Financial Instruments (Tables)

(Dollars in millions)
At March 31, 2019	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	12,686	$	—	$	12,686	(6)
Money market funds	25		—		—		25
U.S. government securities	—		1,498		—		1,498		(6)

Total	$	25	$	14,184	$	—	$	14,209
Equity investments (2)	0		—		—		0
Debt securities - current (3)	—		872		—		872		(6)
Derivative assets (4)	4		690		—		694		(7)

Total assets	$	29	$	15,747	$	—	$	15,776

Liabilities:
Derivative liabilities (5)	$	—	$	705	$	—	$	705	(7)

(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 March 31, 2019 were $346 million and $348 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 March 31, 2019 were $316 million and $389 million, respectively.

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

(7) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions each would have been reduced by $353 million.

(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		(7)

Total assets	$	26	$	9,028	$	—	$	9,053

Liabilities:
Derivative liabilities (5)	$	40	$	343	$	—	$	383	(7)

(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 Value of Derivative Assets					Fair Value of Derivative Liabilities
	Balance Sheet					Balance Sheet
(Dollars in millions)	Classification	3/31/2019		12/31/2018		Classification	3/31/2019		12/31/2018
Designated as hedging instruments:
Interest rate contracts	Prepaid expenses and other current assets	$	12	$	9	Other accrued expenses and liabilities	$	211	$	4
	Investments and sundry assets	245		212		Other liabilities	24		76
Foreign exchange contracts	Prepaid expenses and other current assets	301		348		Other accrued expenses and liabilities	99		110
	Investments and sundry assets	104		135		Other liabilities	365		129

	Fair value of derivative assets	$	662	$	704	Fair value of derivative liabilities	$	699	$	320

Not designated as hedging instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	22	$	26	Other accrued expenses and liabilities	$	5	$	13
Equity contracts	Prepaid expenses and other current assets	10		2		Other accrued expenses and liabilities	0		51

	Fair value of derivative assets	$	32	$	28	Fair value of derivative liabilities	$	6	$	63

Total derivatives		$	694	$	731		$	705	$	383

Total debt designated as hedging instruments(1):
Short-term debt		N/A		N/A			$	—	$	—
Long-term debt		N/A		N/A			6,175		6,261

		N/A		N/A			$	6,175	$	6,261

Total		$	694	$	731		$	6,880	$	6,644

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

N/A – not applicable

	March 31,			December 31,
(Dollars in millions)	2019			2018
Short-term debt:
Carrying amount of the hedged item	$	(1,129	)	$	(1,878	)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)	(4		)(1)	(4		)(1)
Long-term debt:
Carrying amount of the hedged item	$	(6,073	)	$	(6,004	)
Cumulative hedging adjustments included in the carrying amount - assets/(liabilities)	(402		)(2)	(333		)(2)

(1) Includes ($4) million and ($6) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively.

(2) Includes ($209) million and ($213) million of hedging adjustments on discontinued hedging relationships at March 31, 2019 and December 31, 2018, respectively.

						Gains/(Losses) of
(Dollars in millions)	Total					Total Hedge Activity
For the three months ended March 31:	2019			2018		2019			2018
Cost of services	$	8,359		$	8,835	$	10		$	19
Cost of sales	1,516			1,722		18			(17		)
Cost of financing	264			269		(18		)	4		*
SG&A expense	4,691			5,445		141			(33		)
Other (income) and expense	(73		)	413		(69		)	49
Interest expense	210			165		(20		)	4		*

* Reclassified to conform to 2019 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 March 31:	Earnings Line Item	2019		2018			2019			2018
Derivative instruments in fair value hedges(1):
Interest rate contracts	Cost of financing	$	36	$	(80	)	$	(33	)	$	96
	Interest expense	39		(72		)	(36		)	87
Derivative instruments not designated as hedging instruments:

Foreign exchange contracts	Other (income) and expense	18		(55		)	N/A			N/A
Equity contracts	SG&A expense	119		(14		)	N/A			N/A

Total		$	212	$	(222	)	$	(69	)	$	182

	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 March 31:	2019			2018			Earnings Line Item	2019			2018			2019		2018
Derivative instruments in cash flow hedges:
Interest rate contracts	$	(171	)	$	—		Cost of financing	$	—		$	—		$	—	$	—
							Interest expense	—			—			—		—
Foreign exchange contracts	(181		)	61			Cost of services	10			19			—		—
							Cost of sales	18			(17		)	—		—
							Cost of financing	(29		)	(18		)*
							SG&A expense	22			(18		)	—		—
							Other (income) and expense	(87		)	104			—		—
							Interest expense	(33		)	(16		)*
Instruments in net investment hedges(4):
Foreign exchange contracts							Cost of financing	—			—			8		6		*
	19			(204		)	Interest expense	—			—			9		6		*

Total	$	(333	)	$	(143	)		$	(98	)	$	54		$	17	$	12

* Reclassified to conform to 2019 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