Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020


	September 30,			December 31,
(Dollars in millions)	2020			2019
Short-term debt:
Carrying amount of the hedged item	$	(1,308)		$	—
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(8)			—
Long-term debt:
Carrying amount of the hedged item	$	(2,117)		$	(3,411)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)		(445)	(1)		(440)	(1)

(1) Includes ($365) million and ($404) million of hedging adjustments on discontinued hedging relationships at September 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 September 30:	2020		2019		2020		2019
Cost of services	$	7,357	$	7,840	$	10	$	22
Cost of sales		1,601		1,635		(4)		10
Cost of financing		172		217		3		(11)
SG&A expense		4,647		5,024		58		20
Other (income) and expense		253		(31)		101		(561)
Interest expense		323		432		8		(35)


	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 September 30:	Line Item	2020		2019		2020		2019
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	0	$	3	$	7	$	0
	Interest expense		0		9		20		0
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		8		(114)		N/A		N/A
Equity contracts	SG&A expense		63		9		N/A		N/A
Total		$	71	$	(94)	$	27	$	0


	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 September 30:	2020		2019		Line Item	2020		2019		2020		2019
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense		(3)		(3)		—		—
Foreign exchange contracts		(32)		(439)	Cost of services		10		22		—		—
					Cost of sales		(4)		10		—		—
					Cost of financing		(5)		(20)		—		—
					SG&A expense		(5)		11		—		—
					Other (income) and expense		93		(447)		—		—
					Interest expense		(15)		(61)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		(983)		435	Cost of financing		—		—		2		7
					Interest expense		—		—		7		20
Total	$	(1,015)	$	(4)		$	69	$	(488)	$	9	$	27

(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:	2020		2019		2020		2019
Cost of services	$	22,720	$	24,293	$	18	$	52
Cost of sales		4,964		4,979		14		40
Cost of financing		517		710		9		(47)
SG&A expense		15,849		15,171		24		199
Other (income) and expense		614		(850)		92		(358)
Interest expense		971		990		24		(96)


	Gain (Loss) Recognized in Consolidated Income Statement
	Consolidated	Recognized on				Attributable to Risk
(Dollars in millions)	Income Statement	Derivatives				Being Hedged (2)
For the nine months ended September 30:	Line Item	2020		2019		2020		2019
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	20	$	51	$	(3)	$	(44)
	Interest expense		57		105		(9)		(89)
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		18		(27)		N/A		N/A
Equity contracts	SG&A expense		12		153		N/A		N/A
Total		$	108	$	283	$	(13)	$	(133)


	Gain (Loss) Recognized in Consolidated Income Statement and Other Comprehensive Income
(Dollars in millions)					Consolidated	Reclassified				Amounts Excluded from
For the nine months	Recognized in OCI				Income Statement	from AOCI				Effectiveness Testing (3)
ended September 30:	2020		2019		Line Item	2020		2019		2020		2019
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	(168)	Cost of financing	$	(3)	$	(2)	$	—	$	—
					Interest expense		(10)		(5)		—		—
Foreign exchange contracts		(249)		(630)	Cost of services		18		52		—		—
					Cost of sales		14		40		—		—
					Cost of financing		(18)		(71)		—		—
					SG&A expense		12		45		—		—
					Other (income) and expense		74		(331)		—		—
					Interest expense		(50)		(146)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		(1,033)		306	Cost of financing		—		—		13		19
					Interest expense		—		—		37		38
Total	$	(1,281)	$	(491)		$	37	$	(418)	$	50	$	57

(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