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Financial Instruments (Tables)
 6 Months Ended
Jun. 30, 2016
Financial Instruments:  
Financial assets and financial liabilities measured at fair value on a recurring basis

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At June 30, 2016

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
3,198 

 

$

—

 

$
3,198 

 

Commercial paper

 

—

 

—

 

—

 

—

 

Money market funds

 
2,141 

 

—

 

—

 
2,141 

 

U.S. government securities

 

—

 
1,500 

 

—

 
1,500 

 

Canadian government securities

 

—

 
462 

 

—

 
462 

 

 

 

 

 

 

 

 

 

 

 

Total

 
2,141 

 
5,160 

 

—

 
7,301 

(6)

Debt securities - current (2)

 

—

 
599 

 

—

 
599 

(6)

Debt securities - noncurrent (3)

 
1 

 
7 

 

—

 
9 

 

Available-for-sale equity investments (3)

 
11 

 

—

 

—

 
11 

 

Derivative assets (4)

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

—

 
1,015 

 

—

 
1,015 

 

Foreign exchange contracts

 

—

 
258 

 

—

 
258 

 

Equity contracts

 

—

 
11 

 

—

 
11 

 

 

 

 

 

 

 

 

 

 

 

Total

 

—

 
1,284 

 

—

 
1,284 

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
2,153 

 

$
7,051 

 

$

—

 

$
9,204 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

—

 

$
406 

 

$

—

 

$
406 

 

Equity contracts

 

—

 
8 

 

—

 
8 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

—

 

$
414 

 

$

—

 

$
414 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Included within cash and cash equivalents in the Consolidated Statement of Financial Position.

(2)

U.S. government securities, time deposits and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position.

(3)

Included within investments and sundry assets in the Consolidated Statement of Financial Position.

(4)

The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at June 30, 2016 were $262 million and $1,022 million, respectively.

(5)

The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at June 30, 2016 were $374 million and $40 million, respectively.

(6)

Available-for-sale securities with carrying values that approximate fair value.

(7)

If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $280 million.

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At December 31, 2015

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
2,856 

 

$

—

 

$
2,856 

 

Money market funds

 
2,069 

 

—

 

—

 
2,069 

 

Other securities

 

—

 
18 

 

—

 
18 

 

 

 

 

 

 

 

 

 

 

 

Total

 
2,069 

 
2,874 

 

—

 
4,943 

(6)

Debt securities - current (2)

 

—

 
506 

 

—

 
506 

(6)

Debt securities - noncurrent (3)

 
1 

 
6 

 

—

 
8 

 

Trading security investments (3)

 
28 

 

—

 

—

 
28 

 

Available-for-sale equity investments (3)

 
192 

 

—

 

—

 
192 

 

Derivative assets (4)

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

—

 
656 

 

—

 
656 

 

Foreign exchange contracts

 

—

 
332 

 

—

 
332 

 

Equity contracts

 

—

 
6 

 

—

 
6 

 

 

 

 

 

 

 

 

 

 

 

Total

 

—

 
994 

 

—

 
994 

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
2,290 

 

$
4,381 

 

$

—

 

$
6,671 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

—

 

$
164 

 

$

—

 

$
164 

 

Equity contracts

 

—

 
19 

 

—

 
19 

 

Interest rate contracts

 

—

 
3 

 

—

 
3 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

—

 

$
186 

 

$

—

 

$
186 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Included within cash and cash equivalents in the Consolidated Statement of Financial Position.

(2)

Commercial paper and certificates of deposit reported as marketable securities in the Consolidated Statement of Financial Position.

(3)

Included within investments and sundry assets in the Consolidated Statement of Financial Position.

(4)

The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2015 were $292 million and $702 million, respectively.

(5)

The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2015 were $164 million and $22 million, respectively.

(6)

Available-for-sale securities with carrying values that approximate fair value.

(7)

If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $139 million. 
Noncurrent debt and marketable equity securities available-for-sale and recorded at fair value

 

 

 

 

 

Gross

 

Gross

 

 

 

(Dollars in millions)

 

Adjusted

 

Unrealized

 

Unrealized

 

Fair

 

At June 30, 2016:

 

Cost

 

Gains

 

Losses

 

Value

 

Debt securities — noncurrent(1)

 

$
6 

 

$
3 

 

$

—

 

$
9 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale equity investments(1)

 

$
2 

 

$
9 

 

$
0 

 

$
11 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included within investments and sundry assets in the Consolidated Statement of Financial Position.

 

 

 

 

 

Gross

 

Gross

 

 

 

(Dollars in millions)

 

Adjusted

 

Unrealized

 

Unrealized

 

Fair

 

At December 31, 2015:

 

Cost

 

Gains

 

Losses

 

Value

 

Debt securities — noncurrent(1)

 

$
5 

 

$
3 

 

$

—

 

$
8 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale equity investments(1)

 

$
186 

 

$
6 

 

$
0 

 

$
192 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Included within investments and sundry assets in the Consolidated Statement of Financial Position.

 

Sales of debt and available-for-sale equity investments

 

(Dollars in millions)

 

 

 

 

 

For the three months ended June 30:

 

2016

 

2015

 

Proceeds

 

$
1 

 

$
1 

 

Gross realized gains (before taxes)

 
0 

 
0 

 

Gross realized losses (before taxes)

 
0 

 
0 

 

 

(Dollars in millions)

 

 

 

 

 

For the six months ended June 30:

 

2016

 

2015

 

Proceeds

 

$
149 

 

$
6 

 

Gross realized gains (before taxes)

 
0 

 
1 

 

Gross realized losses (before taxes)

 
37 

 
0 

 

 

Unrealized gains/(losses) on available-for-sale debt and equity securities

 

(Dollars in millions)

 

 

 

 

 

For the three months ended June 30:

 

2016

 

2015

 

Net unrealized gains/(losses) arising during the period

 

$
1

 

$
(10

)

Net unrealized (gains)/losses reclassified to net income*

 
0

 
0

 

 

 

*There were no writedowns for the three months ended June 30, 2016 and 2015, respectively.

 

(Dollars in millions)

 

 

 

 

 

For the six months ended June 30:

 

2016

 

2015

 

Net unrealized gains/(losses) arising during the period

 

$
(22

)

$
10

 

Net unrealized (gains)/losses reclassified to net income*

 
23

 
0

 

 

* There were no writedowns for the six months ended June 30, 2016 and 2015, respectively.

 

Fair Value of Derivative Instruments in the Consolidated Statement of Financial Position

Fair Values of Derivative Instruments in the Consolidated Statement of Financial Position

As of June 30, 2016 and December 31, 2015

 

 

 

Fair Value of Derivative Assets

 

Fair Value of Derivative Liabilities

 

 

 

Balance Sheet

 

 

 

 

 

Balance Sheet

 

 

 

 

 

(Dollars in millions)

 

Classification

 

6/30/2016

 

12/31/2015

 

Classification

 

6/30/2016

 

12/31/2015

 

Designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts:

 

Prepaid expenses and other current assets

 

$

—

 

$

—

 

Other accrued expenses and liabilities

 

$

—

 

$

—

 

 

 

Investments and sundry assets

 
1,015 

 
656 

 

Other liabilities

 

—

 
3 

 

Foreign exchange contracts:

 

Prepaid expenses and other current assets

 
163 

 
197 

 

Other accrued expenses and liabilities

 
311 

 
70 

 

 

 

Investments and sundry assets

 
7 

 
5 

 

Other liabilities

 
25 

 
19 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

 

 

$
1,185 

 

$
858 

 

Fair value of derivative liabilities

 

$
335 

 

$
92 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

Prepaid expenses and other current assets

 

$
88 

 

$
90 

 

Other accrued expenses and liabilities

 

$
55 

 

$
75 

 

 

 

Investments and sundry assets

 
0 

 
40 

 

Other liabilities

 
15 

 

—

 

Equity contracts:

 

Prepaid expenses and other current assets

 
11 

 
6 

 

Other accrued expenses and liabilities

 
8 

 
19 

 

 

 

Investments and sundry assets

 

—

 

—

 

Other liabilities

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

 

 

$
99 

 

$
136 

 

Fair value of derivative liabilities

 

$
79 

 

$
94 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

N/A

 

N/A

 

 

 

$
827 

 

$

—

 

Long-term debt

 

 

 

N/A

 

N/A

 

 

 

$
8,359 

 

$
7,945 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
1,284 

 

$
994 

 

 

 

$
9,600 

 

$
8,131 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A-not applicable

 

Effect of Derivative Instruments in the Consolidated Statement of Earnings

The Effect of Derivative Instruments in the Consolidated Statement of Earnings

For the three months ended June 30, 2016 and 2015

 

 

 

Gain (Loss) Recognized in Earnings

 

 

 

Consolidated

 

Recognized on

 

Attributable to Risk

 

(Dollars in millions)

 

Statement of

 

Derivatives(1)

 

Being Hedged(2)

 

For the three months ended June 30:

 

Earnings Line Item

 

2016

 

2015

 

2016

 

2015

 

Derivative instruments in fair value hedges(5):

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Cost of financing

 

$
77

 

$
(78

)

$
(55

)

$
102

 

 

 

Interest expense

 
88

 
(65

)
(63

)
86

 

Derivative instruments not designated as hedging instruments(1):

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other (income) and expense

 
184

 
(91

)

N/A

 

N/A

 

Interest rate contracts

 

Other (income) and expense

 
0

 
(1

)

N/A

 

N/A

 

Equity contracts

 

SG&A expense

 
21

 
(6

)

N/A

 

N/A

 

 

 

Other (income) and expense

 
0

 
2

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
370

 

$
(238

)

$
(118

)

$
189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in Earnings and Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

(Ineffectiveness) and

 

(Dollars in millions)

 

Effective Portion

 

Consolidated

 

Effective Portion Reclassified

 

Amounts Excluded from

 

For the three months

 

Recognized in OCI

 

Statement of

 

from AOCI

 

Effectiveness Testing(3)

 

ended June 30:

 

2016

 

2015

 

Earnings Line Item

 

2016

 

2015

 

2016

 

2015

 

Derivative instruments in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

—

 

$

—

 

Interest expense

 

$
(7

)

$
0

 

$

—

 

$

—

 

Foreign exchange contracts

 
9

 
(187

)

Other (income) and expense

 
(75

)
221

 
(1

)
3

 

 

 

 

 

 

 

Cost of sales

 
(13

)
58

 

—

 

—

 

 

 

 

 

 

 

SG&A expense

 
(7

)
42

 

—

 

—

 

Instruments in net investment hedges(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 
(247

)
(175

)

Interest expense

 

—

 

—

 
16

 
2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
(238

)

$
(362

)

 

 

$
(102

)

$
321

 

$
15

 

$
5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A-not applicable

 

Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity.

 

(1)

The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.

(2)

The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.

(3)

The amount of gain/(loss) recognized in income represents ineffectiveness on hedge relationships.

(4)

Instruments in net investment hedges include derivative and non-derivative instruments.

(5)

For the three month periods ended June 30, 2016 and June 30, 2015, fair value hedges resulted in a gains of $1 million and a loss of $5 million in ineffectiveness, respectively.

 

The Effect of Derivative Instruments in the Consolidated Statement of Earnings

For the six months ended June 30, 2016 and 2015

 

 

 

Gain (Loss) Recognized in Earnings

 

 

 

Consolidated

 

Recognized on

 

Attributable to Risk

 

(Dollars in millions)

 

Statement of

 

Derivatives(1)

 

Being Hedged(2)

 

For the six months ended June 30:

 

Earnings Line Item

 

2016

 

2015

 

2016

 

2015

 

Derivative instruments in fair value hedges(4):

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Cost of financing

 

$
213

 

$
15

 

$
(166

)

$
39

 

 

 

Interest expense

 
236

 
13

 
(184

)
32

 

Derivative instruments not designated as hedging instruments(1):

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other (income) and expense

 
305

 
(74

)

N/A

 

N/A

 

Interest rate contracts

 

Other (income) and expense

 
0

 
(1

)

N/A

 

N/A

 

Equity contracts

 

SG&A expense

 
43

 
18

 

N/A

 

N/A

 

 

 

Other (income) and expense

 
(1

)
3

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
796

 

$
(26

)

$
(350

)

$
71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in Earnings and Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

(Ineffectiveness) and

 

 

 

Effective Portion

 

Consolidated

 

Effective Portion Reclassified

 

Amounts Excluded from

 

For the six months

 

Recognized in OCI

 

Statement of

 

from AOCI

 

Effectiveness Testing

 

ended June 30:

 

2016

 

2015

 

Earnings Line Item

 

2016

 

2015

 

2016

 

2015

 

Derivative instruments in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

—

 

$

—

 

Interest expense

 

$
(9

)

$
0

 

$

—

 

$

—

 

Foreign exchange contracts

 
(256

)
432

 

Other (income) and expense

 
12

 
380

 
0

 
3

 

 

 

 

 

 

 

Cost of sales

 
(10

)
108

 

—

 

—

 

 

 

 

 

 

 

SG&A expense

 
(3

)
82

 

—

 

—

 

Instruments in net investment hedges(3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 
(940

)
519

 

Interest expense

 

—

 

—

 
26

 
3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
(1,197

)

$
951

 

 

 

$
(11

)

$
570

 

$
26

 

$
6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A-not applicable

 

Note: OCI represents Other comprehensive income/(loss) in the Consolidated Statement of Comprehensive Income and AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity.

 

(1)

The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.

(2)

The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.

(3)

Instruments in net investment hedges include derivative and non-derivative instruments.

(4)

For the six month periods ended June 30, 2016 and June 30, 2015, fair value hedges resulted in a gain of $3 million and a loss of $3 million in ineffectiveness, respectively.