Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Derivative Financial Instruments

Amounts related to cumulative basis adjustments for fair value hedges

	June 30,			December 31,
(Dollars in millions)	2020			2019
Short-term debt:
Carrying amount of the hedged item	$	(1,313)		$	—
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(14)			—
Long-term debt:
Carrying amount of the hedged item	$	(2,138)		$	(3,411)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(466)	(1)		(440)	(1)

(1) Includes ($378) million and ($404) million of hedging adjustments on discontinued hedging relationships at June 30, 2020 and December 31, 2019, respectively.

Effect of derivative instruments in the consolidated income statement

						Gains/(Losses) of
(Dollars in millions)	Total					Total Hedge Activity
For the three months ended June 30:	2020		2019			2020		2019
Cost of services	$	7,520	$	8,181	*	$	(1)	$	20
Cost of sales		1,739		1,741	*		9		11
Cost of financing		165		228			2		(18)
SG&A expense		5,248		5,456			157		38
Other (income) and expense		179		(747)			92		271
Interest expense		323		348			7		(39)

* Reclassified to conform to current period presentation.

	Gain (Loss) Recognized in Consolidated Income Statement
	Consolidated	Recognized on				Attributable to Risk
(Dollars in millions)	Income Statement	Derivatives				Being Hedged (2)
For the three months ended June 30:	Line Item	2020		2019		2020		2019
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	3	$	23	$	3	$	(20)
	Interest expense		8		48		8		(43)
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		22		69		N/A		N/A
Equity contracts	SG&A expense		150		26		N/A		N/A
Total		$	183	$	165	$	11	$	(64)

	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
(Dollars in millions)					Consolidated	Reclassified				Amounts Excluded from
For the three months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (3)
ended June 30:	2020		2019		Line Item	2020		2019		2020		2019
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	3	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense		(3)		(2)		—		—
Foreign exchange contracts		(36)		(10)	Cost of services		(1)		20		—		—
					Cost of sales		9		11		—		—
					Cost of financing		(6)		(24)		—		—
					SG&A expense		7		12		—		—
					Other (income) and expense		70		202		—		—
					Interest expense		(16)		(51)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		(535)		(148)	Cost of financing		—		—		4		4
					Interest expense		—		—		10		9
Total	$	(571)	$	(154)		$	59	$	168	$	14	$	13

(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 six months ended June 30:	2020		2019			2020		2019
Cost of services	$	15,363	$	16,453	*	$	9	$	29
Cost of sales		3,363		3,344	*		18		30
Cost of financing		345		492			6		(36)
SG&A expense		11,203		10,147			(34)		179
Other (income) and expense		361		(820)			(9)		202
Interest expense		649		558			16		(59)

* Reclassified to conform to current period presentation.

	Gain (Loss) Recognized in Consolidated Income Statement
	Consolidated	Recognized on				Attributable to Risk
(Dollars in millions)	Income Statement	Derivatives				Being Hedged (2)
For the six months ended June 30:	Line Item	2020		2019		2020		2019
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	21	$	55	$	(11)	$	(50)
	Interest expense		56		90		(29)		(82)
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		10		87		N/A		N/A
Equity contracts	SG&A expense		(51)		145		N/A		N/A
Total		$	37	$	377	$	(39)	$	(132)

	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
(Dollars in millions)					Consolidated	Reclassified				Amounts Excluded from
For the six months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (3)
ended June 30:	2020		2019		Line Item	2020		2019		2020		2019
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	(168)	Cost of financing	$	(2)	$	(1)	$	—	$	—
					Interest expense		(6)		(1)		—		—
Foreign exchange contracts		(216)		(191)	Cost of services		9		29		—		—
					Cost of sales		18		30		—		—
					Cost of financing		(13)		(52)		—		—
					SG&A expense		17		34		—		—
					Other (income) and expense		(19)		115		—		—
					Interest expense		(35)		(85)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		(50)		(128)	Cost of financing		—		—		11		12
					Interest expense		—		—		30		19
Total	$	(266)	$	(487)		$	(32)	$	70	$	41	$	30

(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