Annual report pursuant to Section 13 and 15(d)

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)

v3.10.0.1
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)
12 Months Ended
Dec. 31, 2018
Notional Amounts of Outstanding Derivative Positions
The notional amounts of our outstanding derivative positions were as follows as of December 31, 2018 and 2017 (in millions):
 
 
 
2018
 
2017
Currency Hedges:
 
 
 
 
 
Euro
EUR
 
4,924

 
4,942

British Pound Sterling
GBP
 
2,037

 
1,736

Canadian Dollar
CAD
 
1,443

 
1,259

Hong Kong Dollar
HKD
 
3,642

 

Mexican Peso
MXN
 

 
169

Singapore Dollar
SGD
 
20

 
11

 
 
 
 
 
 
Interest Rate Hedges:
 
 
 
 
 
Fixed to Floating Interest Rate Swaps
USD
 
4,674

 
5,424

Floating to Fixed Interest Rate Swaps
USD
 
778

 
778

 
 
 
 
 
 
Investment Market Price Hedges:
 
 
 
 
 
Marketable Securities
EUR
 

 
64

Balance sheet location of derivative assets and liabilities and their related fair values
The following table indicates the location on the consolidated balance sheets where our derivative assets and liabilities have been recognized, and the related fair values of those derivatives as of December 31, 2018 and 2017 (in millions). The table is segregated between those derivative instruments that qualify and are designated as hedging instruments and those that are not, as well as by type of contract and whether the derivative is in an asset or liability position.
We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions. However, we have not elected to offset the fair value positions of the derivative contracts recorded on our consolidated balance sheets. The columns labeled "Net Amounts if Right of Offset had been Applied" indicate the potential net fair value positions by type of contract and location on the consolidated balance sheets had we elected to apply the right of offset.
 
 
 
Gross Amounts Presented in
Consolidated Balance Sheets
 
Net Amounts if Right of
Offset had been Applied
Asset Derivatives
Balance Sheet Location
 
2018
 
2017
 
2018
 
2017
Derivatives Designated As Hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Other current assets
 
$
90

 
$
2

 
$
83

 
$

Interest rate contracts
Other current assets
 
1

 
1

 
1

 
1

Foreign exchange contracts
Other non-current assets
 
230

 
1

 
215

 

Interest rate contracts
Other non-current assets
 
14

 
59

 
6

 
43

Derivatives Not Designated As Hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Other current assets
 
7

 
18

 
5

 
17

Foreign exchange contracts
Other non-current assets
 
1

 

 
1

 

Interest rate contracts
Other non-current assets
 
18

 
26

 
18

 
26

Total Asset Derivatives
 
 
$
361

 
$
107

 
$
329

 
$
87


 
 
 
Gross Amounts Presented in
Consolidated Balance Sheets
 
Net Amounts if Right of
Offset had been Applied
Liability Derivatives
Balance Sheet Location
 
2018
 
2017
 
2018
 
2017
Derivatives Designated As Hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Other current liabilities
 
$
7

 
$
93

 
$

 
$
91

Interest rate contracts
Other current liabilities
 

 

 

 

Foreign exchange contracts
Other non-current liabilities
 
15

 
194

 

 
193

Interest rate contracts
Other non-current liabilities
 
41

 
28

 
33

 
12

Derivatives Not Designated As Hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Other current liabilities
 
3

 
1

 
1

 

Investment market price contracts
Other current liabilities
 

 
16

 

 
16

Foreign exchange contracts
Other non-current liabilities
 
1

 

 
1

 

Total Liability Derivatives
 
 
$
67

 
$
332

 
$
35

 
$
312

Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)
The following table indicates the amount of gains and losses that have been recognized in AOCI within "foreign currency translation gain (loss)" for the years ended December 31, 2018 and 2017 for those instruments designated as net investment hedges (in millions):
Non-derivative Instruments in Net Investment Hedging Relationships
 
Amount of Gain (Loss) Recognized in AOCI on
Debt (Effective Portion)
 
2018
 
2017
Foreign denominated debt
 
$
211

 
$
(428
)
Total
 
$
211

 
$
(428
)
The following table indicates the amount of gains and losses that have been recognized in AOCI within "unrealized gain (loss) on cash flow hedges" for the years ended December 31, 2018 and 2017 for those derivatives designated as cash flow hedges (in millions):
Derivative Instruments in Cash Flow Hedging Relationships
 
Amount of Gain (Loss) Recognized in AOCI on
Derivative (Effective Portion)
 
2018
 
2017
Interest rate contracts
 
$
1

 
$

Foreign exchange contracts
 
563

 
(506
)
Total
 
$
564

 
$
(506
)
Fair Values of Derivative Assets and Liabilities by Hedge Type
The fair values of our derivative assets and liabilities as of December 31, 2018 and 2017 by hedge type are as follows (in millions):
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
2018
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$

 
$
328

 
$

 
$
328

Interest Rate Contracts
 

 
33

 

 
33

Total
 
$

 
$
361

 
$

 
$
361

Liabilities:
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$

 
$
25

 
$

 
$
25

Investment Market Price Contracts
 

 

 

 

Interest Rate Contracts
 

 
42

 

 
42

Total
 
$

 
$
67

 
$

 
$
67

 
 
 
 
 
 
 
 
 
  
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
2017
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$

 
$
21

 
$

 
$
21

Interest Rate Contracts
 

 
86

 

 
86

Total
 
$

 
$
107

 
$

 
$
107

Liabilities:
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$

 
$
288

 
$

 
$
288

Investment Market Price Contracts
 

 
16

 

 
16

Interest Rate Contracts
 

 
28

 

 
28

Total
 
$

 
$
332

 
$

 
$
332

Designated as Hedging Instrument  
Amount and Location in the Income Statement for Derivatives Designated as Fair Value Hedges
The following table indicates the amount and location in the statements of consolidated income in which derivative gains and losses, as well as the associated gains and losses on the underlying exposure, have been recognized for those derivatives designated as fair value hedges for the years ended December 31, 2018 and 2017 (in millions):
Derivative Instruments
in Fair Value Hedging
Relationships
 
Location of
Gain (Loss)
Recognized in
Income
 
Amount of Gain (Loss)
Recognized in Income
 
Hedged Items in
Fair Value Hedging
Relationships
 
Location of 
Gain (Loss)
Recognized in
Income
 
Amount of Gain (Loss)
Recognized in Income
 
 
2018
 
2017
 
 
 
2018
 
2017
Interest rate contracts
 
Interest Expense
 
$
(57
)
 
$
(84
)
 
Fixed-Rate Debt
and Capital Leases
 
Interest Expense
 
$
57

 
$
84

Not Designated as Hedging Instrument  
Amount and Location in the Income Statement for Derivatives Designated as Fair Value Hedges
The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forwards, interest rate swaps, investment market price and commodity contracts not designated as hedges for the years ended December 31, 2018 and 2017 (in millions):
Derivative Instruments Not Designated in
Hedging Relationships
 
Location of Gain
(Loss) Recognized
in Income
 
Amount of Gain (Loss) Recognized in Income
 
 
2018
 
2017
Foreign exchange contracts
 
Investment income (expense) and other
 
$
(102
)
 
$
60

Investment market price contracts
 
Investment income (expense) and other
 
16

 
(5
)
Interest rate contracts
 
Interest Expense
 
(9
)
 
(9
)
Total
 
 
 
$
(95
)
 
$
46