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Financial Instruments (Tables)
 3 Months Ended
Mar. 31, 2019
Financial Instruments  
Financial assets and financial liabilities measured at fair value on a recurring basis

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At March 31, 2019

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
12,686

 

$

—

 

$
12,686

(6)

Money market funds

 
25

 

—

 

—

 
25

 

U.S. government securities

 

—

 
1,498

 

—

 
1,498

(6)

 

 

 

 

 

 

 

 

 

 

Total

 

$
25

 

$
14,184

 

$

—

 

$
14,209

 

Equity investments (2) 

 
0

 

—

 

—

 
0

 

Debt securities - current (3)

 

—

 
872

 

—

 
872

(6)

Derivative assets (4)

 
4

 
690

 

—

 
694

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
29

 

$
15,747

 

$

—

 

$
15,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

$

—

 

$
705

 

$

—

 

$
705

(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, 2019 were $346 million and $348 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, 2019 were $316 million and $389 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 $353 million.

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents (1)

 

 

 

 

 

 

 

 

 

Time deposits and certificates of deposit

 

$

—

 

$
7,679

 

$

—

 

$
7,679

(6)

Money market funds

 
25

 

—

 

—

 
25

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
25

 

$
7,679

 

$

—

 

$
7,704

 

Equity investments (2) 

 
0

 

—

 

—

 
0

 

Debt securities - current (3)

 

—

 
618

 

—

 
618

(6)

Derivative assets (4)

 
1

 
731

 

—

 
731

(7)

 

 

 

 

 

 

 

 

 

 

Total assets

 

$
26

 

$
9,028

 

$

—

 

$
9,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative liabilities (5)

 

$
40

 

$
343

 

$

—

 

$
383

(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 December 31, 2018 were $385 million and $347 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, 2018 were $177 million and $206 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 $267 million.

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

 

3/31/2019

 

12/31/2018

 

Classification

 

3/31/2019

 

12/31/2018

 

Designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Prepaid expenses and other current assets

 

$
12

 

$
9

 

Other accrued expenses and liabilities

 

$
211

 

$
4

 

 

 

Investments and sundry assets

 
245

 
212

 

Other liabilities

 
24

 
76

 

Foreign exchange contracts

 

Prepaid expenses and other current assets

 
301

 
348

 

Other accrued expenses and liabilities

 
99

 
110

 

 

 

Investments and sundry assets

 
104

 
135

 

Other liabilities

 
365

 
129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

$
662

 

$
704

 

Fair value of derivative liabilities

 

$
699

 

$
320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and other current assets

 

$
22

 

$
26

 

Other accrued expenses and liabilities

 

$
5

 

$
13

 

Equity contracts

 

Prepaid expenses and other current assets

 
10

 
2

 

Other accrued expenses and liabilities

 
0

 
51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of derivative assets

 

$
32

 

$
28

 

Fair value of derivative liabilities

 

$
6

 

$
63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

 

 

$
694

 

$
731

 

 

 

$
705

 

$
383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt designated as hedging instruments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

N/A

 

N/A

 

 

 

$

—

 

$

—

 

Long-term debt

 

 

 

N/A

 

N/A

 

 

 
6,175

 
6,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

N/A

 

 

 

$
6,175

 

$
6,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
694

 

$
731

 

 

 

$
6,880

 

$
6,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Debt designated as hedging instruments are reported at carrying value.

N/A – not applicable

 

Amounts related to cumulative basis adjustments for fair value hedges

 

 

 

March 31,

 

December 31,

 

(Dollars in millions)

 

2019

 

2018

 

Short-term debt:

 

 

 

 

 

Carrying amount of the hedged item

 

$
(1,129

)

$
(1,878

)

Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)

 
(4

)(1)
(4

)(1)

Long-term debt:

 

 

 

 

 

Carrying amount of the hedged item

 

$
(6,073

)

$
(6,004

)

Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)

 
(402

)(2)
(333

)(2)

 

 

(1) Includes ($4) million and ($6) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively.

(2) Includes ($209) million and ($213) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively.

 

Effect of Derivative Instruments in the Consolidated Statement of Earnings

 

 

 

 

 

Gains/(Losses) of

 

(Dollars in millions)

 

Total

 

Total Hedge Activity

 

For the three months ended March 31:

 

2019

 

2018

 

2019

 

2018

 

Cost of services

 

$
8,359

 

$
8,835

 

$
10

 

$
19

 

Cost of sales

 
1,516

 
1,722

 
18

 
(17

)

Cost of financing

 
264

 
269

 
(18

)
4

*

SG&A expense

 
4,691

 
5,445

 
141

 
(33

)

Other (income) and expense

 
(73

)
413

 
(69

)
49

 

Interest expense

 
210

 
165

 
(20

)
4

*

 

 

* Reclassified to conform to 2019 presentation.

 

 

 

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

 

2019

 

2018

 

2019

 

2018

 

Derivative instruments in fair value hedges(1):

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Cost of financing

 

$
36

 

$
(80

)

$
(33

)

$
96

 

 

 

Interest expense

 
39

 
(72

)
(36

)
87

 

Derivative instruments not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other (income) and expense

 
18

 
(55

)

N/A

 

N/A

 

Equity contracts

 

SG&A expense

 
119

 
(14

)

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
212

 

$
(222

)

$
(69

)

$
182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

2019

 

2018

 

Earnings Line Item

 

2019

 

2018

 

2019

 

2018

 

Derivative instruments in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$
(171

)

$

—

 

Cost of financing

 

$

—

 

$

—

 

$

—

 

$

—

 

 

 

 

 

 

 

Interest expense

 

—

 

—

 

—

 

—

 

Foreign exchange contracts

 
(181

)
61

 

Cost of services

 
10

 
19

 

—

 

—

 

 

 

 

 

 

 

Cost of sales

 
18

 
(17

)

—

 

—

 

 

 

 

 

 

 

Cost of financing

 
(29

)
(18

)*

 

 

 

 

 

 

 

 

 

 

SG&A expense

 
22

 
(18

)

—

 

—

 

 

 

 

 

 

 

Other (income) and expense

 
(87

)
104

 

—

 

—

 

 

 

 

 

 

 

Interest expense

 
(33

)
(16

)*

 

 

 

 

Instruments in net investment hedges(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

 

 

 

 

Cost of financing

 

—

 

—

 
8

 
6

*

 

 
19

 
(204

)

Interest expense

 

—

 

—

 
9

 
6

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
(333

)

$
(143

)

 

 

$
(98

)

$
54

 

$
17

 

$
12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2019 presentation.

 

(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.

 

N/A - not applicable