FINANCIAL INSTRUMENTS

A summary of TDCC's financial instruments, risk management policies, derivative instruments and hedging activities can be found in Note 21 of the Consolidated Financial Statements included in TDCC's Annual Report on Form 10-K for the year ended December 31, 2018. If applicable, updates have been included in the respective section below.

The following table summarizes the fair value of financial instruments at March 31, 2019 and December 31, 2018:



Fair Value of Financial Instruments	Mar 31, 2019											Dec 31, 2018
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Cash equivalents	$	345		$	—	$	—		$	345		$	566		$	—	$	—		$	566
Marketable securities	$	101		$	—	$	—		$	101		$	100		$	—	$	—		$	100
Other investments:
Debt securities:
Government debt ¹	$	694		$	17	$	(9	)	$	702		$	714		$	9	$	(23	)	$	700
Corporate bonds	1,051			43		(21		)	1,073			1,026			20		(63		)	983
Total debt securities	$	1,745		$	60	$	(30	)	$	1,775		$	1,740		$	29	$	(86	)	$	1,683
Equity securities ²	16			5		—			21			16			1		(1		)	16
Total other investments	$	1,761		$	65	$	(30	)	$	1,796		$	1,756		$	30	$	(87	)	$	1,699
Total cash equivalents, marketable securities and other investments	$	2,207		$	65	$	(30	)	$	2,242		$	2,422		$	30	$	(87	)	$	2,365
Long-term debt including debt due within one year ³	$	(19,529	)	$	84	$	(1,405	)	$	(20,850	)	$	(19,594	)	$	351	$	(971	)	$	(20,214	)
Derivatives relating to:
Interest rates	$	—		$	—	$	(181	)	$	(181	)	$	—		$	—	$	(64	)	$	(64	)
Foreign currency	—			86		(14		)	72			—			120		(43		)	77
Commodities ⁴	—			88		(147		)	(59		)	—			91		(178		)	(87		)
Total derivatives	$	—		$	174	$	(342	)	$	(168	)	$	—		$	211	$	(285	)	$	(74	)

1. U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.


2.	Equity securities with a readily determinable fair value.


3.	Cost includes fair value hedge adjustments of $17 million at March 31, 2019 and $18 million at December 31, 2018 on $2,290 million of debt at March 31, 2019 and December 31, 2018.


4.	Presented net of cash collateral where master netting arrangements allow.

Debt Securities

TDCC's investments in debt securities are primarily classified as available-for-sale. The following table provides the investing results from available-for-sale securities for the three months ended March 31, 2019 and 2018:



Investing Results	Three Months Ended
In millions	Mar 31, 2019			Mar 31, 2018
Proceeds from sales of available-for-sale securities	$	159		$	348
Gross realized gains	$	6		$	7
Gross realized losses	$	(5	)	$	(9	)

Equity Securities

TDCC’s investments in equity securities with a readily determinable fair value totaled $21 million at March 31, 2019 ($16 million at December 31, 2018). The aggregate carrying value of TDCC’s investments in equity securities where fair value is not readily determinable totaled $207 million at March 31, 2019 ($206 million at December 31, 2018), reflecting the carrying value of the investments. There were no adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the three months ended March 31, 2019 and 2018. The net unrealized gain recognized in earnings on equity securities totaled $5 million for the three months ended March 31, 2019 ($9 million net unrealized gain for the three months ended March 31, 2018).

Derivatives

The following tables provide the fair value and balance sheet classification of derivative instruments at March 31, 2019 and December 31, 2018:



Fair Value of Derivative Instruments		Mar 31, 2019
In millions	Balance Sheet Classification	Gross		Counterparty and Cash Collateral Netting ¹			Net Amounts Included in the Consolidated Balance Sheet
Asset derivatives:
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	161	$	(89	)	$	72
Commodity contracts	Other current assets	31		(5		)	26
Commodity contracts	Deferred charges and other assets	57		(4		)	53
Total		$	249	$	(98	)	$	151
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	29	$	(15	)	$	14
Commodity contracts	Other current assets	8		(1		)	7
Commodity contracts	Deferred charges and other assets	4		(2		)	2
Total		$	41	$	(18	)	$	23
Total asset derivatives		$	290	$	(116	)	$	174

Liability derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps	Other noncurrent obligations	$	181	$	—		$	181
Foreign currency contracts	Accrued and other current liabilities	98		(89		)	9
Commodity contracts	Accrued and other current liabilities	93		(6		)	87
Commodity contracts	Other noncurrent obligations	60		(8		)	52
Total		$	432	$	(103	)	$	329
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accrued and other current liabilities	$	20	$	(15	)	$	5
Commodity contracts	Accrued and other current liabilities	8		(4		)	4
Commodity contracts	Other noncurrent obligations	7		(3		)	4
Total		$	35	$	(22	)	$	13
Total liability derivatives		$	467	$	(125	)	$	342


1.	Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between TDCC and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.



Fair Value of Derivative Instruments		Dec 31, 2018
In millions	Balance Sheet Classification	Gross		Counterparty and Cash Collateral Netting ¹			Net Amounts Included in the Consolidated Balance Sheet
Asset derivatives:
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	98	$	(42	)	$	56
Commodity contracts	Other current assets	47		(13		)	34
Commodity contracts	Deferred charges and other assets	18		(3		)	15
Total		$	163	$	(58	)	$	105
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	128	$	(64	)	$	64
Commodity contracts	Other current assets	41		(1		)	40
Commodity contracts	Deferred charges and other assets	4		(2		)	2
Total		$	173	$	(67	)	$	106
Total asset derivatives		$	336	$	(125	)	$	211

Liability derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps	Other noncurrent obligations	$	64	$	—		$	64
Foreign currency contracts	Accrued and other current liabilities	46		(42		)	4
Commodity contracts	Accrued and other current liabilities	111		(18		)	93
Commodity contracts	Other noncurrent obligations	86		(9		)	77
Total		$	307	$	(69	)	$	238
Derivatives not designated as hedging instruments:
Foreign currency contracts	Accrued and other current liabilities	$	103	$	(64	)	$	39
Commodity contracts	Accrued and other current liabilities	7		(4		)	3
Commodity contracts	Other noncurrent obligations	8		(3		)	5
Total		$	118	$	(71	)	$	47
Total liability derivatives		$	425	$	(140	)	$	285


1.	Counterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between TDCC and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.

Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are netted with corresponding assets or liabilities, when applicable. TDCC posted cash collateral of $20 million at March 31, 2019 ($26 million at December 31, 2018). There was no counterparty cash collateral posted with TDCC at March 31, 2019 ($34 million at December 31, 2018).

Net Foreign Investment Hedges

For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or loss on the derivative is included in “Cumulative Translation Adjustments” in AOCL. TDCC had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $181 million at March 31, 2019 ($182 million at December 31, 2018). The results of hedges of TDCC’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss of $36 million after tax for the three months ended March 31, 2019 (net loss of $43 million after tax for the three months ended March 31, 2018). For the three months ended March 31, 2019, TDCC recognized after tax gains of $86 million related to excluded components of net foreign investment hedges included in “Cumulative Translation Adjustments” in AOCL. For the three months ended March 31, 2019, gains of $25 million were amortized to “Sundry income (expense) - net” in the consolidated statements of income.

Fair Value Hedges

Subsequent to March 31, 2019, TDCC entered into interest rate contracts designated as a fair value hedge of underlying fixed rate debt obligations with maturity dates extending through 2048.

Income Statement Effect of Derivative Instruments

Foreign currency derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The amount charged on a pretax basis related to foreign currency derivatives not designated as a hedge, which was included in “Sundry income (expense) - net” in the consolidated statements of income, was a gain of $31 million for the three months ended March 31, 2019 (loss of $17 million for the three months ended March 31, 2018). The income statement effects of other derivatives were immaterial.

Reclassification from AOCL

The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $1 million gain for interest rate contracts, a $42 million loss for commodity contracts, a $11 million gain for foreign currency contracts and a $57 million gain for excluded components.