Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2023

Derivative Financial Instruments

Amounts related to cumulative basis adjustments for fair value hedges

	March 31,		December 31,
(Dollars in millions)	2023		2022
Short-term debt:
Carrying amount of the hedged item	$	(204)	$	(199)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	(4)	$	1
Long-term debt:
Carrying amount of the hedged item	$	(6,693)	$	(6,216)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*	$	(8)	$	72

* Includes ($238) million and ($250) million of hedging adjustments on discontinued hedging relationships at March 31, 2023 and December 31, 2022, 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 March 31:	2023		2022		2023		2022
Cost of services	$	5,310	$	5,349	$	(2)	$	15
Cost of sales	$	1,322	$	1,415	$	14	$	12
Cost of financing	$	110	$	98	$	(3)	$	(2)
SG&A expense	$	4,853	$	4,597	$	59	$	(70)
Other (income) and expense	$	(245)	$	246	$	142	$	(102)
Interest expense	$	367	$	311	$	(14)	$	(6)

	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 March 31:	Line Item	2023		2022		2023		2022
Derivative instruments in fair value hedges (1):
Interest rate contracts	Cost of financing	$	13	$	(1)	$	(17)	$	4
	Interest expense		53		(4)		(68)		16
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts	Other (income) and expense		16		(95)		N/A		N/A
Equity contracts	SG&A expense		49		(76)		N/A		N/A
Total		$	131	$	(176)	$	(84)	$	20

	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 March 31:	2023		2022		Line Item	2023		2022		2023		2022
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—	Cost of financing	$	(1)	$	(1)	$	—	$	—
					Interest expense		(3)		(3)		—		—
Foreign exchange contracts		(29)		60	Cost of services		(2)		15		—		—
					Cost of sales		14		12		—		—
					Cost of financing		(4)		(5)		—		—
					SG&A expense		10		6		—		—
					Other (income) and expense		126		(7)		—		—
					Interest expense		(17)		(17)		—		—
Instruments in net investment hedges (4):
Foreign exchange contracts		(224)		541	Cost of financing		—		—		5		1
					Interest expense		—		—		22		2
Total	$	(253)	$	601		$	122	$	1	$	28	$	3

(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