XML 30 R13.htm IDEA: XBRL DOCUMENT
v3.5.0.2

DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
--- | ---
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS Hedging Programs The Company is exposed to market risks, such as changes in foreign currency exchange rates, commodity prices, and interest rates. To mitigate these market risks and their effects on the cash flows of the underlying transactions and investments in foreign subsidiaries, the Company uses various derivative and non-derivative instruments when appropriate in accordance with the Company's hedging strategy and policies. Designation is performed on a specific exposure basis to support hedge accounting. The Company does not enter into derivative transactions for speculative purposes. For further information on hedging programs, see Note 10, "Derivatives", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K. Fair Value Hedges Fair value hedges are defined as derivative or non-derivative instruments designated as and used to hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk. All derivative instruments that are designated and qualify as fair value hedges are recorded on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. In second quarter 2016, the Company entered into a fixed-to-floating interest rate swap on a portion of the 3.8% notes due March 2025 in order to manage the Company's interest rate mix of fixed and variable rate debt. As of September 30, 2016, the total notional amount of the Company's interest rate swap was $75 million. As of December 31, 2015, there were no outstanding interest rate swap hedges that were designated as fair value hedges. There was no hedge ineffectiveness associated with the fair value hedges during third quarter and first nine months 2016 and 2015. Fair Value Measurement of Derivatives Designated as Fair Value Hedging Instruments
(Dollars in millions) |  | Statement of Financial Position Location |  | Fair Value Measurement
Derivative Assets |  |  | September 30, 2016 |  | December 31, 2015
Interest rate swap |  | Other noncurrent assets |  | $ | 1 |  |  | $ | — |
Derivatives' Fair Value Hedging Relationships
|  | Third Quarter
(Dollars in millions) |  | Consolidated Statement of Earnings Location of Gain/(Loss) Recognized in Income on Derivatives |  | Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives' Fair Value Hedging Relationships |  |  | 2016 |  | 2015
Interest rate swaps |  | Net interest expense |  | $ | 2 |  |  | $ | 3 |
|  | First Nine Months
(Dollars in millions) |  | Consolidated Statement of Earnings Location of Gain/(Loss) Recognized in Income on Derivatives |  | Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives' Fair Value Hedging Relationships |  |  | 2016 |  | 2015
Interest rate swaps |  | Net interest expense |  | $ | 9 |  |  | $ | 10 |
Cash Flow Hedges Cash flow hedges are derivative instruments designated as and used to hedge the exposure to variability in expected future cash flows that are attributable to a particular risk. All derivative instruments that are designated and qualify as a cash flow hedge are recorded on the balance sheet at fair value and the changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the anticipated cash flows of the underlying exposures being hedged. The effective portion of the gain or loss on the derivative is reported as a component of "Other comprehensive income (loss), net of tax" ("OCI") located in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings and reclassified into earnings as part of "Cost of sales" in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Total Notional Amounts
|  | September 30, 2016 |  | December 31, 2015
Foreign Exchange Forward and Option Contracts (in millions): |  |  |  |
| EUR/USD (in EUR) |  | €438 |  | €618
| EUR/USD (in approximate USD equivalent) |  | $492 |  | $689
| JPY/USD (in JPY) |  | ¥2,100 |  | ¥2,400
| JPY/USD (in approximate USD equivalent) |  | $21 |  | $20
Commodity Forward and Collar Contracts: |  |  |  |
| Feedstock (in million barrels) |  | 14 |  | 22
| Energy (in million million British thermal units) |  | 26 |  | 32
Interest rate swaps for the future issuance of debt (in millions) |  | $500 |  | $500
Fair Value Measurement of Derivatives Designated as Cash Flow Hedging Instruments
(Dollars in millions) |  |  |  | Fair Value Measurements Significant Other Observable Inputs
Derivative Assets |  | Statement of Financial Position Location |  | September 30, 2016 |  | December 31, 2015
Commodity contracts |  | Other current assets |  | $ | 1 |  |  | $ | — |
Commodity contracts |  | Other noncurrent assets |  | 1 |  |  | — |
Foreign exchange contracts |  | Other current assets |  | 41 |  |  | 65 |
Foreign exchange contracts |  | Other noncurrent assets |  | 42 |  |  | 79 |
|  |  |  | $ | 85 |  |  | $ | 144 |
(Dollars in millions) |  |  |  | Fair Value Measurements Significant Other Observable Inputs
Derivative Liabilities |  | Statement of Financial Position Location |  | September 30, 2016 |  | December 31, 2015
Commodity contracts |  | Payables and other current liabilities |  | $ | 100 |  |  | $ | 194 |
Commodity contracts |  | Other long-term liabilities |  | 119 |  |  | 242 |
Forward starting interest rate swap contracts |  | Payables and other current liabilities |  | 76 |  |  | — |
Forward starting interest rate swap contracts |  | Other long-term liabilities |  | — |  |  | 30 |
|  |  |  | $ | 295 |  |  | $ | 466 |
Derivatives' Cash Flow Hedging Relationships
|  | Third Quarter
(Dollars in millions) |  | Change in amount after tax of gain/(loss) recognized in Other Comprehensive Income on derivatives (effective portion) |  | Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion) |  | Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commodity contracts |  | $ | 23 |  |  | $ | (6 | ) |  | Sales |  | $ | — |  |  | $ | 1 |
|  |  |  |  |  | Cost of Sales |  | (46 | ) |  | (74 | )
Foreign exchange contracts |  | (13 | ) |  | (11 | ) |  | Sales |  | 15 |  |  | 20 |
Forward starting interest rate swap contracts |  | 2 |  |  | (15 | ) |  | Net interest expense |  | (1 | ) |  | (1 | )
|  | $ | 12 |  |  | $ | (32 | ) |  |  |  | $ | (32 | ) |  | $ | (54 | )
|  | First Nine Months
(Dollars in millions) |  | Change in amount after tax of gain/(loss) recognized in Other Comprehensive Income on derivatives (effective portion) |  | Location of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion) |  | Pre-tax amount of gain/(loss) reclassified from Accumulated Other Comprehensive Income into income (effective portion)
Derivatives' Cash Flow Hedging Relationships |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commodity contracts |  | $ | 132 |  |  | $ | 21 |  |  | Sales |  | $ | — |  |  | $ | 4 |
|  |  |  |  |  | Cost of sales |  | (131 | ) |  | (152 | )
Foreign exchange contracts |  | (38 | ) |  | 16 |  |  | Sales |  | 45 |  |  | 63 |
Forward starting interest rate swap contracts |  | (25 | ) |  | (8 | ) |  | Net interest expense |  | (5 | ) |  | (5 | )
|  | $ | 69 |  |  | $ | 29 |  |  |  |  | $ | (91 | ) |  | $ | (90 | )
Ineffective portions of raw material and energy hedges are immediately recognized in earnings within "Cost of sales" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. The Company recognized pre-tax losses for ineffectiveness of the commodity hedging portfolio of $1 million during both third quarter 2016 and 2015 and recognized $3 million in pre-tax losses during first nine months 2016. There was no hedge ineffectiveness associated with the interest rate and foreign exchange cash flow hedges during third quarter and first nine months 2016 and 2015. Net Investment Hedges Net investment hedges are defined as derivative or non-derivative instruments designated as and used to hedge the foreign currency exposure of the net investment in certain foreign operations. The effective portion of the gain or loss on the net investment hedge is reported as a component of "Change in cumulative translation adjustment" ("CTA") within OCI located in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings. Gains and losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Contemporaneously with its sale on May 26, 2016 of euro-denominated 1.50% notes due 2023 in the principal amount of €550 million ($614 million), the Company designated these borrowings as a non-derivative hedge of a portion of its net investment in one of its euro functional currency denominated subsidiaries to protect the designated net investment against foreign currency fluctuations. As of September 30, 2016, the total notional value of the non-derivative net investment hedge was €543 million ($607 million). The designated foreign currency-denominated borrowings are included as part of "Long-term borrowings'" within the Unaudited Consolidated Statements of Financial Position. The following table summarizes the change in the unrealized loss on the net investment hedge instruments recognized as part of the CTA within OCI during third quarter and first nine months 2016 and 2015. There were no reclassifications to earnings or hedge ineffectiveness with these instruments during third quarter and first nine months 2016 and 2015.
|  | Third Quarter |  | First Nine Months
(Dollars in millions) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Change in unrealized loss in other comprehensive income |  | $ | (3 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |
Hedging Summary Monetized positions and mark-to-market gains and losses from raw materials and energy, currency, and certain interest rate hedges that were included in accumulated OCI before taxes totaled losses of $267 million at September 30, 2016 and $386 million at September 30, 2015. If realized, $61 million net losses as of September 30, 2016 will be reclassified into earnings during the next 12 months. The gains or losses on nonqualifying derivatives or derivatives that are not designated as hedges are marked to market and reported in "Other charges (income), net" in the Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings, and, in all periods presented, represent foreign exchange derivatives denominated in multiple currencies and are transacted and settled in the same quarter. The Company recognized net losses on nonqualifying derivatives of $11 million during third quarter 2015 and net losses of $14 million and $23 million during the first nine months of 2016 and 2015, respectively. Fair Value Measurements For additional information on fair value measurement, see Note 1, "Significant Accounting Policies", to the consolidated financial statements in Part II, Item 8 of the Company's 2015 Annual Report on Form 10-K. The following chart shows the gross financial assets and liabilities valued on a recurring basis. During the periods presented, there were no transfers between fair value hierarchy levels.
(Dollars in millions) |  |  |  | Fair Value Measurements at September 30, 2016
Description |  | September 30, 2016 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Derivative Assets |  | $ | 86 |  |  | $ | — |  |  | $ | 86 |  |  | $ | — |
Derivative Liabilities |  | (295 | ) |  | — |  |  | (295 | ) |  | — |
|  | $ | (209 | ) |  | $ | — |  |  | $ | (209 | ) |  | $ | — |
(Dollars in millions) |  |  |  | Fair Value Measurements at December 31, 2015
Description |  | December 31, 2015 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Derivative Assets |  | $ | 144 |  |  | $ | — |  |  | $ | 144 |  |  | $ | — |
Derivative Liabilities |  | (466 | ) |  | — |  |  | (466 | ) |  | — |
|  | $ | (322 | ) |  | $ | — |  |  | $ | (322 | ) |  | $ | — |
All of the Company's derivative assets and liabilities are currently classified as Level 2. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves and currency spot and forward rates. The fair value of commodity contracts is derived using forward curves supplied by an industry recognized and unrelated third party. In addition, on an ongoing basis, the Company tests a subset of its valuations against valuations received from the transaction's counterparty to validate the accuracy of its standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions which the Company believes carry minimal risk of nonperformance. All of the Company's derivative contracts are subject to master netting arrangements, or similar agreements, which provide for the option to settle contracts on a net basis when they settle on the same day and in the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. Management has elected to present the derivative contracts on a gross basis in the Unaudited Consolidated Statements of Financial Position. Had it chosen to present the derivatives contracts on a net basis, it would have a derivative in a net asset position of $85 million and a derivative in a net liability position of $294 million as of September 30, 2016. The Company does not have any cash collateral due under such agreements.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration