Note 16: 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:
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(In Millions) |
|
Sep 30,
2017 |
|
Dec 31,
2016 |
|
Oct 1,
2016 |
Foreign currency contracts |
|
$ |
18,573 |
|
|
$ |
17,960 |
|
|
$ |
17,833 |
|
Interest rate contracts |
|
18,171 |
|
|
14,228 |
|
|
10,046 |
|
Other |
|
1,461 |
|
|
1,340 |
|
|
1,355 |
|
Total |
|
$ |
38,205 |
|
|
$ |
33,528 |
|
|
$ |
29,234 |
|
Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
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September 30, 2017 |
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December 31, 2016 |
(In Millions) |
|
Assets 1
|
|
Liabilities 2
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Assets 1
|
|
Liabilities 2
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Derivatives designated as hedging instruments: |
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|
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|
|
|
|
Foreign currency contracts 3
|
|
$ |
296 |
|
|
$ |
33 |
|
|
$ |
21 |
|
|
$ |
252 |
|
Interest rate contracts |
|
8 |
|
|
125 |
|
|
3 |
|
|
187 |
|
Total derivatives designated as hedging instruments |
|
304 |
|
|
158 |
|
|
24 |
|
|
439 |
|
Derivatives not designated as hedging instruments: |
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|
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Foreign currency contracts 3
|
|
48 |
|
|
437 |
|
|
374 |
|
|
114 |
|
Interest rate contracts |
|
11 |
|
|
27 |
|
|
15 |
|
|
30 |
|
Other |
|
11 |
|
|
— |
|
|
9 |
|
|
— |
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Total derivatives not designated as hedging instruments |
|
70 |
|
|
464 |
|
|
398 |
|
|
144 |
|
Total derivatives |
|
$ |
374 |
|
|
$ |
622 |
|
|
$ |
422 |
|
|
$ |
583 |
|
|
|
1 |
Derivative assets are recorded as other assets, current and non-current. |
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2 |
Derivative liabilities are recorded as other liabilities, current and non-current. |
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3 |
The majority of these instruments mature within 12 months.
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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:
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September 30, 2017 |
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Gross Amounts Not Offset in the Balance Sheet |
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(In Millions) |
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Gross Amounts Recognized |
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Gross Amounts Offset in the Balance Sheet |
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Net Amounts Presented in the Balance Sheet |
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Financial Instruments |
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Cash and Non-Cash Collateral Received or Pledged |
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Net Amount |
Assets: |
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Derivative assets subject to master netting arrangements |
|
$ |
360 |
|
|
$ |
— |
|
|
$ |
360 |
|
|
$ |
(201 |
) |
|
$ |
(159 |
) |
|
$ |
— |
|
Reverse repurchase agreements |
|
1,849 |
|
|
— |
|
|
1,849 |
|
|
— |
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|
(1,849 |
) |
|
— |
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Total assets |
|
2,209 |
|
|
— |
|
|
2,209 |
|
|
(201 |
) |
|
(2,008 |
) |
|
— |
|
Liabilities: |
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Derivative liabilities subject to master netting arrangements |
|
603 |
|
|
— |
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|
603 |
|
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(201 |
) |
|
(377 |
) |
|
25 |
|
Total liabilities |
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$ |
603 |
|
|
$ |
— |
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|
$ |
603 |
|
|
$ |
(201 |
) |
|
$ |
(377 |
) |
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$ |
25 |
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December 31, 2016 |
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Gross Amounts Not Offset in the Balance Sheet |
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(In Millions) |
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Gross Amounts Recognized |
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Gross Amounts Offset in the Balance Sheet |
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Net Amounts Presented in the Balance Sheet |
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Financial Instruments |
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Cash and Non-Cash Collateral Received or Pledged |
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Net Amount |
Assets: |
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Derivative assets subject to master netting arrangements |
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$ |
433 |
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|
$ |
— |
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|
$ |
433 |
|
|
$ |
(368 |
) |
|
$ |
(42 |
) |
|
$ |
23 |
|
Reverse repurchase agreements |
|
1,018 |
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|
— |
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|
1,018 |
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— |
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(1,018 |
) |
|
— |
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Total assets |
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1,451 |
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|
— |
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|
1,451 |
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(368 |
) |
|
(1,060 |
) |
|
23 |
|
Liabilities: |
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Derivative liabilities subject to master netting arrangements |
|
588 |
|
|
— |
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|
588 |
|
|
(368 |
) |
|
(201 |
) |
|
19 |
|
Total liabilities |
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$ |
588 |
|
|
$ |
— |
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|
$ |
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 $83 million net gains in the third quarter of 2017 and $528 million net gains in the first nine months of 2017 ($92 million net gains in the third quarter of 2016 and $374 million net gains in the first nine months of 2016). Substantially all of our cash flow hedges are foreign currency contracts for the first nine months of 2017 and 2016.
During the first nine 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 15: 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:
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Three Months Ended |
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Nine Months Ended |
(In Millions) |
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Sep 30,
2017 |
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Oct 1,
2016 |
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Sep 30,
2017 |
|
Oct 1,
2016 |
Interest rate contracts |
|
$ |
(15 |
) |
|
$ |
(34 |
) |
|
$ |
67 |
|
|
$ |
188 |
|
Hedged items |
|
15 |
|
|
34 |
|
|
(67 |
) |
|
(188 |
) |
Total |
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$ |
— |
|
|
$ |
— |
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|
$ |
— |
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|
$ |
— |
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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:
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Three Months Ended |
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Nine Months Ended |
(In Millions) |
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Location of Gains (Losses)
Recognized in Income on Derivatives
|
|
Sep 30,
2017 |
|
Oct 1,
2016 |
|
Sep 30,
2017 |
|
Oct 1,
2016 |
Foreign currency contracts |
|
Interest and other, net |
|
$ |
(91 |
) |
|
$ |
(35 |
) |
|
$ |
(521 |
) |
|
$ |
(209 |
) |
Interest rate contracts |
|
Interest and other, net |
|
(3 |
) |
|
7 |
|
|
(4 |
) |
|
(8 |
) |
Other |
|
Various |
|
40 |
|
|
72 |
|
|
135 |
|
|
90 |
|
Total |
|
|
|
$ |
(54 |
) |
|
$ |
44 |
|
|
$ |
(390 |
) |
|
$ |
(127 |
) |