Derivative Financial Instruments and Hedging Activities (Notes)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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, reported in income for the periods ended March 31 were as follows (in millions):



	First Quarter
Cash flow hedges (a)	2019			2020
Reclassified from AOCI to Cost of sales
Foreign currency exchange contracts	$	54		$	(70	)
Commodity contracts	(5		)	(14		)
Fair value hedges
Interest rate contracts
Net interest settlements and accruals on hedging instruments	(20		)	28
Fair value changes on hedging instruments	250			1,110
Fair value changes on hedged debt	(253		)	(1,093		)
Derivatives not designated as hedging instruments
Foreign currency exchange contracts (b)	(28		)	586
Cross-currency interest rate swap contracts	(145		)	(151		)
Interest rate contracts	(27		)	(74		)
Commodity contracts	11			(43		)
Total	$	(163	)	$	279

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(a)

For the first quarter of 2019 and 2020, a $521 million loss and an $897 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax related to foreign currency exchange contracts. For the first quarter of 2019 and 2020, an $11 million gain and a $101 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax related to commodity contracts.


(b)	For the first quarter of 2019 and 2020, a $22 million loss and a $376 million gain were reported in Cost of sales and a $6 million loss and a $210 million gain were reported in Other income/(loss), net, respectively.

NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are reported on our consolidated 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 were as follows (in millions):



	December 31, 2019						March 31, 2020
	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	$	15,349	$	47	$	493	$	13,148	$	606	$	168
Commodity contracts	673		5		29		665		—		108
Fair value hedges
Interest rate contracts	26,577		702		19		23,663		1,549		—
Derivatives not designated as hedging instruments
Foreign currency exchange contracts	19,350		58		270		17,509		476		130
Cross-currency interest rate swap contracts	5,849		134		67		5,938		126		238
Interest rate contracts	68,914		275		191		72,822		651		561
Commodity contracts	467		9		9		474		1		46
Total derivative financial instruments, gross (a) (b)	$	137,179	$	1,230	$	1,078	$	134,219	$	3,409	$	1,251

Current portion			$	390	$	772			$	1,388	$	759
Non-current portion			840		306				2,021		492
Total derivative financial instruments, gross			$	1,230	$	1,078			$	3,409	$	1,251

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(a)	At December 31, 2019 and March 31, 2020, we held collateral of $18 million and $23 million, and we posted collateral of $78 million and $86 million, respectively.

(b)

At December 31, 2019 and March 31, 2020, the fair value of assets and liabilities available for counterparty netting was $269 million and $841 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.