Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2022

Derivative Financial Instruments

Amounts related to cumulative basis adjustments for fair value hedges

	September 30,		December 31,
(Dollars in millions)	2022		2021
Short-term debt:
Carrying amount of the hedged item	$	(425)	$	(227)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	0	$	(2)
Long-term debt:
Carrying amount of the hedged item	$	(5,631)	$	(508)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	84	$	(309)

* Includes ($263) million and ($302) million of hedging adjustments on discontinued hedging relationships at September 30, 2022 and December 31, 2021, 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:	2022		2021			2022		2021
Cost of services	$	5,168	$	4,650		$	4	$	12
Cost of sales	$	1,389	$	1,363	*	$	35	$	1
Cost of financing	$	120	$	132	*	$	1	$	(1)
SG&A expense	$	4,391	$	4,306		$	(69)	$	(14)
Other (income) and expense	$	5,755	$	244		$	(189)	$	(7)
Interest expense	$	295	$	290		$	4	$	(2)

* Reclassified to conform to current year 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 September 30:	Line Item	2022		2021		2022		2021
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(64)	$	0	$	68	$	4
	Interest expense		(191)		0		203		11
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(186)		15		N/A		N/A
Equity contracts	SG&A expense		(76)		(13)		N/A		N/A
	Other (income) and expense		3		—		N/A		N/A
Total		$	(514)	$	3	$	271	$	15

	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:	2022		2021		Line Item	2022		2021		2022		2021
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense		(3)		(3)		—		—
Foreign exchange contracts		189		109	Cost of services		4		12		—		—
					Cost of sales		35		1		—		—
					Cost of financing		(6)		(5)		—		—
					SG&A expense		8		(1)		—		—
					Other (income) and expense		(6)		(22)		—		—
					Interest expense		(18)		(13)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		1,198		477	Cost of financing		—		—		5		1
					Interest expense		—		—		14		3
Total	$	1,387	$	587		$	12	$	(32)	$	19	$	5

(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 with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.

N/A - not applicable

						Gains/(Losses) of
(Dollars in millions)	Total					Total Hedge Activity
For the nine months ended September 30:	2022		2021			2022		2021
Cost of services	$	15,915	$	14,014		$	32	$	33
Cost of sales	$	4,555	$	4,241	*	$	71	$	(30)
Cost of financing	$	314	$	416	*	$	0	$	1
SG&A expense	$	13,843	$	13,842		$	(291)	$	88
Other (income) and expense	$	5,921	$	891		$	(730)	$	(246)
Interest expense	$	903	$	852		$	1	$	3

* Reclassified to conform to current year 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 nine months ended September 30:	Line Item	2022		2021		2022		2021
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	(76)	$	0	$	89	$	15
	Interest expense		(261)		(1)		305		40
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		(595)		(59)		N/A		N/A
Equity contracts	SG&A expense		(319)		120		N/A		N/A
	Other (income) and expense		(85)		—		N/A		N/A
Total		$	(1,336)	$	59	$	395	$	55

	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:	2022		2021		Line Item	2022		2021		2022		2021
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(3)	$	(4)	$	—	$	—
					Interest expense		(10)		(10)		—		—
Foreign exchange contracts		449		262	Cost of services		32		33		—		—
					Cost of sales		71		(30)		—		—
					Cost of financing		(16)		(14)		—		—
					SG&A expense		28		(32)		—		—
					Other (income) and expense		(51)		(187)		—		—
					Interest expense		(54)		(38)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		3,118		1,207	Cost of financing		—		—		6		4
					Interest expense		—		—		22		11
Total	$	3,567	$	1,470		$	(4)	$	(282)	$	28	$	15

(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 with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.

N/A - not applicable