Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Financial assets and financial liabilities measured at fair value on a recurring basis

(Dollars in millions)
At September 30, 2016	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	1,948	$	—	$	1,948
Money market funds	2,237		—		—		2,237
U.S. government securities	—		1,299		—		1,299
Canadian government securities	—		456		—		456
Other securities	—		34		—		34

Total	2,237		3,737		—		5,974		(6)
Debt securities - current (2)	—		929		—		929		(6)
Debt securities - noncurrent (3)	1		7		—		9
Available-for-sale equity investments (3)	12		—		—		12
Derivative assets (4)
Interest rate contracts	—		919		—		919
Foreign exchange contracts	—		245		—		245
Equity contracts	—		2		—		2

Total	—		1,166		—		1,166		(7)

Total assets	$	2,250	$	5,840	$	—	$	8,090	(7)

Liabilities:
Derivative liabilities (5)
Foreign exchange contracts	$	—	$	277	$	—	$	277
Equity contracts	—		9		—		9

Total liabilities	$	—	$	286	$	—	$	286	(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 September 30, 2016 were $198 million and $967 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 September 30, 2016 were $282 million and $3 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 $185 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 September 30, 2016:	Cost		Gains		Losses		Value
Debt securities — noncurrent(1)	$	6	$	3	$	—	$	9

Available-for-sale equity investments(1)	$	3	$	9	$	0	$	12

(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 September 30:	2016		2015
Proceeds	$	1	$	1
Gross realized gains (before taxes)	1		0
Gross realized losses (before taxes)	—		0

(Dollars in millions)
For the nine months ended September 30:	2016		2015
Proceeds	$	150	$	7
Gross realized gains (before taxes)	1		1
Gross realized losses (before taxes)	37		1

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

(Dollars in millions)
For the three months ended September 30:	2016			2015
Net unrealized gains/(losses) arising during the period	$	(1	)	$	(63	)
Net unrealized (gains)/losses reclassified to net income*	(1		)	0

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

(Dollars in millions)
For the nine months ended September 30:	2016			2015
Net unrealized gains/(losses) arising during the period	$	(22	)	$	(52	)
Net unrealized (gains)/losses reclassified to net income*	22			0

* There were no writedowns for the nine months ended September 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 September 30, 2016 and December 31, 2015

	Fair Value of Derivative Assets					Fair Value of Derivative Liabilities
	Balance Sheet					Balance Sheet
(Dollars in millions)	Classification	9/30/2016		12/31/2015		Classification	9/30/2016		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	919		656		Other liabilities	—		3
Foreign exchange contracts:	Prepaid expenses and other current assets	123		197		Other accrued expenses and liabilities	200		70
	Investments and sundry assets	49		5		Other liabilities	3		19


Fair value of derivative assets		$	1,091	$	858	Fair value of derivative liabilities	$	203	$	92


Not designated as hedging instruments:
Foreign exchange contracts:	Prepaid expenses and other current assets	$	73	$	90	Other accrued expenses and liabilities	$	74	$	75
	Investments and sundry assets	0		40		Other liabilities	—		—
Equity contracts:	Prepaid expenses and other current assets	2		6		Other accrued expenses and liabilities	9		19
	Investments and sundry assets	—		—		Other liabilities	—		—

Fair value of derivative assets		$	75	$	136	Fair value of derivative liabilities	$	82	$	94


Total debt designated as hedging instruments:
Short-term debt		N/A		N/A			$	829	$	—
Long-term debt		N/A		N/A			$	8,412	$	7,945


Total		$	1,166	$	994		$	9,526	$	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 September 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 September 30:	Earnings Line Item	2016			2015			2016		2015
Derivative instruments in fair value hedges(5):
Interest rate contracts	Cost of financing	$	(20	)	$	125		$	40	$	(99	)
	Interest expense	(21		)	112			43		(88		)
Derivative instruments not designated as hedging instruments(1):
Foreign exchange contracts	Other (income) and expense	30			208			N/A		N/A
Interest rate contracts	Other (income) and expense	0			0			N/A		N/A
Equity contracts	SG&A expense	45			(81		)	N/A		N/A
	Other (income) and expense	0			(8		)	N/A		N/A


Total		$	34		$	357		$	83	$	(187	)

	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 September 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	35			36		Other (income) and expense	(6		)	185		(1		)	0
						Cost of sales	(4		)	46		—			—
						SG&A expense	2			43		—			—
Instruments in net investment hedges(4):
Foreign exchange contracts	(131		)	73		Interest expense	—			—		25			4


Total	$	(96	)	$	109		$	(15	)	$	273	$	24		$	4

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 September 30, 2016 and September 30, 2015, fair value hedges resulted in a loss of $3 million and a gain of $1 million in ineffectiveness, respectively.

The Effect of Derivative Instruments in the Consolidated Statement of Earnings

For the nine months ended September 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 nine months ended September 30:	Earnings Line Item	2016			2015			2016			2015
Derivative instruments in fair value hedges(4):
Interest rate contracts	Cost of financing	$	195		$	145		$	(127	)	$	(63	)
	Interest expense	214			121			(140		)	(53		)
Derivative instruments not designated as hedging instruments(1):
Foreign exchange contracts	Other (income) and expense	335			134			N/A			N/A
Interest rate contracts	Other (income) and expense	0			(2		)	N/A			N/A
Equity contracts	SG&A expense	87			(63		)	N/A			N/A
	Other (income) and expense	(1		)	(5		)	N/A			N/A


Total		$	830		$	330		$	(267	)	$	(116	)

	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 nine months	Recognized in OCI					Statement of	from AOCI					Effectiveness Testing
ended September 30:	2016			2015		Earnings Line Item	2016			2015		2016			2015
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—		$	—	Interest expense	$	(17	)	$	0	$	—		$	—
Foreign exchange contracts	(221		)	467		Other (income) and expense	6			565		(1		)	4
						Cost of sales	(14		)	154		—			—
						SG&A expense	(1		)	124		—			—
Instruments in net investment hedges(3):
Foreign exchange contracts	(1,071		)	592		Interest expense	—			—		51			6


Total	$	(1,292	)	$	1,059		$	(26	)	$	843	$	49		$	10

N/A-not applicable

(1)

(2)

(3)

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

(4)

For the nine month periods ended September 30, 2016 and September 30, 2015, fair value hedges resulted in a gain of $1 million and a loss of $2 million in ineffectiveness, respectively.