Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

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


(Dollars in millions)
At September 30, 2019	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	6,251	$	—	$	6,251	(6)
Money market funds		597		—		—		597
Total	$	597	$	6,251	$	—	$	6,848
Equity investments (2)		0		—		—		0
Debt securities – current (3)		—		733		—		733	(6)
Debt securities – noncurrent (2)		—		111		—		111	(6)
Derivative assets (4)		4		533		—		536
Total assets	$	601	$	7,628	$	—	$	8,229
Liabilities:
Derivative liabilities (5)	$	—	$	1,074	$	—	$	1,074

(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 September 30, 2019 were $395 million and $141 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, 2019 were $203 million and $870 million, respectively.

(6)	Available-for-sale debt securities with carrying values that approximate fair value.


(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
Total assets	$	26	$	9,028	$	—	$	9,053
Liabilities:
Derivative liabilities (5)	$	40	$	343	$	—	$	383

(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.

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	9/30/2019		12/31/2018		Classification	9/30/2019		12/31/2018
Designated as hedging instruments:
Interest rate contracts	Prepaid expenses and other current assets	$	9	$	9	Other accrued expenses and liabilities	$	—	$	4
	Investments and sundry assets		106		212	Other liabilities		2		76
Foreign exchange contracts	Prepaid expenses and other current assets		368		348	Other accrued expenses and liabilities		165		110
	Investments and sundry assets		35		135	Other liabilities		869		129
	Fair value of derivative assets	$	518	$	704	Fair value of derivative liabilities	$	1,035	$	320
Not designated as hedging instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	12	$	26	Other accrued expenses and liabilities	$	36	$	13
Equity contracts	Prepaid expenses and other current assets		6		2	Other accrued expenses and liabilities		2		51
	Fair value of derivative assets	$	18	$	28	Fair value of derivative liabilities	$	38	$	63
Total derivatives		$	536	$	731		$	1,074	$	383
Total debt designated as hedging instruments (1):
Short-term debt			N/A		N/A		$	—	$	—
Long-term debt			N/A		N/A			6,061		6,261
			N/A		N/A		$	6,061	$	6,261
Total		$	536	$	731		$	7,134	$	6,644

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

N/A - not applicable


	September 30,			December 31,
(Dollars in millions)	2019			2018
Short-term debt:
Carrying amount of the hedged item	$	(326)		$	(1,878)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(1)	(1)		(4)	(1)
Long-term debt:
Carrying amount of the hedged item	$	(4,834)		$	(6,004)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(469)	(2)		(333)	(2)

(1)	Includes ($1) million and ($6) million of hedging adjustments on discontinued hedging relationships at September 30, 2019 and December 31, 2018, respectively.

(2)	Includes ($378) million and ($213) million of hedging adjustments on discontinued hedging relationships at September 30, 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 September 30:	2019		2018			2019		2018
Cost of services	$	7,840	$	7,951	*	$	22	$	1
Cost of sales		1,635		1,714	*		10		8
Cost of financing		217		287			(11)		(3)	*
SG&A expense		5,024		4,363			20		47
Other (income) and expense		(31)		275			(561)		(63)
Interest expense		432		191			(35)		(3)	*

* Reclassified to conform to current period 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 September 30:	Earnings Line Item	2019		2018		2019		2018
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	3	$	(27)	$	0	$	33
	Interest expense		9		(26)		0		33
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(114)		(55)		N/A		N/A
Equity contracts	SG&A expense		9		40		N/A		N/A
Total		$	(94)	$	(69)	$	0	$	66


	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 September 30:	2019		2018		Earnings Line Item	2019		2018			2019		2018
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	—		$	—	$	—
					Interest expense		(3)		—			—		—
Foreign exchange contracts		(439)		(46)	Cost of services		22		1			—		—
					Cost of sales		10		8			—		—
					Cost of financing		(20)		(18)	*		—		—
					SG&A expense		11		7			—		—
					Other (income) and expense		(447)		(8)			—		—
					Interest expense		(61)		(18)	*		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		435		86	Cost of financing		—		—			7		9	*
					Interest expense		—		—			20		9	*
Total	$	(4)	$	40		$	(488)	$	(28)		$	27	$	18

* Reclassified to conform to current period 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


							Gains/(Losses) of
(Dollars in millions)	Total						Total Hedge Activity
For the nine months ended September 30:	2019			2018			2019		2018
Cost of services	$	24,293	*	$	25,238	*	$	52	$	29
Cost of sales		4,979	*		5,498	*		40		(15)
Cost of financing		710			846			(47)		1	*
SG&A expense		15,171			14,665			199		24
Other (income) and expense		(850)			968			(358)		(449)
Interest expense		990			530			(96)		1	*

* Reclassified to conform to current period presentation.


	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	2019		2018		2019		2018
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	51	$	(138)	$	(44)	$	170
	Interest expense		105		(128)		(89)		157
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(27)		(148)		N/A		N/A
Equity contracts	SG&A expense		153		38		N/A		N/A
Total		$	283	$	(377)	$	(133)	$	327


	Gain (Loss) Recognized in Earnings and Other Comprehensive Income
(Dollars in millions)					Consolidated	Reclassified					Amounts Excluded from
For the nine months	Recognized in OCI				Statement of	from AOCI					Effectiveness Testing(3)
ended September 30:	2019		2018		Earnings Line Item	2019		2018			2019		2018
Derivative instruments in cash flow hedges:
Interest rate contracts	$	(168)	$	—	Cost of financing	$	(2)	$	—		$	—	$	—
					Interest expense		(5)		—			—		—
Foreign exchange contracts		(630)		(134)	Cost of services		52		29			—		—
					Cost of sales		40		(15)			—		—
					Cost of financing		(71)		(56)	*		—		—
					SG&A expense		45		(14)			—		—
					Other (income) and expense		(331)		(301)			—		—
					Interest expense		(146)		(52)	*		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		306		509	Cost of financing		—		—			19		26	*
					Interest expense		—		—			38		24	*
Total	$	(491)	$	375		$	(418)	$	(408)		$	57	$	49

* Reclassified to conform to current period 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