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2016			2015			2016		2015
(Loss) gain recorded in Accumulated other comprehensive loss	$	(7	)	$	(152	)	$	188	$	(274	)
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)	32			64			139		164

Assuming current market conditions continue, a $53 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 September 30, 2016, all derivative contracts accounted for as cash flow hedges will mature by November 2022.

The effect on the Condensed Consolidated Statement of Operations of foreign exchange contracts not designated as hedging instruments was as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2016		2015		2016		2015
Gain recognized in Other income, net	$	19	$	35	$	49	$	65

We paid $29 million and received $147 million from settlements of derivative contracts during the nine months ended September 30, 2016 and 2015, respectively.