Edgar Filing: INTERNATIONAL BUSINESS MACHINES CORP

FORM 10 - Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10 - Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED MARCH 31, 2015

1-2360

(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York		13-0871985
(State of incorporation)		(IRS employer identification number)

Armonk , New York		10504
(Address of principal executive offices)		(Zip Code)

914-499-1900

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý				Accelerated filer ☐

Non-accelerated filer ☐				Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The registrant had 984,734,067 shares of common stock outstanding at March 31, 2015.

Index

		Page
Part I - Financial Information:

Item 1. Consolidated Financial Statements:


Consolidated Statement of Earnings for the three months ended March 31, 2015 and 2014		3

Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and 2014		4

Consolidated Statement of Financial Position at March 31, 2015 and December 31, 2014		5

Consolidated Statement of Cash Flows for the three months ended March 31, 2015 and 2014		7

Consolidated Statement of Changes in Equity for the three months ended March 31, 2015 and 2014		8

Notes to Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		41

Item 4. Controls and Procedures		71

Part II - Other Information:

Item 1. Legal Proceedings		71

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities		71

Item 6. Exhibits		72

Part I - Financial Information

Item 1. Consolidated Financial Statements :

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)

			Three Months Ended March 31,
(Dollars in millions except per share amounts)			2015		2014*
Revenue:
	Services	$	12,366	$	13,982
	Sales		6,757		7,736
	Financing		467		517
Total revenue			19,590		22,236
Cost:
	Services		8,278		9,101
	Sales		1,625		2,229
	Financing		235		278
Total cost			10,138		11,608
Gross profit			9,452		10,627
Expense and other (income):
	Selling, general and administrative		5,362		6,272
	Research, development and engineering		1,298		1,402
	Intellectual property and custom development income		(173)		(207)
	Other (income) and expense		(143)		(127)
	Interest expense		108		105
Total expense and other (income)			6,451		7,444
Income from continuing operations before income taxes			3,001		3,183
Provision for income taxes			585		653
Income from continuing operations		$	2,415	$	2,530
Loss from discontinued operations, net of tax			(88)		(146)
Net income		$	2,328	$	2,384

Earnings/(loss) per share of common stock:
	Assuming dilution:
	Continuing operations	$	2.44	$	2.43
	Discontinued operations		(0.09)		(0.14)
	Total	$	2.35	$	2.29
	Basic:
	Continuing operations	$	2.45	$	2.44
	Discontinued operations		(0.09)		(0.14)
	Total	$	2.36	$	2.30

Weighted-average number of common shares outstanding: (millions)
	Assuming dilution		992.3		1,041.8
	Basic		988.1		1,035.2

Cash dividend per common share		$	1.10	$	0.95

* Reclassified to reflect discontinued operation presentation.

(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)



			Three Months Ended March 31,
(Dollars in millions)				2015		2014
Net income			$	2,328	$	2,384
Other comprehensive income/(loss), before tax:
	Foreign currency translation adjustments			(452)		(61)
	Net changes related to available-for-sale securities:
		Unrealized gains/(losses) arising during the period		32		0
		Reclassification of (gains)/losses to net income		0		4
	Total net changes related to available-for-sale securities			32		4
	Unrealized gains/(losses) on cash flow hedges:
		Unrealized gains/(losses) arising during the period		619		88
		Reclassification of (gains)/losses to net income		(249)		(1)
	Total unrealized gains/(losses) on cash flow hedges			370		87
	Retirement-related benefit plans:
		Prior service costs/(credits)		5		1
		Net (losses)/gains arising during the period		(77)		32
		Curtailments and settlements		4		4
		Amortization of prior service (credits)/costs		(26)		(29)
		Amortization of net (gains)/losses		835		649
	Total retirement-related benefit plans			740		656
Other comprehensive income/(loss), before tax				690		687
Income tax (expense)/benefit related to items of other comprehensive income				(657)		(241)
Other comprehensive income/(loss)				33		446
Total comprehensive income/(loss)			$	2,361	$	2,830

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)

ASSETS

				At March 31,		At December 31,
(Dollars in millions)				2015		2014
Assets:
	Current assets:
		Cash and cash equivalents		$	8,796	$	8,476
		Marketable securities			8		0
		Notes and accounts receivable - trade (net of allowances of $354
			in 2015 and $336 in 2014)		8,806		9,090
		Short-term financing receivables (net of allowances of $484 in 2015
			and $452 in 2014)		16,303		19,835
		Other accounts receivable (net of allowances of $41 in 2015 and
			$40 in 2014)		2,740		2,906
		Inventories, at lower of average cost or market:
			Finished goods		371		430
			Work in process and raw materials		1,599		1,674
		Total inventories			1,970		2,103
		Deferred taxes			1,805		2,044
		Prepaid expenses and other current assets			5,890		4,967
	Total current assets				46,316		49,422

	Property, plant and equipment				38,303		39,034
		Less: Accumulated depreciation			27,793		28,263
	Property, plant and equipment — net				10,509		10,771
	Long-term financing receivables (net of allowances of $125 in 2015
		and $126 in 2014)			9,820		11,109
	Prepaid pension assets				2,690		2,160
	Deferred taxes				4,374		4,808
	Goodwill				29,871		30,556
	Intangible assets — net				2,991		3,104
	Investments and sundry assets				5,466		5,603
	Total assets			$	112,037	$	117,532

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION – (CONTINUED)
(UNAUDITED)

LIABILITIES AND EQUITY

(Dollars in millions)				At March 31,		At December 31,
(Dollars in millions)				2015		2014
Liabilities:
	Current liabilities:
		Taxes		$	3,539	$	5,084
		Short-term debt			4,532		5,731
		Accounts payable			6,314		6,864
		Compensation and benefits			3,328		4,031
		Deferred income			12,162		11,877
		Other accrued expenses and liabilities			5,765		6,013
	Total current liabilities				35,640		39,600
	Long-term debt				34,295		35,073
	Retirement and nonpension postretirement benefit obligations				17,211		18,261
	Deferred income				3,811		3,691
	Other liabilities				8,791		8,892
	Total liabilities				99,747		105,518
Equity:
IBM stockholders’ equity:
	Common stock, par value $0.20 per share, and additional paid-in capital				52,928		52,666
		Shares authorized: 4,687,500,000
		Shares issued: 2015 - 2,217,335,134
			2014 - 2,215,209,574
	Retained earnings				139,030		137,793
	Treasury stock - at cost				(151,975)		(150,715)
		Shares: 2015 - 1,232,601,067
			2014 - 1,224,685,815
	Accumulated other comprehensive income/(loss)				(27,842)		(27,875)
	Total IBM stockholders’ equity				12,141		11,868
Noncontrolling interests					148		146
Total equity					12,289		12,014
Total liabilities and equity				$	112,037	$	117,532


(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

		Three Months Ended March 31,
(Dollars in millions)			2015		2014
Cash flows from operating activities:
Net income		$	2,328	$	2,384
Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		670		802
	Amortization of intangibles		298		339
	Stock-based compensation		127		124
	Net (gain)/loss on asset sales and other		352		(161)
	Changes in operating assets and liabilities, net of acquisitions/divestitures		(165)		(162)
Net cash provided by operating activities			3,610		3,326

Cash flows from investing activities:
	Payments for property, plant and equipment		(857)		(849)
	Proceeds from disposition of property, plant and equipment		47		74
	Investment in software		(113)		(112)
	Acquisition of businesses, net of cash acquired		(148)		(264)
	Divestitures of businesses, net of cash transferred		19		391
	Non-operating finance receivables — net		1,615		665
	Purchases of marketable securities and other investments		(819)		(477)
	Proceeds from disposition of marketable securities and other investments		816		608
Net cash provided by investing activities			560		35

Cash flows from financing activities:
	Proceeds from new debt		2,290		4,875
	Payments to settle debt		(2,824)		(1,507)
	Short-term borrowings/(repayments) less than 90 days — net		(776)		845
	Common stock repurchases		(1,165)		(8,166)
	Common stock transactions — other		161		270
	Cash dividends paid		(1,088)		(990)
Net cash used in financing activities			(3,402)		(4,673)

Effect of exchange rate changes on cash and cash equivalents			(449)		5
Net change in cash and cash equivalents			319		(1,307)

Cash and cash equivalents at January 1			8,476		10,716
Cash and cash equivalents at March 31		$	8,796	$	9,409

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)


	Common
	Stock and						Accumulated
	Additional						Other		Total IBM		Non-
	Paid-in		Retained		Treasury		Comprehensive		Stockholders'		Controlling		Total
(Dollars in millions)	Capital		Earnings		Stock		Income/(Loss)		Equity		Interests		Equity
Equity - January 1, 2015	$	52,666	$	137,793	$	(150,715)	$	(27,875)	$	11,868	$	146	$	12,014
Net income plus other
comprehensive income/(loss)
Net income				2,328						2,328				2,328
Other comprehensive income/(loss)								33		33				33
Total comprehensive income/(loss)									$	2,361			$	2,361
Cash dividends paid –
common stock				(1,088)						(1,088)				(1,088)
Common stock issued under
employee plans (2,125,560 shares)		259								259				259
Purchases (363,779 shares) and
sales (187,271 shares) of treasury
stock under employee plans – net				(3)		(33)				(35)				(35)
Other treasury shares purchased,
not retired (7,738,744 shares)						(1,227)				(1,227)				(1,227)
Changes in other equity		3								3				3
Changes in noncontrolling interests												3		3
Equity - March 31, 2015	$	52,928	$	139,030	$	(151,975)	$	(27,842)	$	12,141	$	148	$	12,289

	Common
	Stock and						Accumulated
	Additional						Other		Total IBM		Non-
	Paid-in		Retained		Treasury		Comprehensive		Stockholders'		Controlling		Total
(Dollars in millions)	Capital		Earnings		Stock		Income/(Loss)		Equity		Interests		Equity
Equity - January 1, 2014	$	51,594	$	130,042	$	(137,242)	$	(21,602)	$	22,792	$	137	$	22,929
Net income plus other
comprehensive income/(loss)
Net income				2,384						2,384				2,384
Other comprehensive income/(loss)								446		446				446
Total comprehensive income/(loss)									$	2,830			$	2,830
Cash dividends paid –
common stock				(990)						(990)				(990)
Common stock issued under
employee plans (3,105,227 shares)		333								333				333
Purchases (488,203 shares) and
sales (328,673 shares) of treasury
stock under employee plans – net				(5)		(46)				(51)				(51)
Other treasury shares purchased,
not retired (45,153,202 shares)						(8,324)				(8,324)				(8,324)
Changes in other equity		16								16				16
Changes in noncontrolling interests												(4)		(4)
Equity - March 31, 2014	$	51,943	$	131,431	$	(145,612)	$	(21,156)	$	16,607	$	133	$	16,740

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

Notes to Consolidated Financial Statements:

1. Basis of Presentation: The accompanying Consolidated Financial Statements and footnotes of the International Business Machines Corporation (IBM or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the company's management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company's results of operations, financial position and cash flows.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Refer to the company's 2014 Annual Report on pages 68 to 71 for a discussion of the company's critical accounting estimates.

On October 20, 2014, the company announced a definitive agreement to divest its Microelectronics business and manufacturing operations to GLOBALFOUNDRIES. The assets and liabilities of the Microelectronics business are reported as held for sale at March 31, 2015. The operating results of the Microelectronics business have been reported as discontinued operations. Prior periods have been reclassified to conform to this presentation to allow for a meaningful comparison of continuing operations. Refer to Note 9, “Acquisitions/Divestitures,” for additional information on the transaction. In addition, in the first quarter of 2015, the company renamed its Systems & Technology segment to Systems Hardware.

Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the company's 2014 Annual Report.

Noncontrolling interest amounts in income of $1.2 million and $(0.5) million, net of tax, for the three months ended March 31, 2015 and 2014, respectively, are included in the Consolidated Statement of Earnings within the other (income) and expense line item.

Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts. Certain prior year amounts have been reclassified to conform to the current year presentation. This is annotated where applicable.

2. Accounting Changes: In April 2015, the Financial Accounting Standards Board (FASB) issued guidance which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective January 1, 2016 with early adoption permitted. The guidance is a change in financial statement presentation only and will not have a material impact in the consolidated financial results. At March 31, 2015, the company had approximately $80 million in debt issuance costs included in investments and sundry assets in the Consolidated Statement of Financial Position.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance is effective January 1, 2017 and early adoption is not permitted. The company is currently evaluating the impact of the new guidance and the method of adoption.

In April 2014, the FASB issued guidance that changed the criteria for reporting a discontinued operation. Only disposals of a component that represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results is a discontinued operation. The guidance also requires expanded disclosures about discontinued operations and disposals of a significant part of an entity that does not qualify for discontinued operations reporting. The guidance was effective January 1, 2015. The impact to the company will be dependent on any transaction that is within the scope of the new guidance.

In July 2013, the FASB issued guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under certain circumstances, unrecognized tax benefits should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss

Notes to Consolidated Financial Statements – (continued)

carryforward, a similar tax loss, or a tax credit carryforward. The guidance was effective January 1, 2014. The guidance was a change in financial statement presentation only and did not have a material impact in the consolidated financial results.

In March 2013, the FASB issued guidance on when foreign currency translation adjustments should be released to net income. When a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance was effective January 1, 2014 and did not have a material impact in the consolidated financial results.

In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples include debt arrangements, other contractual obligations and settled litigation matters. The guidance requires an entity to measure such obligations as the sum of the amount that the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance was effective January 1, 2014 and did not have a material impact in the consolidated financial results.

3. Financial Instruments:

Fair Value Measurements

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the company is required to classify certain assets and liabilities based on the following fair value hierarchy:

· Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;

· Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

· Level 3—Unobservable inputs for the asset or liability.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

When available, the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation.

The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument.

In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the “base valuations” calculated using the methodologies described below for several parameters that market participants would consider in determining fair value:

· Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument.

· Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market.

As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative.

Notes to Consolidated Financial Statements – (continued)

Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above.

Non-financial assets such as property, plant and equipment, land, goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. The impairment models used for nonfinancial assets depend on the type of asset. In the third quarter of 2014, the company recorded an impairment on certain assets that were initially reported as held for sale at September 30, 2014. See note 9, “Acquisitions/Divestitures,” for additional information. There were no material impairments of non-financial assets for the three months ended March 31, 2015 and 2014, respectively.

Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities.

The following tables present the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014.

Notes to Consolidated Financial Statements – (continued)

(Dollars in millions)
At March 31, 2015			Level 1		Level 2		Level 3		Total
Assets:
	Cash equivalents (1)
		Time deposits and certificates of deposit	$	—	$	4,503	$	—	$	4,503
		Commercial paper		—		500		—		500
		Money market funds		1,311		—		—		1,311
		U.S. government securities		—		530		—		530
		Canadian government securities		—		237		—		237
		Other securities		—		6		—		6
	Total			1,311		5,775		—		7,086	(6)
	Debt securities - current (2)			—		8		—		8	(6)
	Debt securities - noncurrent (3)			1		8		—		9
	Trading security investments (3)			49		—		—		49
	Available-for-sale equity investments (3)			281		—		—		281
	Derivative assets (4)
		Interest rate contracts		—		743		—		743
		Foreign exchange contracts		—		1,230		—		1,230
		Equity contracts		—		18		—		18
	Total			—		1,991		—		1,991	(7)
Total assets			$	1,642	$	7,782	$	—	$	9,424	(7)
Liabilities:
	Derivative liabilities (5)
		Foreign exchange contracts	$	—	$	172	$	—	$	172
		Equity contracts		—		10		—		10
		Interest rate contracts		—		0		—		0
Total liabilities			$	—	$	181	$	—	$	181	(7)

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

(2) Commercial paper and certificates of deposit 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 March 31, 2015 were $1,204 million

and $787 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, 2015 were $164 million and $18

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 $141

million each.

Notes to Consolidated Financial Statements – (continued)

(Dollars in millions)
At December 31, 2014			Level 1		Level 2		Level 3		Total
Assets:
	Cash equivalents (1)
		Time deposits and certificates of deposit	$	—	$	3,517	$	—	$	3,517
		Commercial paper		—		764		—		764
		Money market funds		662		—		—		662
		U.S government securities		—		410		—		410
		Other securities		—		6		—		6
	Total			662		4,697		—		5,359	(5)
	Debt securities - noncurrent (2)			1		8		—		9
	Trading security investments (2)			74		—		—		74
	Available-for-sale equity investments (2)			243		—		—		243
	Derivative assets (3)
		Interest rate contracts		—		633		—		633
		Foreign exchange contracts		—		775		—		775
		Equity contracts		—		24		—		24
	Total			—		1,432		—		1,432	(6)
Total assets			$	980	$	6,138	$	—	$	7,118	(6)
Liabilities:
	Derivative liabilities (4)
		Foreign exchange contracts	$	—	$	177	$	—	$	177
		Equity contracts		—		19		—