Financial Instruments: (Tables)

6 Months Ended

Jun. 30, 2012

Financial Instruments:

Financial assets and financial liabilities measured at fair value on a recurring basis

(Dollars in millions)
At June 30, 2012	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	1,987	$	—	$	1,987
Commercial paper	—		1,670		—		1,670
Money market funds	1,106		—		—		1,106
U.S. government securities	—		960		—		960
Canada government securities	—		1,565		—		1,565
Other securities	—		7		—		7
Total	1,106		6,189		—		7,295		(6)
Debt securities - current (2)	—		323				323		(6)
Debt securities - noncurrent (3)	1		7		—		8
Available-for-sale equity investments (3)	24		41		—		65
Derivative assets (4)
Interest rate contracts	—		784		—		784
Foreign exchange contracts	—		548		—		548
Equity contracts	—		24		—		24
Total	—		1,356		—		1,356		(7)
Total assets	$	1,131	$	7,916	$	—	$	9,047	(7)
Liabilities:
Derivative liabilities (5)
Foreign exchange contracts	$	—	$	505	$	—	$	505
Equity contracts	—		7		—		7
Total liabilities	$	—	$	512	$	—	$	512	(7)

(1)Included within cash and cash equivalents in the Consolidated Statement of Financial Position.

(2)Canada government securities reported as marketable securities in the Consolidated Statement of Financial Position.

(3)Included within investments and sundry assets 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 June 30, 2012 are $598 million and $758 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 June 30, 2012 are $360 million and $152 million, respectively.

(6)Available-for-sale 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 would have been reduced by $376 million each.

(Dollars in millions)
At December 31, 2011	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (1)
Time deposits and certificates of deposit	$	—	$	2,082	$	—	$	2,082
Commercial paper *	—		777		—		777
Money market funds	1,886		—		—		1,886
U.S. government securities	—		2,750		—		2,750
Canada government securities *	—		983		—		983
Other securities	—		8		—		8
Total	1,886		6,600		—		8,486		(5)
Debt securities - noncurrent (2)	1		7		—		8
Available-for-sale equity investments (2)	69		14		—		83
Derivative assets (3)
Interest rate contracts	—		783		—		783
Foreign exchange contracts	—		510		—		510
Equity contracts	—		7		—		7
Total	—		1,300		—		1,300		(6)
Total assets	$	1,956	$	7,921	$	—	$	9,877	(6)
Liabilities:
Derivative liabilities (4)
Foreign exchange contracts	$	—	$	523	$	—	$	523
Equity contracts	—		8		—		8
Total liabilities	$	—	$	531	$	—	$	531	(6)

* Reclassified to conform with 2012 presentation.

(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)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, 2011 are $546 million and $754 million, respectively.

(4)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, 2011 are $365 million and $166 million, respectively.

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

(6)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 would have been reduced by $324 million each.

There were no transfers between Levels 1 and 2 for the six months ended June 30, 2012 and for the year ended December 31, 2011.

Debt and marketable equity securities available-for-sale and recorded at fair value

			Gross		Gross
(Dollars in millions)	Adjusted		Unrealized		Unrealized			Fair
At June 30, 2012:	Cost		Gains		Losses			Value
Debt securities — noncurrent(1)	$	7	$	1	$	—		$	8
Available-for-sale equity investments(1)	$	28	$	39	$	(2	)	$	65

(1) Included within investments and sundry assets in the Consolidated Statement of Financial Position.

			Gross		Gross
(Dollars in millions)	Adjusted		Unrealized		Unrealized			Fair
At December 31, 2011:	Cost		Gains		Losses			Value
Debt securities — noncurrent(1)	$	7	$	1	$	—		$	8
Available-for-sale equity investments(1)	$	58	$	27	$	(2	)	$	83

(1) Included within investments and sundry assets in the Consolidated Statement of Financial Position.

Sales of debt and available-for-sale equity investments

(Dollars in millions)
For the three months ended June 30:	2012			2011
Proceeds	$	6		$	87
Gross realized gains (before taxes)	2			29
Gross realized losses (before taxes)	(0		)	(0		)

(Dollars in millions)
For the six months ended June 30:	2012			2011
Proceeds	$	51		$	402
Gross realized gains (before taxes)	16			232
Gross realized losses (before taxes)	(0		)	(0		)

Unrealized holding gains/(losses) on available-for-sale debt and equity securities

(Dollars in millions)
For the three months ended June 30:	2012			2011**
Net unrealized gains/(losses) arising during the period	$	4		$	(3	)
Net unrealized (gains)/losses reclassified to net income*	(1		)	(19		)

*   There were no writedowns for the three months ended June 30, 2012 and 2011 respectively.

** Reclassified to conform with 2012 presentation.

(Dollars in millions)
For the six months ended June 30:	2012			2011**
Net unrealized gains/(losses) arising during the period	$	18		$	(2	)
Net unrealized (gains)/losses reclassified to net income*	(10		)	(144		)

*   There were no significant writedowns for the six months ended June 30, 2012 and 2011 respectively.

** Reclassified to conform with 2012 presentation.

Fair Value of Derivative Instruments in the Consolidated Statement of Financial Position

	Fair Value of Derivative Assets					Fair Value of Derivative Liabilities
	Balance Sheet					Balance Sheet
(Dollars in millions)	Classification	6/30/2012		12/31/2011		Classification	6/30/2012		12/31/2011
Designated as hedging instruments:
Interest rate contracts:	Prepaid expenses and other current assets	$	43	$	50	Other accrued expenses and liabilities	$	—	$	—
	Investments and sundry assets	742		733		Other liabilities	—		—
Foreign exchange contracts:	Prepaid expenses and other current assets	397		407		Other accrued expenses and liabilities	266		273
	Investments and sundry assets	—		—		Other liabilities	141		155
Fair value of derivative assets		$	1,182	$	1,190	Fair value of derivative liabilities	$	408	$	428
Not designated as hedging instruments:
Foreign exchange contracts:	Prepaid expenses and other current assets	$	134	$	82	Other accrued expenses and liabilities	$	87	$	84
	Investments and sundry assets	16		21		Other liabilities	10		11
Equity contracts:	Prepaid expenses and other current assets	24		7		Other accrued expenses and liabilities	7		8
Fair value of derivative assets		$	174	$	110	Fair value of derivative liabilities	$	104	$	103
Total debt designated as hedging instruments:
	Short-term debt	N/A		N/A			$	626	$	—
	Long-term debt	N/A		N/A			1,690		1,884
Total		$	1,356	$	1,300		$	2,828	$	2,415

N/A—not applicable

Effect of Derivative Instruments in the Consolidated Statement of Earnings

The Effect of Derivative Instruments in the Consolidated Statement of Earnings

For the three months ended June 30, 2012 and 2011

	Gain (Loss) Recognized in Earnings
	Consolidated	Recognized on					Attributable to Risk
(Dollars in millions)	Statement of	Derivatives(1)					Being Hedged(2)
For the three months ended June 30:	Earnings Line Item	2012			2011		2012			2011
Derivative instruments in fair value hedges:
Interest rate contracts	Cost of financing	$	80		$	68	$	(47	)	$	(27	)
	Interest expense	65			48		(39		)	(19		)
Derivative instruments not designated as hedging instruments:(1)
Foreign exchange contracts	Other (income) and expense	(122		)	117		N/A			N/A
Equity contracts	SG&A expense	(35		)	13		N/A			N/A
Warrants	Other (income) and expense	—			—		N/A			N/A
Total		$	(12	)	$	246	$	(86	)	$	(46	)

	Gain (Loss) Recognized in Earnings and Other Comprehensive Income
													(Ineffectiveness) and
	Effective Portion					Consolidated	Effective Portion Reclassified						Amounts Excluded from
For the three months	Recognized in OCI					Statement of	from AOCI						Effectiveness Testing(3)
ended June 30:	2012		2011			Earnings Line Item	2012			2011			2012		2011
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—		Interest expense	$	(2	)	$	(2	)	$	—	$	—
Foreign exchange contracts	68		(217		)	Other (income) and expense	86			(123		)	1		(1		)
						Cost of sales	11			(69		)	—		—
						SG&A expense	15			(33		)	—		—
Instruments in net investment hedges(4):
Foreign exchange contracts	149		(102		)	Interest expense	—			0			1		(4		)
Total	$	217	$	(319	)		$	111		$	(227	)	$	2	$	(5	)

N/A-not applicable

Note: AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity.

(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 amount of gain (loss) recognized in income represents ineffectiveness on hedge relationships.

(4)Instruments in net investment hedges include derivative and non-derivative instruments.

The Effect of Derivative Instruments in the Consolidated Statement of Earnings

For the six months ended June 30, 2012 and 2011

	Gain (Loss) Recognized in Earnings
	Consolidated	Recognized on					Attributable to Risk
(Dollars in millions)	Statement of	Derivatives(1)					Being Hedged(2)
For the six months ended June 30:	Earnings Line Item	2012			2011		2012		2011
Derivative instruments in fair value hedges:
Interest rate contracts	Cost of financing	$	56		$	60	$	8	$	24
	Interest expense	45			41		7		16
Derivative instruments not designated as hedging instruments:(1)
Foreign exchange contracts	Other (income) and expense	(204		)	205		N/A		N/A
Equity contracts	SG&A expense	63			72		N/A		N/A
Warrants	Other (income) and expense	—			—		N/A		N/A
Total		$	(40	)	$	378	$	15	$	40

	Gain (Loss) Recognized in Earnings and Other Comprehensive Income
													(Ineffectiveness) and
	Effective Portion					Consolidated	Effective Portion Reclassified						Amounts Excluded from
For the six months ended	Recognized in OCI					Statement of	from AOCI						Effectiveness Testing(3)
June 30:	2012		2011			Earnings Line Item	2012			2011			2012		2011
Derivative instruments in cash flow hedges:
Interest rate contracts	$	—	$	—		Interest expense	$	(4	)	$	(4	)	$	—	$	—
Foreign exchange contracts	119		(454		)	Other (income) and expense	106			(170		)	2		0
						Cost of sales	16			(103		)	—		—
						SG&A expense	16			(51		)	—		—
Instruments in net investment hedges(4):
Foreign exchange contracts	112		(252		)	Interest expense	—			0			3		(5		)
Total	$	231	$	(706	)		$	134		$	(328	)	$	5	$	(5	)

N/A-not applicable

Note: AOCI represents Accumulated other comprehensive income/(loss) in the Consolidated Statement of Changes in Equity.

(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 amount of gain (loss) recognized in income represents ineffectiveness on hedge relationships.

(4)    Instruments in net investment hedges include derivative and non-derivative instruments.