Derivative Financial Instruments and Hedging Activities (Notes)

9 Months Ended

Sep. 30, 2017

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			2017			2016			2017
Cash flow hedges (a)
Reclassified from AOCI to net income	$	202		$	115		$	335		$	357
Fair value hedges
Interest rate contracts
Net interest settlements and accruals excluded from the assessment of hedge effectiveness	95			50			292			182
Ineffectiveness (b)	(1		)	—			21			—
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	29			(168		)	61			(594		)
Cross-currency interest rate swap contracts	128			5			463			79
Interest rate contracts	21			20			(70		)	57
Commodity contracts	3			21			7			53
Total	$	477		$	43		$	1,109		$	134

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(a) For the third quarter and first nine months of 2016, a $340 milliongain and a $887 milliongain, respectively, were recorded in Other comprehensive income. For the third quarter and first nine months of 2017, a $116 millionloss and a $90 milliongain, 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 millionloss and $655 milliongain, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $227 milliongain and $634 millionloss, respectively. For the third quarter and first nine months of 2017, hedge ineffectiveness reflects the net change in fair value on derivatives of $40 millionloss and $95 millionloss, respectively, and a change in value on hedged debt attributable to the change in benchmark interest rates of $40 milliongain and $95 milliongain, respectively.

NOTE 14.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. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties which we do not use to offset our derivative assets and liabilities.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):

	December 31, 2016						September 30, 2017
	Notional		Fair Value of Assets		Fair Value of Liabilities		Notional		Fair Value of Assets		Fair Value of Liabilities
Cash flow hedges
Foreign currency exchange contracts	$	19,091	$	620	$	257	$	18,734	$	466	$	352
Fair value hedges
Interest rate contracts	33,175		487		80		31,802		323		132
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	17,227		379		194		19,792		259		357
Cross-currency interest rate swap contracts	3,201		242		8		3,998		370		22
Interest rate contracts	61,689		156		74		57,144		227		119
Commodity contracts	531		11		6		603		25		2
Total derivative financial instruments, gross (a) (b)	$	134,914	$	1,895	$	619	$	132,073	$	1,670	$	984
Current portion			$	1,108	$	371			$	937	$	612
Non-current portion			787		248				733		372
Total derivative financial instruments, gross			$	1,895	$	619			$	1,670	$	984

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(a) At December 31, 2016 and September 30, 2017, we held collateral of $15 million and $11 million, and we posted collateral of $12 million and $31 million, respectively.

(b) At December 31, 2016 and September 30, 2017, the fair value of assets and liabilities available for counterparty netting was $554 million and $669 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.