Financial Instruments | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Financial Instruments | Fair Value Measurements |
We measure our cash equivalents, marketable securities, foreign currency and interest rate derivative contracts, and non-marketable debt securities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value: |
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings. |
Level 3 - Unobservable inputs that are supported by little or no market activities. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. |
We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. We classify our foreign currency and interest rate derivative contracts primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. We classify our non-marketable debt securities within Level 3 as the valuation inputs are not observable in an active market. |
Cash, Cash Equivalents and Marketable Securities |
The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of December 31, 2014 and March 31, 2015 (in millions): |
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| As of December 31, 2014 | | | | |
| Adjusted | | Gross | | Gross | | Fair | | Cash and | | Marketable | | | | |
Cost | Unrealized | Unrealized | Value | Cash | Securities | | | | |
| Gains | Losses | | Equivalents | | | | | |
Cash | $ | 9,863 | | | $ | 0 | | | $ | 0 | | | $ | 9,863 | | | $ | 9,863 | | | $ | 0 | | | | | |
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Level 1: | | | | | | | | | | | | | | | |
Money market and other funds | 2,532 | | | 0 | | | 0 | | | 2,532 | | | 2,532 | | | 0 | | | | | |
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U.S. government notes | 15,320 | | | 37 | | | (4 | ) | | 15,353 | | | 1,128 | | | 14,225 | | | | | |
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Marketable equity securities | 988 | | | 428 | | | (64 | ) | | 1,352 | | | 0 | | | 1,352 | | | | | |
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| 18,840 | | | 465 | | | (68 | ) | | 19,237 | | | 3,660 | | | 15,577 | | | | | |
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Level 2: | | | | | | | | | | | | | | | |
Time deposits(1) | 2,409 | | | 0 | | | 0 | | | 2,409 | | | 2,309 | | | 100 | | | | | |
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Money market and other funds(2) | 1,762 | | | 0 | | | 0 | | | 1,762 | | | 1,762 | | | 0 | | | | | |
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Fixed-income bond funds(3) | 385 | | | 0 | | | (38 | ) | | 347 | | | 0 | | | 347 | | | | | |
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U.S. government agencies | 2,327 | | | 8 | | | (1 | ) | | 2,334 | | | 750 | | | 1,584 | | | | | |
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Foreign government bonds | 1,828 | | | 22 | | | (10 | ) | | 1,840 | | | 0 | | | 1,840 | | | | | |
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Municipal securities | 3,370 | | | 33 | | | (6 | ) | | 3,397 | | | 3 | | | 3,394 | | | | | |
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Corporate debt securities | 11,499 | | | 114 | | | (122 | ) | | 11,491 | | | 0 | | | 11,491 | | | | | |
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Agency residential mortgage-backed securities | 8,196 | | | 109 | | | (42 | ) | | 8,263 | | | 0 | | | 8,263 | | | | | |
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Asset-backed securities | 3,456 | | | 1 | | | (5 | ) | | 3,452 | | | 0 | | | 3,452 | | | | | |
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| 35,232 | | | 287 | | | (224 | ) | | 35,295 | | | 4,824 | | | 30,471 | | | | | |
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Total | $ | 63,935 | | | $ | 752 | | | $ | (292 | ) | | $ | 64,395 | | | $ | 18,347 | | | $ | 46,048 | | | | | |
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| As of March 31, 2015 | | | | |
| Adjusted | | Gross | | Gross | | Fair | | Cash and | | Marketable | | | | |
Cost | Unrealized | Unrealized | Value | Cash | Securities | | | | |
| Gains | Losses | | Equivalents | | | | | |
| (unaudited) | | | | |
Cash | $ | 10,929 | | | $ | 0 | | | $ | 0 | | | $ | 10,929 | | | $ | 10,929 | | | $ | 0 | | | | | |
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Level 1: | | | | | | | | | | | | | | | |
Money market and other funds | 2,451 | | | 0 | | | 0 | | | 2,451 | | | 2,451 | | | 0 | | | | | |
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U.S. government notes | 14,385 | | | 93 | | | 0 | | | 14,478 | | | 8 | | | 14,470 | | | | | |
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Marketable equity securities | 984 | | | 379 | | | 0 | | | 1,363 | | | 0 | | | 1,363 | | | | | |
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| 17,820 | | | 472 | | | 0 | | | 18,292 | | | 2,459 | | | 15,833 | | | | | |
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Level 2: | | | | | | | | | | | | | | | |
Time deposits | 2,798 | | | 0 | | | 0 | | | 2,798 | | | 2,771 | | | 27 | | | | | |
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Money market and other funds(2) | 810 | | | 0 | | | 0 | | | 810 | | | 810 | | | 0 | | | | | |
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Fixed-income bond funds(3) | 370 | | | 0 | | | (51 | ) | | 319 | | | 0 | | | 319 | | | | | |
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U.S. government agencies | 1,973 | | | 14 | | | 0 | | | 1,987 | | | 0 | | | 1,987 | | | | | |
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Foreign government bonds | 1,914 | | | 27 | | | (5 | ) | | 1,936 | | | 0 | | | 1,936 | | | | | |
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Municipal securities | 3,679 | | | 38 | | | (4 | ) | | 3,713 | | | 7 | | | 3,706 | | | | | |
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Corporate debt securities | 12,645 | | | 178 | | | (64 | ) | | 12,759 | | | 0 | | | 12,759 | | | | | |
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Agency residential mortgage-backed securities | 8,161 | | | 133 | | | (22 | ) | | 8,272 | | | 0 | | | 8,272 | | | | | |
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Asset-backed securities | 3,620 | | | 3 | | | (2 | ) | | 3,621 | | | 0 | | | 3,621 | | | | | |
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| 35,970 | | | 393 | | | (148 | ) | | 36,215 | | | 3,588 | | | 32,627 | | | | | |
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Total | $ | 64,719 | | | $ | 865 | | | $ | (148 | ) | | $ | 65,436 | | | $ | 16,976 | | | $ | 48,460 | | | | | |
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(1) | The majority of our time deposits are foreign deposits. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | The balances as of December 31, 2014 and March 31, 2015 were related to cash collateral received in connection with our securities lending program, which was invested in reverse repurchase agreements maturing within three months. See section titled "Securities Lending Program" below for further discussion of this program. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(3) | Fixed-income bond funds consist of mutual funds that primarily invest in corporate and government bonds. | | | | | | | | | | | | | | | | | | | | | | | | | | |
We determine realized gains or losses on the sale of marketable securities on a specific identification method. We recognized gross realized gains of $98 million and $77 million for the three months ended March 31, 2014 and 2015. We recognized gross realized losses of $24 million and $45 million for the three months ended March 31, 2014 and 2015. We reflect these gains and losses as a component of Interest and other income, net in the accompanying Consolidated Statements of Income. |
The following table summarizes the estimated fair value of our investments in marketable debt securities, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities (in millions): |
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| As of | | | | | | | | | | | | | | | | | | | | | | | | |
31-Mar-15 | | | | | | | | | | | | | | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | | | | | | | | | | | | | | |
Due in 1 year | $ | 6,279 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Due in 1 year through 5 years | 24,805 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Due in 5 years through 10 years | 6,943 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Due after 10 years | 8,751 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total | $ | 46,778 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Non-marketable Investments |
We included $90 million and $998 million of available-for-sale debt securities in our non-marketable investments as of December 31, 2014 and March 31, 2015. These debt securities are primarily preferred stock with certain features and convertible notes issued by private companies that do not have readily determinable market values and are categorized accordingly as Level 3 in the fair value hierarchy. To estimate the fair value of these securities, we used a combination of valuation methodologies, including market and income approaches based on prior transaction prices, estimated timing, probability and amount of cash flows, and illiquidity considerations. Financial information of the private companies may not be available to us due to the nature of those companies, and consequently we will estimate the value based on the best available information available to us at the measurement date. As of December 31, 2014 and March 31, 2015, the estimated fair value of these securities approximated their carrying value. In addition, since these securities do not have contractual maturity dates and we do not intend to liquidate them in the next 12 months, we have classified them as non-current assets on the accompanying Consolidated Balance Sheet as of December 31, 2014 and March 31, 2015. |
The following table presents reconciliations for our assets measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3) (in millions, unaudited): |
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| Level 3 | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2015 | $ | 90 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Purchases of securities (1) | 908 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Balance at March 31, 2015 | $ | 998 | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | Purchases of securities included our $900 million investment in SpaceX, a space exploration and space transport company, made during January 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairment Considerations for Available-for-sale Investments |
The following tables present gross unrealized losses and fair values for those marketable investments that were in an unrealized loss position as of December 31, 2014 and March 31, 2015, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions): |
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| | As of December 31, 2014 | | | |
| | Less than 12 Months | | 12 Months or Greater | | Total | | | |
| | Fair Value | | Unrealized | | Fair Value | | Unrealized | | Fair Value | | Unrealized | | | |
Loss | Loss | Loss | | | |
U.S. government notes | | $ | 4,490 | | | $ | (4 | ) | | $ | 0 | | | $ | 0 | | | $ | 4,490 | | | $ | (4 | ) | | | |
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U.S. government agencies | | 830 | | | (1 | ) | | 0 | | | 0 | | | 830 | | | (1 | ) | | | |
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Foreign government bonds | | 255 | | | (7 | ) | | 43 | | | (3 | ) | | 298 | | | (10 | ) | | | |
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Municipal securities | | 877 | | | (3 | ) | | 174 | | | (3 | ) | | 1,051 | | | (6 | ) | | | |
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Corporate debt securities | | 5,851 | | | (112 | ) | | 225 | | | (10 | ) | | 6,076 | | | (122 | ) | | | |
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Agency residential mortgage-backed securities | | 609 | | | (1 | ) | | 2,168 | | | (41 | ) | | 2,777 | | | (42 | ) | | | |
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Asset-backed securities | | 2,388 | | | (4 | ) | | 174 | | | (1 | ) | | 2,562 | | | (5 | ) | | | |
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Fixed-income bond funds | | 347 | | | (38 | ) | | 0 | | | 0 | | | 347 | | | (38 | ) | | | |
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Marketable equity securities | | 690 | | | (64 | ) | | 0 | | | 0 | | | 690 | | | (64 | ) | | | |
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Total | | $ | 16,337 | | | $ | (234 | ) | | $ | 2,784 | | | $ | (58 | ) | | $ | 19,121 | | | $ | (292 | ) | | | |
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| | As of March 31, 2015 | | | |
| | Less than 12 Months | | 12 Months or Greater | | Total | | | |
| | Fair Value | | Unrealized | | Fair Value | | Unrealized | | Fair Value | | Unrealized | | | |
Loss | Loss | Loss | | | |
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Foreign government bonds | | $ | 366 | | | $ | (4 | ) | | $ | 23 | | | $ | (1 | ) | | $ | 389 | | | $ | (5 | ) | | | |
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Municipal securities | | 930 | | | (3 | ) | | 19 | | | (1 | ) | | 949 | | | (4 | ) | | | |
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Corporate debt securities | | 3,266 | | | (59 | ) | | 126 | | | (5 | ) | | 3,392 | | | (64 | ) | | | |
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Agency residential mortgage-backed securities | | 798 | | | (3 | ) | | 1,246 | | | (19 | ) | | 2,044 | | | (22 | ) | | | |
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Asset-backed securities | | 1,941 | | | (2 | ) | | 0 | | | 0 | | | 1,941 | | | (2 | ) | | | |
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Fixed-income bond funds | | 319 | | | (51 | ) | | 0 | | | 0 | | | 319 | | | (51 | ) | | | |
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Total | | $ | 7,620 | | | $ | (122 | ) | | $ | 1,414 | | | $ | (26 | ) | | $ | 9,034 | | | $ | (148 | ) | | | |
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We periodically review our available-for-sale debt and equity securities for other-than-temporary impairment. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For debt securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the three months ended March 31, 2014 and 2015, we did not recognize any other-than-temporary impairment loss. |
Securities Lending Program |
From time to time, we enter into securities lending agreements with financial institutions to enhance investment income. We loan selected securities which are collateralized in the form of cash or securities. Cash collateral is invested in reverse repurchase agreements which are collateralized in the form of securities. |
We classify loaned securities as cash equivalents or marketable securities and record the cash collateral as an asset with a corresponding liability in the accompanying Consolidated Balance Sheets. We classify reverse repurchase agreements maturing within three months as cash equivalents and those longer than three months as receivable under reverse repurchase agreements in the accompanying Consolidated Balance Sheets. For security collateral received, we do not record an asset or liability except in the event of counterparty default. |
Derivative Financial Instruments |
We recognize derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e. gains or losses) of the derivatives in the accompanying Consolidated Statements of Income as Interest and other income, net, as part of revenues, or as a component of accumulated other comprehensive income (AOCI) in the accompanying Consolidated Balance Sheets, as discussed below. |
We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. We use certain interest rate derivative contracts to hedge interest rate exposures on our fixed income securities and our anticipated debt issuance. Our program is not used for trading or speculative purposes. |
We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. To further reduce credit risk, we enter into collateral security arrangements under which the counterparty is required to provide collateral when the net fair value of certain financial instruments fluctuates from contractually established thresholds. We can take possession of the collateral in the event of counterparty default. As of December 31, 2014 and March 31, 2015, we received cash collateral related to the derivative instruments under our collateral security arrangements of $268 million and $311 million. |
Cash Flow Hedges |
We use options designated as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. The notional principal of these contracts was approximately $13.6 billion and $13.5 billion as of December 31, 2014 and March 31, 2015. These foreign exchange contracts have maturities of 36 months or less. |
In 2012, we entered into forward-starting interest rate swaps, with a total notional amount of $1.0 billion and terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate, that effectively locked in an interest rate on our anticipated debt issuance of $1.0 billion in 2014. We issued $1.0 billion of unsecured senior notes in February 2014 (See details in Note 3). As a result, we terminated the forward-starting interest rate swaps upon the debt issuance. The gain associated with the termination is reported within operating activities in the Consolidated Statement of Cash Flows for the three months ended March 31, 2014, consistent with the impact of the hedged item. |
We reflect gains or losses on the effective portion of a cash flow hedge as a component of AOCI and subsequently reclassify cumulative gains and losses to revenues or interest expense when the hedged transactions are recorded. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI would be immediately reclassified to Interest and other income, net. Further, we exclude the change in the time value of the options from our assessment of hedge effectiveness. We record the premium paid or time value of an option on the date of purchase as an asset. Thereafter, we recognize changes to this time value in Interest and other income, net. |
As of March 31, 2015, the effective portion of our cash flow hedges before tax effect was $1.3 billion, of which $1.1 billion is expected to be reclassified from AOCI into earnings within the next 12 months. |
Fair Value Hedges |
We use forward contracts designated as fair value hedges to hedge foreign currency risks for our investments denominated in currencies other than the U.S. dollar. We exclude changes in the time value for these forward contracts from the assessment of hedge effectiveness. The notional principal of these contracts was $1.5 billion as of December 31, 2014 and March 31, 2015. |
We use interest rate swaps designated as fair value hedges to hedge interest rate risk for certain fixed rate securities. The notional principal of these contracts was $175 million and $200 million as of December 31, 2014 and March 31, 2015. |
Gains and losses on these forward contracts and interest rate swaps are recognized in Interest and other income, net along with the offsetting losses and gains of the related hedged items. Realized gains and losses on these forward contracts and interest rate swaps are reported within investment activities in the Consolidated Statement of Cash Flows, consistent with the impact of the hedged items. |
Other Derivatives |
Other derivatives not designated as hedging instruments consist of forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. We recognize gains and losses on these contracts, as well as the related costs in Interest and other income, net along with the foreign currency gains and losses on monetary assets and liabilities. The notional principal of foreign exchange contracts outstanding was $6.2 billion as of December 31, 2014 and March 31, 2015. |
We also use exchange-traded interest rate futures contracts and “To Be Announced” (TBA) forward purchase commitments of mortgage-backed assets to hedge interest rate risks on certain fixed income securities. The TBA contracts meet the definition of derivative instruments in cases where physical delivery of the assets is not taken at the earliest available delivery date. Our interest rate futures and TBA contracts (together interest rate contracts) are not designated as hedging instruments. We recognize gains and losses on these contracts, as well as the related costs, in Interest and other income, net. The gains and losses are generally economically offset by unrealized gains and losses in the underlying available-for-sale securities, which are recorded as a component of AOCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are moved from AOCI into Interest and other income, net. The total notional amounts of interest rate contracts outstanding were $150 million as of December 31, 2014 and $250 million as of March 31, 2015. |
The fair values of our outstanding derivative instruments were as follows (in millions): |
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| | | As of December 31, 2014 | | | | | | | | | | | | | | |
| Balance Sheet Location | | Fair Value of | | Fair Value of | | Total Fair | | | | | | | | | | | | | | |
Derivatives | Derivatives Not | Value | | | | | | | | | | | | | | |
Designated as | Designated as | | | | | | | | | | | | | | | |
Hedging Instruments | Hedging Instruments | | | | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Prepaid revenue share, expenses and other assets, current and non-current | | $ | 851 | | | $ | 0 | | | $ | 851 | | | | | | | | | | | | | | | |
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Interest rate contracts | Prepaid revenue share, expenses and other assets, current and non-current | | 1 | | | 0 | | | 1 | | | | | | | | | | | | | | | |
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Total | | | $ | 852 | | | $ | 0 | | | $ | 852 | | | | | | | | | | | | | | | |
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Derivative Liabilities: | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Accrued expenses and other current liabilities | | $ | 0 | | | $ | 3 | | | $ | 3 | | | | | | | | | | | | | | | |
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Interest rate contracts | Accrued expenses and other liabilities, current and non-current | | 1 | | | 0 | | | 1 | | | | | | | | | | | | | | | |
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Total | | | $ | 1 | | | $ | 3 | | | $ | 4 | | | | | | | | | | | | | | | |
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| | | As of March 31, 2015 | | | | | | | | | | | | | | |
| Balance Sheet Location | | Fair Value of | | Fair Value of | | Total Fair | | | | | | | | | | | | | | |
Derivatives | Derivatives Not | Value | | | | | | | | | | | | | | |
Designated as | Designated as | | | | | | | | | | | | | | | |
Hedging Instruments | Hedging Instruments | | | | | | | | | | | | | | | |
| | | (unaudited) | | | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Prepaid revenue share, expenses and other assets, current and non-current | | $ | 1,265 | | | $ | 4 | | | $ | 1,269 | | | | | | | | | | | | | | | |
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Total | | | $ | 1,265 | | | $ | 4 | | | $ | 1,269 | | | | | | | | | | | | | | | |
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Derivative Liabilities: | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Accrued expenses and other current liabilities | | $ | 17 | | | $ | 2 | | | $ | 19 | | | | | | | | | | | | | | | |
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Interest rate contracts | Accrued expenses and other liabilities, current and non-current | | 2 | | | 1 | | | 3 | | | | | | | | | | | | | | | |
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Total | | | $ | 19 | | | $ | 3 | | | $ | 22 | | | | | | | | | | | | | | | |
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The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income (OCI) is summarized below (in millions): |
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| Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect (Effective Portion) | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | | | | | | | | | | |
| March 31, | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationship | 2014 | | 2015 | | | | | | | | | | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | $ | 13 | | | $ | 836 | | | | | | | | | | | | | | | | | | | | | |
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Interest rate contracts | (31 | ) | | 0 | | | | | | | | | | | | | | | | | | | | | |
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Total | $ | (18 | ) | | $ | 836 | | | | | | | | | | | | | | | | | | | | | |
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| Gains Reclassified from AOCI into Income (Effective Portion) | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | March 31, | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationship | Income Statement Location | | 2014 | | 2015 | | | | | | | | | | | | | | | | | | |
| | | (unaudited) | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Revenues | | $ | 8 | | | $ | 311 | | | | | | | | | | | | | | | | | | | |
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Interest rate contracts | Interest and other income, net | | 0 | | | 1 | | | | | | | | | | | | | | | | | | | |
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Total | | | $ | 8 | | | $ | 312 | | | | | | | | | | | | | | | | | | | |
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| Gains (Losses) Recognized in Income on Derivatives (1) | | | | | | | | | | | | | | | | | | |
(Amount Excluded from Effectiveness Testing and | | | | | | | | | | | | | | | | | | |
Ineffective Portion) | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | March 31, | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationship | Income Statement Location | | 2014 | | 2015 | | | | | | | | | | | | | | | | | | |
| | | (unaudited) | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Interest and | | $ | (67 | ) | | $ | (101 | ) | | | | | | | | | | | | | | | | | | |
other income, net | | | | | | | | | | | | | | | | | | |
Interest rate contracts | Interest and other income, net | | 4 | | | 0 | | | | | | | | | | | | | | | | | | | |
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Total | | | $ | (63 | ) | | $ | (101 | ) | | | | | | | | | | | | | | | | | | |
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(1) | Gains (losses) related to the ineffective portion of the hedges were not material in all periods presented. | | | | | | | | | | | | | | | | | | | | | | | | | | |
The effect of derivative instruments in fair value hedging relationships on income is summarized below (in millions): |
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| Gains (Losses) Recognized in Income on Derivatives(2) | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | March 31, | | | | | | | | | | | | | | | | | | |
Derivatives in Fair Value Hedging Relationship | Income Statement Location | | 2014 | | 2015 | | | | | | | | | | | | | | | | | | |
| | | (unaudited) | | | | | | | | | | | | | | | | | | |
Foreign Exchange Hedges: | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Interest and | | $ | (2 | ) | | $ | 111 | | | | | | | | | | | | | | | | | | | |
other income, net | | | | | | | | | | | | | | | | | | |
Hedged item | Interest and | | 0 | | | (113 | ) | | | | | | | | | | | | | | | | | | |
other income, net | | | | | | | | | | | | | | | | | | |
Total | | | $ | (2 | ) | | $ | (2 | ) | | | | | | | | | | | | | | | | | | |
Interest Rate Hedges: | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | Interest and other income, net | | $ | 0 | | | $ | (2 | ) | | | | | | | | | | | | | | | | | | |
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Hedged item | Interest and other income, net | | 0 | | | 2 | | | | | | | | | | | | | | | | | | | |
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Total | | | $ | 0 | | | $ | 0 | | | | | | | | | | | | | | | | | | | |
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(2) | Losses related to the amount excluded from effectiveness testing of the hedges were $2 million and $2 million for the three months ended March 31, 2014 and 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | |
The effect of derivative instruments not designated as hedging instruments on income is summarized below (in millions): |
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| Gains (Losses) Recognized in Income on Derivatives | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | March 31, | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated As Hedging Instruments | Income Statement Location | | 2014 | | 2015 | | | | | | | | | | | | | | | | | | |
| | | (unaudited) | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | Interest and | | $ | (37 | ) | | $ | 157 | | | | | | | | | | | | | | | | | | | |
other income, net and net loss from discontinued operations | | | | | | | | | | | | | | | | | | |
Interest rate contracts | Interest and | | 1 | | | (7 | ) | | | | | | | | | | | | | | | | | | |
other income, net | | | | | | | | | | | | | | | | | | |
Total | | | $ | (36 | ) | | $ | 150 | | | | | | | | | | | | | | | | | | | |
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Offsetting of Derivatives, Securities Lending and Reverse Repurchase Agreements |
We present our derivatives, securities lending and reverse repurchase agreements at gross fair values in the Consolidated Balance Sheets. However, our master netting and other similar arrangements allow net settlements under certain conditions. As of December 31, 2014 and March 31, 2015, information related to these offsetting arrangements was as follows (in millions): |
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Offsetting of Assets | | | | | | | | | | | | | |
| As of December 31, 2014 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Non-Cash Collateral Received | | Net Assets Exposed |
Derivatives | $ | 852 | | | $ | 0 | | | $ | 852 | | | $ | (1 | ) | (1) | $ | (251 | ) | | $ | (412 | ) | | $ | 188 | |
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Reverse repurchase agreements | 2,637 | | | 0 | | | 2,637 | | (2) | 0 | | | 0 | | | (2,637 | ) | | 0 | |
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Total | $ | 3,489 | | | $ | 0 | | | $ | 3,489 | | | $ | (1 | ) | | $ | (251 | ) | | $ | (3,049 | ) | | $ | 188 | |
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| As of March 31, 2015 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Non-Cash Collateral Received | | Net Assets Exposed |
| (unaudited) |
Derivatives | $ | 1,269 | | | $ | 0 | | | $ | 1,269 | | | $ | (1 | ) | (1) | $ | (302 | ) | | $ | (818 | ) | | $ | 148 | |
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Reverse repurchase agreements | 1,635 | | | 0 | | | 1,635 | | (2) | 0 | | | 0 | | | (1,635 | ) | | 0 | |
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Total | $ | 2,904 | | | $ | 0 | | | $ | 2,904 | | | $ | (1 | ) | | $ | (302 | ) | | $ | (2,453 | ) | | $ | 148 | |
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(1) | The balances as of December 31, 2014 and March 31, 2015 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with our master netting agreements. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | The balances as of December 31, 2014 and March 31, 2015 included $1,762 million and $810 million recorded in cash and cash equivalents, respectively, and $875 million and $825 million recorded in receivable under reverse repurchase agreements, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Offsetting of Liabilities | | | | | | | | | | | | | |
| As of December 31, 2014 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Pledged | | Non-Cash Collateral Pledged | | Net Liabilities |
Derivatives | $ | 4 | | | $ | 0 | | | $ | 4 | | | $ | (1 | ) | (3) | $ | 0 | | | $ | 0 | | | $ | 3 | |
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Securities lending agreements | 2,778 | | | 0 | | | 2,778 | | | 0 | | | 0 | | | (2,740 | ) | | 38 | |
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Total | $ | 2,782 | | | $ | 0 | | | $ | 2,782 | | | $ | (1 | ) | | $ | 0 | | | $ | (2,740 | ) | | $ | 41 | |
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| As of March 31, 2015 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | |
Description | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Pledged | | Non-Cash Collateral Pledged | | Net Liabilities |
| (unaudited) |
Derivatives | $ | 22 | | | $ | 0 | | | $ | 22 | | | $ | (1 | ) | (3) | $ | (1 | ) | | $ | 0 | | | $ | 20 | |
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Securities lending agreements | 1,657 | | | 0 | | | 1,657 | | | 0 | | | 0 | | | (1,643 | ) | | 14 | |
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Total | $ | 1,679 | | | $ | 0 | | | $ | 1,679 | | | $ | (1 | ) | | $ | (1 | ) | | $ | (1,643 | ) | | $ | 34 | |
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(3) | The balances as of December 31, 2014 and March 31, 2015 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements. | | | | | | | | | | | | | | | | | | | | | | | | | | |