Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2021

Derivative Financial Instruments

Amounts related to cumulative basis adjustments for fair value hedges


		June 30,			December 31,
(Dollars in millions)		2021			2020
Short-term debt:
Carrying amount of the hedged item		$	—		$	(1,302)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)			—			(2)
Long-term debt:
Carrying amount of the hedged item		$	(767)		$	(2,097)
Cumulative hedging adjustments included in the carrying amount — assets/(liabilities)*			(342)			(424)

* Includes ($327) million and ($353) million of hedging adjustments on discontinued hedging relationships at June 30, 2021 and December 31, 2020, 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:		2021			2020			2021			2020
Cost of services		$	7,871		$	7,520		$	7		$	(1)
Cost of sales			1,694			1,739			(10)			9
Cost of financing			176			165			0			2
SG&A expense			5,334			5,248			67			157
Other (income) and expense			315			179			(79)			92
Interest expense			281			323			(1)			7


		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		2021			2020			2021			2020
Derivative instruments in fair value hedges (1):
Interest rate contracts		Cost of financing		$	0		$	3		$	4		$	3
		Interest expense			0			8			11			8
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts		Other (income) and expense			(30)			22			N/A			N/A
Equity contracts		SG&A expense			83			150			N/A			N/A
Total				$	54		$	183		$	15		$	11


		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:		2021			2020			Line Item		2021			2020			2021			2020
Derivative instruments in cash flow hedges:
Interest rate contracts		$	—		$	—		Cost of financing		$	(1)		$	(1)		$	—		$	—
								Interest expense			(3)			(3)			—			—
Foreign exchange contracts			(34)			(36)		Cost of services			7			(1)			—			—
								Cost of sales			(10)			9			—			—
								Cost of financing			(5)			(6)			—			—
								SG&A expense			(16)			7			—			—
								Other (income) and expense			(49)			70			—			—
								Interest expense			(12)			(16)			—			—
Instruments in net investment hedges (4):
Foreign exchange contracts			(177)			(535)		Cost of financing			—			—			1			4
								Interest expense			—			—			4			10
Total		$	(211)		$	(571)				$	(90)		$	59		$	5		$	14

(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 six months ended June 30:		2021			2020			2021			2020
Cost of services		$	15,646		$	15,363		$	21		$	9
Cost of sales			3,279			3,363			(32)			18
Cost of financing			341			345			2			6
SG&A expense			10,508			11,203			101			(34)
Other (income) and expense			676			361			(239)			(9)
Interest expense			562			649			4			16


		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		2021			2020			2021			2020
Derivative instruments in fair value hedges (1):
Interest rate contracts		Cost of financing		$	0		$	21		$	11		$	(11)
		Interest expense			(1)			56			29			(29)
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts		Other (income) and expense			(74)			10			N/A			N/A
Equity contracts		SG&A expense			133			(51)			N/A			N/A
Total				$	57		$	37		$	40		$	(39)


		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:		2021			2020			Line Item		2021			2020			2021			2020
Derivative instruments in cash flow hedges:
Interest rate contracts		$	—		$	—		Cost of financing		$	(2)		$	(2)		$	—		$	—
								Interest expense			(6)			(6)			—			—
Foreign exchange contracts			153			(216)		Cost of services			21			9			—			—
								Cost of sales			(32)			18			—			—
								Cost of financing			(9)			(13)			—			—
								SG&A expense			(31)			17			—			—
								Other (income) and expense			(165)			(19)			—			—
								Interest expense			(25)			(35)			—			—
Instruments in net investment hedges (4):
Foreign exchange contracts			730			(50)		Cost of financing			—			—			3			11
								Interest expense			—			—			8			30
Total		$	883		$	(266)				$	(251)		$	(32)		$	11		$	41

(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