Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v3.7.0.1
Derivative Financial Instruments
 6 Months Ended
Jul. 01, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments [Text Block]
Note 15: Derivative Financial Instruments
For further information on our derivative policies, see “Note 2: Accounting Policies" in Part II, Item 8 of our 2016 Form 10-K.
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows: 
(In Millions)
 
Jul 1,
2017
 
Dec 31,
2016
 
Jul 2,
2016
Foreign currency contracts
 
$
20,861

 
$
17,960

 
$
18,682

Interest rate contracts
 
16,781

 
14,228

 
10,039

Other
 
1,396

 
1,340

 
1,307

Total
 
$
39,038

 
$
33,528

 
$
30,028

Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
 
 
July 1, 2017
 
December 31, 2016
(In Millions)
 
Assets 1
 
Liabilities 2
 
Assets 1
 
Liabilities 2
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Foreign currency contracts 3
 
$
283

 
$
23

 
$
21

 
$
252

Interest rate contracts
 
12

 
114

 
3

 
187

Total derivatives designated as hedging instruments
 
295

 
137

 
24

 
439

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Foreign currency contracts 3
 
83

 
421

 
374

 
114

Interest rate contracts
 
12

 
23

 
15

 
30

Other
 
9

 
—

 
9

 
—

Total derivatives not designated as hedging instruments
 
104

 
444

 
398

 
144

Total derivatives
 
$
399

 
$
581

 
$
422

 
$
583


1 
Derivative assets are recorded as other assets, current and non-current.
2 
Derivative liabilities are recorded as other liabilities, current and non-current.
3 
The majority of these instruments mature within 12 months.

Amounts Offset in the Consolidated Condensed Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
 
 
July 1, 2017
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
 
(In Millions)
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts Presented in the Balance Sheet
 
Financial Instruments
 
Cash and Non-Cash Collateral Received or Pledged
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets subject to master netting arrangements
 
$
386

 
$
—

 
$
386

 
$
(232
)
 
$
(135
)
 
$
19

Reverse repurchase agreements
 
2,585

 
—

 
2,585

 
—

 
(2,585
)
 
—

Total assets
 
2,971

 
—

 
2,971

 
(232
)
 
(2,720
)
 
19

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities subject to master netting arrangements
 
563

 
—

 
563

 
(232
)
 
(303
)
 
28

Total liabilities
 
$
563

 
$
—

 
$
563

 
$
(232
)
 
$
(303
)
 
$
28

 
 
December 31, 2016
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
 
(In Millions)
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts Presented in the Balance Sheet
 
Financial Instruments
 
Cash and Non-Cash Collateral Received or Pledged
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets subject to master netting arrangements
 
$
433

 
$
—

 
$
433

 
$
(368
)
 
$
(42
)
 
$
23

Reverse repurchase agreements
 
1,018

 
—

 
1,018

 
—

 
(1,018
)
 
—

Total assets
 
1,451

 
—

 
1,451

 
(368
)
 
(1,060
)
 
23

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities subject to master netting arrangements
 
588

 
—

 
588

 
(368
)
 
(201
)
 
19

Total liabilities
 
$
588

 
$
—

 
$
588

 
$
(368
)
 
$
(201
)
 
$
19


We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.

Derivatives in Cash Flow Hedging Relationships
The before-tax net gains or losses, attributed to the effective portion of cash flow hedges, recognized in other comprehensive income (loss), were $180 million net gains in the second quarter of 2017 and $445 million net gains in the first six months of 2017 ($39 million net gains in the second quarter of 2016 and $282 million net gains in the first six months of 2016). Substantially all of our cash flow hedges are foreign currency contracts for the first six months of 2017 and 2016.
During the first six months of 2017 and 2016, hedge ineffectiveness and amounts excluded from effectiveness testing were insignificant.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated condensed statements of income, see "Note 14: Other Comprehensive Income (Loss)."
Derivatives in Fair Value Hedging Relationships
The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Interest rate contracts
 
$
96

 
$
60

 
$
82

 
$
222

Hedged items
 
(96
)
 
(60
)
 
(82
)
 
(222
)
Total
 
$
—

 
$
—

 
$
—

 
$
—


There was no ineffectiveness during all periods presented in the preceding table.
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income for each period were as follows:
 
 
 
 
Three Months Ended
 
Six Months Ended
(In Millions)
 
Location of Gains (Losses)
Recognized in Income on Derivatives
 
Jul 1,
2017
 
Jul 2,
2016
 
Jul 1,
2017
 
Jul 2,
2016
Foreign currency contracts
 
Interest and other, net
 
$
(271
)
 
$
64

 
$
(430
)
 
$
(174
)
Interest rate contracts
 
Interest and other, net
 
1

 
(8
)
 
(1
)
 
(15
)
Other
 
Various
 
38

 
6

 
95

 
18

Total
 
 
 
$
(232
)
 
$
62

 
$
(336
)
 
$
(171
)