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Financial Instruments (Tables)
 3 Months Ended
Mar. 31, 2018
Financial Instruments  
Financial assets and financial liabilities measured at fair value on a recurring basis

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At March 31, 2018

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
8,323

 

$

—

 

$
8,323

(6)

Money market funds

 
25

 

—

 

—

 
25

 

 

 

 

 

 

 

 

 

 

 

Total

 
25

 
8,323

 

—

 
8,348

 

Equity investments (2)

 
4

 

—

 

—

 
4

 

Debt securities - current (3)

 

—

 
893

 

—

 
893

(6)

Derivative assets (4)

 

—

 
940

 

—

 
940

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
29

 

$
10,156

 

$

—

 

$
10,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

$

—

 

$
352

 

$

—

 

$
352

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

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

(3)

Included within marketable securities 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 March 31, 2018 were $118 million and $822 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 March 31, 2018 were $273 million and $79 million, respectively.

(6)

Available-for-sale debt 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 $272 million.

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At December 31, 2017

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
8,066

 

$

—

 

$
8,066

 

Commercial paper

 

—

 
96

 

—

 
96

 

Money market funds

 
26

 

—

 

—

 
26

 

Canadian government securities

 

—

 
398

 

—

 
398

 

 

 

 

 

 

 

 

 

 

 

Total

 
26

 
8,560

 

—

 
8,586

(6)

Equity investments (2)

 
4

 

—

 

—

 
4

 

Debt securities - current (3)

 

—

 
608

 

—

 
608

(6)

Debt securities - noncurrent (2)

 
4

 
7

 

—

 
11

 

Derivative assets (4)

 

—

 
942

 

—

 
942

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
33

 

$
10,117

 

$

—

 

$
10,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

$

—

 

$
415

 

$

—

 

$
415

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

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

(3)

U.S government securities reported as marketable securities 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, 2017 were $185 million and $757 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, 2017 were $377 million and $38 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 $255 million.

 

Sales of available-for-sale securities

 

(Dollars in millions)

 

 

 

 

 

For the three months ended March 31:

 

2018

 

2017

 

Proceeds

 

$
0

 

$
5

 

Gross realized gains (before taxes)

 

—

 
1

 

Gross realized losses (before taxes)

 

—

 
2

 

 

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

 

(Dollars in millions)

 

 

 

 

 

For the three months ended March 31:

 

2018

 

2017

 

Net unrealized gains/(losses) arising during the period

 

$
(2

)

$
(1

)

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

 
0

 
1

 

 

*There were no writedowns for the three months ended March 31, 2018 and 2017, 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

 

3/31/2018

 

12/31/2017

 

Classification

 

3/31/2018

 

12/31/2017

 

Designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts:

 

Prepaid expenses and other current assets

 

$

—

 

$
2

 

Other accrued expenses and liabilities

 

$
5

 

$

—

 

 

 

Investments and sundry assets

 
303

 
459

 

Other liabilities

 
73

 
34

 

Foreign exchange contracts:

 

Prepaid expenses and other current assets

 
98

 
111

 

Other accrued expenses and liabilities

 
223

 
318

 

 

 

Investments and sundry assets

 
519

 
298

 

Other liabilities

 
6

 
3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

$
920

 

$
870

 

Fair value of derivative liabilities

 

$
307

 

$
355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

Prepaid expenses and other current assets

 

$
18

 

$
61

 

Other accrued expenses and liabilities

 

$
15

 

$
57

 

Equity contracts:

 

Prepaid expenses and other current assets

 
2

 
12

 

Other accrued expenses and liabilities

 
30

 
3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

$
20

 

$
72

 

Fair value of derivative liabilities

 

$
45

 

$
60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$
940

 

$
942

 

 

 

$
352

 

$
415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt designated as hedging instruments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

N/A

 

N/A

 

 

 

$

—

 

$

—

 

Long-term debt

 

 

 

N/A

 

N/A

 

 

 
6,692

 
6,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

N/A

 

 

 

$
6,692

 

$
6,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
940

 

$
942

 

 

 

$
7,044

 

$
6,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A - not applicable

(1)

Debt designated as hedging instruments are reported at carrying value.

 

Amounts related to cumulative basis adjustments for fair value hedges

 

(Dollars in millions)

 

 

 

Cumulative Amount of

 

Line Item in the

 

Carrying Amount of the

 

Fair Value Hedging Adjustment

 

Consolidated Statement of Financial Position

 

Hedged Item

 

Included in the Carrying

 

in which the Hedged Item is Included

 

Assets/(Liabilities)

 

Amount of Assets/(Liabilities)

 

Short-term debt

 

$
(744

)

$
5

 

Long-term debt

 

$
(9,503

)

$
(348

) (1)

 

(1)

Includes ($190) million of hedging adjustments on discontinued hedging relationships.

 

Effect of Derivative Instruments in the Consolidated Statement of Earnings

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

(Dollars in millions)

 

Cost of

 

Cost of

 

Cost of

 

SG&A

 

(Income) and

 

Interest

 

For the three months ended March 31, 2018:

 

Services

 

Sales

 

Financing

 

Expense

 

Expense

 

Expense

 

Total

 

$
8,835

 

$
1,722

 

$
269

 

$
5,445

 

$
413

 

$
165

 

Gains/(losses) of total hedge activity

 
19

 
(17

)
23

 
(33

)
49

 
(15

)

 

 

 

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 March 31:

 

Earnings Line Item

 

2018

 

2017

 

2018

 

2017

 

Derivative instruments in fair value hedges(1):

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Cost of financing

 

$
(80

)

$
(1

)

$
96

 

$
23

 

 

 

Interest expense

 
(72

)
(1

)
87

 
20

 

Derivative instruments not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other (income) and expense

 
(55

)
(76

)

N/A

 

N/A

 

Equity contracts

 

SG&A expense

 
(14

)
46

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
(222

)

$
(32

)

$
182

 

$
42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in Earnings and Other Comprehensive Income

 

(Dollars in millions)

 

 

 

 

 

Consolidated

 

Reclassified

 

Amounts Excluded from

 

For the three months

 

Recognized in OCI

 

Statement of

 

from AOCI

 

Effectiveness Testing(3)

 

ended March 31:

 

2018

 

2017

 

Earnings Line Item

 

2018

 

2017

 

2018

 

2017

 

Derivative instruments in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

—

 

$

—

 

Interest expense

 

$
(34

)

$
(7

)

$

—

 

$

—

 

Foreign exchange contracts

 
61

 
(33

)

Other (income) and expense

 
104

 
65

 

—

 
1

 

 

 

 

 

 

 

Cost of sales

 
(17

)
11

 

—

 

—

 

 

 

 

 

 

 

Cost of services

 
19

 
8

 

—

 

—

 

 

 

 

 

 

 

SG&A expense

 
(18

)
20

 

—

 

—

 

Instruments in net investment hedges(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 
(204

)
(282

)

Cost of financing

 

—

 

—

 
7

 

—

 

contracts

 

 

 

 

 

Interest expense

 

—

 

—

 
5

 
19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
(143

)

$
(315

)

 

 

$
54

 

$
98

 

$
12

 

$
20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior period gain or loss amounts and presentation are not conformed to the new hedge accounting guidance that the company adopted in 2018. Refer to note 2, “Accounting Changes,” for further information.

 

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 company’s policy is to recognize all fair value changes in amounts excluded from effectiveness testing in net income each period.

(4)

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