Financial Instruments

3 Months Ended

Mar. 31, 2017

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 $18.5 billion and $18.3 billion at March 31, 2017 and December 31, 2016, respectively.

The following table summarizes the fair value of derivative instruments as of March 31, 2017 and December 31, 2016 which consist solely of foreign exchange contracts:

	Asset Derivatives				Liability Derivatives
(Dollars in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Derivatives designated as hedging instruments	$	22	$	15	$	128	$	196
Derivatives not designated as hedging instruments	84		155		113		158

As discussed in Note 5, we have issued approximately €2.95 billion of euro-denominated long-term debt and €500 million of outstanding euro-denominated commercial paper borrowings, which qualify as a net investment hedge against our investments in European businesses. As of March 31, 2017, 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 March 31,
(Dollars in millions)	2017		2016
Gain recorded in Accumulated other comprehensive loss	$	64	$	159
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)	5		62

Assuming current market conditions continue, a $25 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, 2017, 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 March 31,
(Dollars in millions)	2017		2016
Gain recognized in Other income, net	$	12	$	15

We paid $113 million and received $42 million from settlements of derivative contracts during the quarter ended March 31, 2017 and 2016, respectively.