FINANCIAL INSTRUMENTS

A summary of the Company'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 June 30, 2019 and December 31, 2018:



Fair Value of Financial Instruments	Jun 30, 2019											Dec 31, 2018
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Cash equivalents	$	530		$	—	$	—		$	530		$	566		$	—	$	—		$	566
Marketable securities	$	20		$	—	$	—		$	20		$	100		$	—	$	—		$	100
Other investments:
Debt securities:
Government debt ¹	$	540		$	28	$	(5	)	$	563		$	714		$	9	$	(23	)	$	700
Corporate bonds	1,054			63		(13		)	1,104			1,026			20		(63		)	983
Total debt securities	$	1,594		$	91	$	(18	)	$	1,667		$	1,740		$	29	$	(86	)	$	1,683
Equity securities ²	15			7		(1		)	21			16			1		(1		)	16
Total other investments	$	1,609		$	98	$	(19	)	$	1,688		$	1,756		$	30	$	(87	)	$	1,699
Total cash equivalents, marketable securities and other investments	$	2,159		$	98	$	(19	)	$	2,238		$	2,422		$	30	$	(87	)	$	2,365
Long-term debt including debt due within one year ³	$	(17,452	)	$	2	$	(1,922	)	$	(19,372	)	$	(19,591	)	$	351	$	(972	)	$	(20,212	)
Derivatives relating to:
Interest rates ⁴	$	—		$	11	$	(225	)	$	(214	)	$	—		$	—	$	(64	)	$	(64	)
Foreign currency	—			52		(38		)	14			—			120		(43		)	77
Commodities ⁴	—			84		(170		)	(86		)	—			91		(178		)	(87		)
Total derivatives	$	—		$	147	$	(433	)	$	(286	)	$	—		$	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 $1 million at June 30, 2019 and $18 million at December 31, 2018 on $2,590 million of debt at June 30, 2019 and $2,290 million of debt at December 31, 2018.


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

Debt Securities

The Company'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 six months ended June 30, 2019 and 2018:



Investing Results	Six Months Ended
In millions	Jun 30, 2019			Jun 30, 2018
Proceeds from sales of available-for-sale securities	$	534		$	625
Gross realized gains	$	22		$	15
Gross realized losses	$	(10	)	$	(18	)

Equity Securities

The Company’s investments in equity securities with a readily determinable fair value totaled $21 million at June 30, 2019 ($16 million at December 31, 2018). The aggregate carrying value of the Company’s investments in equity securities where fair value is not readily determinable totaled $206 million at June 30, 2019 ($204 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 and six months ended June 30, 2019 and 2018. The net unrealized gain recognized in earnings on equity securities totaled $1 million for the three months ended June 30, 2019 ($1 million net unrealized loss for the three months ended June 30, 2018) and a net unrealized gain of $6 million for the six months ended June 30, 2019 ($8 million net unrealized gain for the six months ended June 30, 2018).

Derivatives

The following tables provide the fair value and balance sheet classification of derivative instruments at June 30, 2019 and December 31, 2018:



Fair Value of Derivative Instruments		Jun 30, 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:
Interest rate contracts	Other current assets	$	11	$	—		$	11
Foreign currency contracts	Other current assets	104		(85		)	19
Commodity contracts	Other current assets	53		(17		)	36
Commodity contracts	Deferred charges and other assets	42		(7		)	35
Total		$	210	$	(109	)	$	101
Derivatives not designated as hedging instruments:
Interest rate contracts	Other current assets	$	1	$	(1	)	$	—
Foreign currency contracts	Other current assets	44		(11		)	33
Commodity contracts	Other current assets	14		(4		)	10
Commodity contracts	Deferred charges and other assets	4		(1		)	3
Total		$	63	$	(17	)	$	46
Total asset derivatives		$	273	$	(126	)	$	147

Liability derivatives:
Derivatives designated as hedging instruments:
Interest rate contracts	Accrued and other current liabilities	$	98	$	—		$	98
Interest rate contracts	Other noncurrent obligations	127		—			127
Foreign currency contracts	Accrued and other current liabilities	116		(85		)	31
Commodity contracts	Accrued and other current liabilities	117		(20		)	97
Commodity contracts	Other noncurrent obligations	57		(12		)	45
Total		$	515	$	(117	)	$	398
Derivatives not designated as hedging instruments:
Interest rate contracts	Accrued and other current liabilities	$	2	$	(2	)	$	—
Foreign currency contracts	Accrued and other current liabilities	18		(11		)	7
Commodity contracts	Accrued and other current liabilities	31		(6		)	25
Commodity contracts	Other noncurrent obligations	4		(1		)	3
Total		$	55	$	(20	)	$	35
Total liability derivatives		$	570	$	(137	)	$	433


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 the Company 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 the Company 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. The Company posted cash collateral of $36 million at June 30, 2019 ($26 million at December 31, 2018). There was no counterparty cash collateral posted with the Company at June 30, 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. The Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $186 million at June 30, 2019 ($182 million at December 31, 2018). For the six months ended June 30, 2019, the results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net loss of $101 million after tax (net gain of $53 million after tax for the six months ended June 30, 2018). The Company recognized after-tax gains of $66 million related to excluded components of net foreign investment hedges included in “Cumulative Translation Adjustments” in AOCL for the three months ended June 30, 2019 and after-tax gains of $152 million for the six months ended June 30, 2019. For the three months ended June 30, 2019, gains of $25 million were amortized to “Sundry income (expense) - net” in the consolidated statements of income. For the six months ended June 30, 2019, gains of $50 million were amortized to “Sundry income (expense) - net” in the consolidated statements of income.

Cash Flow Hedges

For derivatives that are designated and qualify as cash flow hedging instruments, the gain or loss on the derivative is recorded in AOCL; it is reclassified to income in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCL fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCL and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period.

For the six months ended June 30, 2019, the Company terminated certain interest rate contracts and realized net losses in AOCL of $113 million after tax. The net loss from open and realized interest rate contract hedges included in AOCL at June 30, 2019 was $213 million after tax (net gain of $23 million after tax at December 31, 2018).

Fair Value Hedges

For interest rate instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedge item attributable to the hedged risk are recognized in current period income and reflected as “Interest expense and amortization of debt discount” in the consolidated statements of income, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.

During the second quarter of 2019, the Company entered into interest rate contracts designated as fair value hedges of underlying fixed rate debt obligations with maturity dates extending through 2048. The fair value adjustment resulting from these contracts was a net gain on the derivative of $16 million, with a net loss of $4 million after tax for excluded components recognized in AOCL.

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 amounts charged on a pretax basis related to foreign currency derivatives not designated as a hedge, which were included in “Sundry income (expense) - net” in the consolidated statements of income, were a gain of $38 million for the three months ended June 30, 2019 (gain of $82 million for the three months ended June 30, 2018) and a gain of $6 million for the six months ended June 30, 2019 (gain of $65 million for the six months ended June 30, 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 $49 million loss for commodity contracts, a $6 million gain for foreign currency contracts and a $60 million gain for excluded components.