Annual report pursuant to Section 13 and 15(d)

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)

v3.19.3.a.u2
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)
12 Months Ended
Dec. 31, 2019
Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position
The following table indicates the amount of gains and losses that have been recognized in the income statement for the fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges for the years ended December 31, 2019 and 2018 (in millions):
 
 
Year Ended December 31,
 
Year Ended December 31,


 
2019
 
2018
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
Revenue
 
Interest Expense
 
Investment Income and Other
 
Revenue
 
Interest Expense
 
Investment Income and Other
Gain or (loss) on fair value hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
Interest Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Hedged items
 
$

 
$
(38
)
 
$

 
$

 
$
57

 
$

Derivatives designated as hedging instruments
 

 
38



 

 
(57
)
 

Gains or (loss) on cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
Interest Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) reclassified from accumulated other comprehensive income
 

 
(15
)
 

 

 
(24
)
 

Foreign Exchange Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) reclassified from accumulated other comprehensive income
 
177

 

 

 
(50
)
 

 

Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded
 
$
177

 
$
(15
)
 
$

 
$
(50
)
 
$
(24
)
 
$


Notional Amounts of Outstanding Derivative Positions
The notional amounts of our outstanding derivative positions were as follows as of December 31, 2019 and 2018 (in millions):
 
 
 
2019
 
2018
Currency Hedges:
 
 
 
 
 
Euro
EUR
 
4,571

 
4,924

British Pound Sterling
GBP
 
1,494

 
2,037

Canadian Dollar
CAD
 
1,402

 
1,443

Hong Kong Dollar
HKD
 
3,327

 
3,642

Singapore Dollar
SGD
 

 
20

 
 
 
 
 
 
Interest Rate Hedges:
 
 
 
 
 
Fixed to Floating Interest Rate Swaps
USD
 
3,674

 
4,674

Floating to Fixed Interest Rate Swaps
USD
 
778

 
778


Balance sheet location of derivative assets and liabilities and their related fair values
The following table indicates the location in the consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives (in millions).
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 our derivative contracts recorded in the 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 in 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
 
Fair Value Hierarchy Level
 
2019
 
2018
 
2019
 
2018
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Other current assets
 
Level 2
 
$
138

 
$
90

 
$
131

 
$
83

Interest rate contracts
 
Other current assets
 
Level 2
 
2

 
1

 
2

 
1

Foreign exchange contracts
 
Other non-current assets
 
Level 2
 
252

 
230

 
236

 
215

Interest rate contracts
 
Other non-current assets
 
Level 2
 
21

 
14

 
20

 
6

Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Other current assets
 
Level 2
 
7

 
7

 
7

 
5

Foreign exchange contracts
 
Other non-current assets
 
Level 2
 

 
1

 

 
1

Interest rate contracts
 
Other non-current assets
 
Level 2
 
12

 
18

 
11

 
18

Total Asset Derivatives
 
 
 
 
 
$
432

 
$
361

 
$
407

 
$
329

 
 
 
 
 
 
Gross Amounts Presented in Consolidated Balance Sheets
 
Net Amounts if Right of Offset had been Applied
Liability Derivatives
 
Balance Sheet Location
 
Fair Value Hierarchy Level
 
2019
 
2018
 
2019
 
2018
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Other current liabilities
 
Level 2
 
$
7

 
$
7

 
$

 
$

Foreign exchange contracts
 
Other non-current liabilities
 
Level 2
 
16

 
15

 

 

Interest rate contracts
 
Other non-current liabilities
 
Level 2
 
11

 
41

 
10

 
33

Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Other current liabilities
 
Level 2
 

 
3

 

 
1

Foreign exchange contracts
 
Other non-current liabilities
 
Level 2
 

 
1

 

 
1

Interest rate contracts
 
Other non-current liabilities
 
Level 2
 
3

 

 
2

 

Total Liability Derivatives
 
 
 
 
 
$
37

 
$
67

 
$
12

 
$
35


The following table indicates the amounts that were recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of December 31, 2019 and December 31, 2018 (in millions).
 
 
Carrying Amount of Hedged Liabilities
 
Cumulative Amount of Fair Value Hedge Adjustments
 
Carrying Amount of Hedged Liabilities
 
Cumulative Amount of Fair Value Hedge Adjustments
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included

 
December 31, 2019
 
December 31, 2019
 
December 31, 2018
 
December 31, 2018
Long-Term Debt and Finance Leases
 
3,234

 
40

 
4,207

 
16


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 for the years ended December 31, 2019 and 2018 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 Derivatives
 
2019
 
2018
Interest rate contracts
 
$
6

 
$
1

Foreign exchange contracts
 
250

 
563

Total
 
$
256

 
$
564


The following table indicates the amount of gains and losses that have been recognized in AOCI within foreign currency translation adjustment for the years ended December 31, 2019 and 2018 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
 
2019
 
2018
Foreign denominated debt
 
$
75

 
$
211

Total
 
$
75

 
$
211


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 interest rate swaps, foreign currency forward and investment market price forward contracts not designated as hedges for the years ended December 31, 2019 and 2018 (in millions):
Derivative Instruments Not Designated in
Hedging Relationships
 
Location of Gain
(Loss) Recognized
in Income
 
Amount of Gain (Loss) Recognized in Income
 
2019
 
2018
Interest rate contracts
 
Interest expense
 
$
(9
)
 
$
(9
)
Foreign exchange contracts
 
Investment income and other
 
(1
)
 
(102
)
Investment market price contracts
 
Investment income and other
 

 
16

Total
 
 
 
$
(10
)
 
$
(95
)