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Derivative Financial Instruments and Hedging Activities (Notes)
 9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2016
 
2015
 
2016
 
2015
Cash flow hedges (a)
 
 
 
 
 
 
 
Reclassified from AOCI to net income
$
202

 
$
(60
)
 
$
335

 
$
(196
)
Fair value hedges
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
95

 
94

 
292

 
271

Ineffectiveness (b)
(1
)
 
10

 
21

 
6

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign currency exchange contracts
29

 
65

 
61

 
210

Cross-currency interest rate swap contracts
128

 
63

 
463

 
75

Interest rate contracts
21

 
(22
)
 
(70
)
 
(83
)
Commodity contracts
3

 
(22
)
 
7

 
(47
)
Total
$
477

 
$
128

 
$
1,109

 
$
236

__________
(a)
For the third quarter and first nine months of 2016, a $340 million gain and a $887 million gain, respectively, were recorded in Other comprehensive income. For the third quarter and first nine months of 2015, a $453 million gain and a $86 million gain, respectively, were recorded in Other comprehensive income.
(b)
For the third quarter and first nine months of 2016, hedge ineffectiveness reflects the net change in fair value on derivatives of $228 million loss and $655 million gain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $227 million gain and $634 million loss, respectively. For the third quarter and first nine months of 2015, hedge ineffectiveness reflects the net change in fair value on derivatives of $373 million gain and $345 million gain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $363 million loss and $339 million loss, respectively.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):
 
September 30, 2016
 
December 31, 2015
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
 
Notional
 
Fair Value of
Assets
 
Fair Value of
Liabilities
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange and commodity contracts
$
16,775

 
$
818

 
$
136

 
$
12,593

 
$
522

 
$
366

Fair value hedges
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts
36,215

 
1,217

 
—

 
28,964

 
670

 
16

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
17,267

 
352

 
129

 
21,108

 
426

 
242

Cross-currency interest rate swap contracts
3,765

 
383

 
—

 
3,137

 
73

 
111

Interest rate contracts
61,650

 
142

 
122

 
62,638

 
159

 
112

Commodity contracts
525

 
10

 
4

 
643

 
2

 
26

Total derivative financial instruments, gross (a) (b)
$
136,197

 
$
2,922

 
$
391

 
$
129,083

 
$
1,852

 
$
873

 
 
 
 
 
 
 
 
 
 
 
 
Current portion
 
 
$
1,395

 
$
297

 
 
 
$
1,209

 
$
692

Non-current portion
 
 
1,527

 
94

 
 
 
643

 
181

Total derivative financial instruments, gross
 
 
$
2,922

 
$
391

 
 
 
$
1,852

 
$
873


__________
(a)
At September 30, 2016 and December 31, 2015, the net obligation to return cash collateral was $13 million and $0, respectively.
(b)
At September 30, 2016 and December 31, 2015, the fair value of assets and liabilities available for counterparty netting was $347 million and $733 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.