Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

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

(Dollars in millions)
At September 30, 2017	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	5,553	$	—	$	5,553
Money market funds	1,375		—		—		1,375
U.S. government securities	—		200		—		200
Canadian government securities	—		460		—		460

Total	1,375		6,214		—		7,589		(6)
Debt securities - current (2)	—		599		—		599		(6)
Debt securities - noncurrent (3)	4		7		—		11
Available-for-sale equity investments (3)	5		—		—		5
Derivative assets (4)
Interest rate contracts	—		517		—		517
Foreign exchange contracts	—		416		—		416
Equity contracts	—		23		—		23

Total	—		957		—		957		(7)

Total assets	$	1,384	$	7,775	$	—	$	9,159	(7)

Liabilities:
Derivative liabilities (5)
Foreign exchange contracts	$	—	$	333	$	—	$	333
Equity contracts	—		4		—		4
Interest rate contracts	—		15		—		15

Total liabilities	$	—	$	352	$	—	$	352	(7)

(1)

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

(2)

U.S. government securities 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, 2017 were $269 million and $687 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, 2017 were $332 million and $20 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 $274 million.

(Dollars in millions)
At December 31, 2016	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	3,629	$	—	$	3,629
Money market funds	1,204		—		—		1,204

Total	1,204		3,629		—		4,832		(6)
Debt securities - current (2)	—		699		—		699		(6)
Debt securities - noncurrent (3)	1		6		—		8
Available-for-sale equity investments (3)	7		—		—		7
Derivative assets (4)
Interest rate contracts	—		555		—		555
Foreign exchange contracts	—		560		—		560
Equity contracts	—		11		—		11

Total	—		1,126		—		1,126		(7)

Total assets	$	1,212	$	5,460	$	—	$	6,672	(7)

Liabilities:
Derivative liabilities (5)
Foreign exchange contracts	$	—	$	188	$	—	$	188
Equity contracts	—		10		—		10
Interest rate contracts	—		8		—		8

Total liabilities	$	—	$	206	$	—	$	206	(7)

(1)

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

(2)

U.S government securities 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, 2016 were $532 million and $594 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, 2016 were $145 million and $61 million, respectively.

(6)

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

(7)

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, 2017:	Cost		Gains		Losses		Value
Debt securities — noncurrent(1)	$	7	$	3	$	—	$	11

Available-for-sale equity investments(1)	$	1	$	4	$	0	$	5

(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, 2016:	Cost		Gains		Losses		Value
Debt securities — noncurrent(1)	$	5	$	3	$	—	$	8

Available-for-sale equity investments(1)	$	3	$	5	$	0	$	7

(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:	2017		2016
Proceeds	$	0	$	1
Gross realized gains (before taxes)	0		1
Gross realized losses (before taxes)	—		—

(Dollars in millions)
For the nine months ended September 30:	2017		2016
Proceeds	$	5	$	150
Gross realized gains (before taxes)	1		1
Gross realized losses (before taxes)	2		37

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

(Dollars in millions)
For the three months ended September 30:	2017		2016
Net unrealized gains/(losses) arising during the period	$	1	$	(1	)
Net unrealized (gains)/losses reclassified to net income*	0		(1		)

*There were no writedowns for the three months ended September 30, 2017 and 2016, respectively.

(Dollars in millions)
For the nine months ended September 30:	2017		2016
Net unrealized gains/(losses) arising during the period	$	1	$	(22	)
Net unrealized (gains)/losses reclassified to net income*	0		22

* There were no writedowns for the nine months ended September 30, 2017 and 2016, respectively.

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

	Fair Value of Derivative Assets					Fair Value of Derivative Liabilities
	Balance Sheet					Balance Sheet
(Dollars in millions)	Classification	9/30/2017		12/31/2016		Classification	9/30/2017		12/31/2016
Designated as hedging instruments:
Interest rate contracts:	Prepaid expenses and other current assets	$	—	$	—	Other accrued expenses and liabilities	$	1	$	—
	Investments and sundry assets	517		555		Other liabilities	15		8
Foreign exchange contracts:	Prepaid expenses and other current assets	208		421		Other accrued expenses and liabilities	272		46
	Investments and sundry assets	170		17		Other liabilities	5		35

	Fair value of derivative assets	$	896	$	993	Fair value of derivative liabilities	$	292	$	89


Not designated as hedging instruments:
Foreign exchange contracts:	Prepaid expenses and other current assets	$	38	$	100	Other accrued expenses and liabilities	$	56	$	89
	Investments and sundry assets	—		22		Other liabilities	—		18
Equity contracts:	Prepaid expenses and other current assets	23		11		Other accrued expenses and liabilities	4		10
	Investments and sundry assets	—		—		Other liabilities	—		—

	Fair value of derivative assets	$	61	$	133	Fair value of derivative liabilities	$	60	$	117


Total Derivatives		$	957	$	1,126		$	352	$	206


Total debt designated as hedging instruments(1):
Short-term debt		N/A		N/A			$	377	$	1,125
Long-term debt		N/A		N/A			11,469		7,844

		N/A		N/A			$	11,846	$	8,969


Total		$	957	$	1,126		$	12,198	$	9,175

N/A - not applicable

(1)

Debt designated as hedging instruments are reported at carrying value.

Effect of Derivative Instruments in the Consolidated Statement of Earnings

	Gain (Loss) Recognized in Earnings
	Consolidated	Recognized on						Attributable to Risk
(Dollars in millions)	Statement of	Derivatives						Being Hedged(2)
For the three months ended September 30:	Earnings Line Item	2017			2016			2017		2016
Derivative instruments in fair value hedges(1)(5):
Interest rate contracts	Cost of financing	$	(3	)	$	(20	)	$	20	$	40
	Interest expense	(3		)	(21		)	20		43
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense	(35		)	30			N/A		N/A
Interest rate contracts	Other (income) and expense	—			0			N/A		N/A
Equity contracts	SG&A expense	31			45			N/A		N/A
	Other (income) and expense	—			0			N/A		N/A

Total		$	(10	)	$	34		$	41	$	83

	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:	2017			2016			Earnings Line Item	2017			2016			2017			2016
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—		$	—		Interest expense	$	(7	)	$	(7	)	$	—		$	—
Foreign exchange contracts	(70		)	35			Other (income) and expense	64			(6		)	(1		)	(1		)
							Cost of sales*	1			(7		)	—			—
							Cost of services*	20			3			—			—
							SG&A expense	(6		)	2			—			—
Instruments in net investment hedges(4):
Foreign exchange contracts	(507		)	(131		)	Cost of financing	—			—			0			—
							Interest expense	—			—			8			25

Total	$	(577	)	$	(96	)		$	73		$	(15	)	$	7		$	24

* Reclassified to conform to 2017 presentation

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, 2017 and 2016, fair value hedges resulted in a loss of less than $1 million and a loss of $3 million in ineffectiveness, respectively.

	Gain (Loss) Recognized in Earnings
	Consolidated	Recognized on					Attributable to Risk
(Dollars in millions)	Statement of	Derivatives					Being Hedged(2)
For the nine months ended September 30:	Earnings Line Item	2017		2016			2017		2016
Derivative instruments in fair value hedges(1)(5):
Interest rate contracts	Cost of financing	$	37	$	195		$	22	$	(127	)
	Interest expense	34		214			20		(140		)
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense	74		335			N/A		N/A
Interest rate contracts	Other (income) and expense	—		0			N/A		N/A
Equity contracts	SG&A expense	88		87			N/A		N/A
	Other (income) and expense	—		(1		)	N/A		N/A


Total		$	233	$	830		$	42	$	(267	)

	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(3)
ended September 30:	2017			2016			Earnings Line Item	2017			2016			2017		2016
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—		$	—		Interest expense	$	(21	)	$	(17	)	$	—	$	—
Foreign exchange contracts	(198		)	(221		)	Other (income) and expense	275			6			2		(1		)
							Cost of sales*	23			(5		)	—		—
							Cost of services*	47			(9		)	—		—
							SG&A expense	23			(1		)	—		—
Instruments in net investment hedges(4):
Foreign exchange contracts	(1,513		)	(1,071		)	Cost of financing	—			—			0		—
							Interest expense	—			—			34		51


Total	$	(1,712	)	$	(1,292	)		$	347		$	(26	)	$	37	$	49

* Reclassified to conform to 2017 presentation.

N/A-not applicable

(1)

(2)

(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 nine month periods ended September 30, 2017 and 2016, fair value hedges resulted in a loss of less than $1 million and a gain of less than $1 million in ineffectiveness, respectively.