Annual report pursuant to Section 13 and 15(d)

Derivative Financial Instruments

v3.6.0.2
Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments [Text Block]
Note 17: Derivative Financial Instruments
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)
 
Dec 31,
2016
 
Dec 26,
2015
 
Dec 27,
2014
Foreign currency contracts
 
$
17,960

 
$
16,721

 
$
21,024

Interest rate contracts
 
14,228

 
8,812

 
4,947

Other
 
1,340

 
1,122

 
1,105

Total
 
$
33,528


$
26,655


$
27,076

During the fourth quarter of 2014, we entered into $1.5 billion of forward contracts to hedge our anticipated equity funding of the UniSpreadtrum investment. The hedges were designated as cash flow hedges and the related gains and losses attributable to changes in the spot rates were recognized in accumulated other comprehensive income (loss). Hedge gains and losses attributable to changes in the forward rates were recognized in interest and other, net. During 2015, we discontinued cash flow hedge accounting treatment for $478 million of forward contracts since we could no longer assert that funding is probable to occur within the initially specified timeline. Hedge losses accumulated in other comprehensive income and subsequently released to interest and other, net, related to these de-designated forward contracts were insignificant.
During 2016 and 2015, we entered into $4.7 billion and $4.4 billion, respectively, of interest rate swaps to hedge against changes in the fair value attributable to the benchmark interest rates related to $9.1 billion of our outstanding senior notes. These hedges were designated as fair value hedges. During 2015, we entered into $577 million of currency interest rate swaps to hedge against the variability in the U.S.-dollar equivalent of coupon and principal payments associated with our non-U.S.-dollar-denominated indebtedness. These hedges were designated as cash flow hedges.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets
 
 
December 31, 2016
 
December 26, 2015
(In Millions)
 
Assets1
 
Liabilities2
 
Assets1
 
Liabilities2
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
Foreign currency contracts3
 
$
21

 
$
252

 
$
30

 
$
85

Interest rate contracts
 
3

 
187

 
1

 
14

Total derivatives designated as hedging instruments
 
24


439


31


99

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
Foreign currency contracts4
 
374

 
114

 
408

 
115

Interest rate contracts
 
15

 
30

 
2

 
29

Other
 
9

 
—

 
44

 
2

Total derivatives not designated as hedging instruments
 
398


144


454


146

Total derivatives
 
$
422


$
583


$
485


$
245


1 
Derivative assets are recorded as other assets, current and non-current in the consolidated balance sheets.
2 
Derivative liabilities are recorded as other liabilities, current and non-current in the consolidated balance sheets.
3 
The substantial majority of these instruments mature within 12 months.
4 
The majority of these instruments mature within 12 months.

Amounts Offset in the Consolidated 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:
 
 
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

 
 
December 26, 2015
 
 
 
 
 
 
 
 
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
 
$
482

 
$
—

 
$
482

 
$
(201
)
 
$
(188
)
 
$
93

Reverse repurchase agreements
 
3,368

 
—

 
3,368

 
—

 
(3,368
)
 
—

Total assets
 
3,850


—


3,850


(201
)

(3,556
)

93

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities subject to master netting arrangements
 
242

 
—

 
242

 
(201
)
 
(27
)
 
14

Total liabilities
 
$
242


$
—


$
242


$
(201
)

$
(27
)

$
14


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 $26 million net losses in 2016 ($298 million net losses in 2015 and $589 million net losses in 2014). Substantially all of our cash flow hedges are foreign currency contracts for all periods presented.
Gains or losses on derivative instruments in cash flow hedging relationship related to hedge ineffectiveness and amounts excluded from effectiveness testing were insignificant during all periods presented.
For information on the unrealized holding gains (losses) on derivatives reclassified out of accumulated other comprehensive income into the consolidated statements of income, see "Note 16: 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:
 
 
Gains (Losses)
Recognized in Statement of Income on
Derivatives
Years Ended
(In Millions)
 
Dec 31,
2016
 
Dec 26,
2015
 
Dec 27,
2014
Interest rate contracts
 
$
(171
)
 
$
(13
)
 
$
—

Hedged items
 
171

 
13

 
—

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 statements of income for each period were as follows:
Years Ended
(In Millions)
 
Location of Gains (Losses)
Recognized in Income on Derivatives
 
Dec 31,
2016
 
Dec 26,
2015
 
Dec 27,
2014
Foreign currency contracts
 
Interest and other, net
 
$
388

 
$
296

 
$
600

Interest rate contracts
 
Interest and other, net
 
8

 
(8
)
 
(3
)
Other
 
Various
 
113

 
(38
)
 
62

Total
 
$
509


$
250


$
659