Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments [Text Block]

Financial Instruments

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under the Derivatives and Hedging (Topic 815) 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 aggregate notional amount of our outstanding foreign currency hedges was $13.5 billion and $13.0 billion at June 30, 2020 and December 31, 2019, respectively.

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivative instruments as of June 30, 2020 and December 31, 2019:

(dollars in millions)	Balance Sheet Location	June 30, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other assets, current	$	30	$	23
	Accrued liabilities	(334)		(166)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other assets, current	$	19	$	23
	Accrued liabilities	(47)		(116)

The effect of cash flow hedging relationships on Accumulated other comprehensive income and on the Condensed Consolidated Statement of Operations for the quarters and six months ended June 30, 2020 and 2019 are presented in the table below. The amounts of loss are attributable to foreign exchange contract activity and are generally recorded as a component of Product sales when reclassified from Accumulated other comprehensive income.

	Quarter Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2020		2019		2020		2019
(Loss) gain recorded in Accumulated other comprehensive loss	$	188	$	21	$	(215)	$	28
Loss reclassified from Accumulated other comprehensive loss into Product sales	27		16		56		20

The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.

As of June 30, 2020, we have €500 million of euro-denominated long-term debt outstanding, which qualifies as a net investment hedge against our investments in European businesses. As of June 30, 2020, the net investment hedge is deemed to be effective.

Assuming current market conditions continue, $77 million of pre-tax losses 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 June 30, 2020, all derivative contracts accounted for as cash flow hedges will mature by January 21, 2028.

The effect of derivatives not designated as hedging instruments within Other income (expense), net, on the Condensed Consolidated Statement of Operations was as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2020		2019		2020		2019
Foreign exchange contracts	$	10	$	27	$	(29)	$	60