Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Effect of Net Investment Hedges on OCI and the Consolidated Statement of Income

The effect of the Company’s net investment hedges on OCI and the Consolidated Statement of Income is shown below:



	Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income⁽¹⁾										Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
($ in millions)	2018			2017		2018			2017		2018			2017		2018			2017
Net Investment Hedging Relationships
Foreign exchange contracts	$	(12	)	$	—	$	(14	)	$	—	$	(3	)	$	—	$	(3	)	$	—
Euro-denominated notes	(271		)	204		(92		)	339		—			—		—			—

⁽¹⁾ No amounts were reclassified from AOCI into income related to the sale of a subsidiary.

Summary of Interest Rate Swaps Held

At June 30, 2018, the Company was a party to 22 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.



	June 30, 2018
($ in millions)	Par Value of Debt	Number of Interest Rate Swaps Held	Total Swap Notional Amount
5.00% notes due 2019	1,250	3	550
1.85% notes due 2020	1,250	5	1,250
3.875% notes due 2021	1,150	5	1,150
2.40% notes due 2022	1,000	4	1,000
2.35% notes due 2022	1,250	5	1,250

Amounts Recorded on Balance Sheet Related to Fair Value Hedges

The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:



	Carrying Amount of Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)	June 30, 2018		December 31, 2017		June 30, 2018			December 31, 2017
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt	$	554	$	983	$	5		$	(17	)
Long-Term Debt ⁽¹⁾	4,511		5,146		(129		)	(41		)

⁽¹⁾Amounts include hedging adjustment gains related to discontinued hedging relationships of $7 million and $11 million at June 30, 2018 and December 31, 2017, respectively.

Fair Value of Derivatives on a Gross Basis Segregated between those Derivatives that are Designated as Hedging Instruments and those that are Not Designated as Hedging Instruments

Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:



		June 30, 2018						December 31, 2017
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
($ in millions)	Balance Sheet Caption	Asset		Liability		U.S. Dollar Notional		Asset		Liability		U.S. Dollar Notional
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Other assets	$	—	$	—	$	—	$	2	$	—	$	550
Interest rate swap contracts	Accrued and other current liabilities	—		2		550		—		3		1,000
Interest rate swap contracts	Other noncurrent liabilities	—		130		4,650		—		52		4,650
Foreign exchange contracts	Other current assets	153		—		6,071		51		—		4,216
Foreign exchange contracts	Other assets	83		—		2,561		38		—		1,936
Foreign exchange contracts	Accrued and other current liabilities	—		8		590		—		71		2,014
Foreign exchange contracts	Other noncurrent liabilities	—		1		144		—		1		20
		$	236	$	141	$	14,566	$	91	$	127	$	14,386
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts	Other current assets	$	208	$	—	$	6,403	$	39	$	—	$	3,778
Foreign exchange contracts	Accrued and other current liabilities	—		56		4,681		—		90		7,431
		$	208	$	56	$	11,084	$	39	$	90	$	11,209
		$	444	$	197	$	25,650	$	130	$	217	$	25,595

Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis

The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:



	June 30, 2018						December 31, 2017
($ in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the consolidated balance sheet	$	444		$	197		$	130		$	217
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(152		)	(152		)	(94		)	(94		)
Cash collateral received	(90		)	—			(3		)	—
Net amounts	$	202		$	45		$	33		$	123

Location and Amount of Pretax (Gains) Losses of Derivatives

The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:



	Sales					Other (income) expense, net ⁽¹⁾					Other comprehensive income (loss)						Sales				Other (income) expense, net⁽¹⁾						Other comprehensive income (loss)
	Three Months Ended June 30,					Three Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,				Six Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2018			2017		2018			2017		2018			2017			2018		2017		2018			2017			2018		2017
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded	$	10,465		$	9,930	$	(48	)	(73	)	$	(62	)	$	(14	)	20,502		$	19,365	$	(340	)	$	(143	)	$	62	$	132
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items	—			—		(15		)	20		—			—			—		—		(77		)	4			—		—
Derivatives designated as hedging instruments	—			—		22			(31	)	—			—			—		—		84			(27		)	—		—
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of gain (loss) recognized in OCI on derivatives	—			—		—			—		264			(169		)	—		—		—			—			84		(432		)
(Decrease) increase in Sales as a result of AOCI reclassifications	(73		)	49		—			—		73			(49		)	(166	)	144		—			—			166		(144		)

⁽¹⁾ Interest expense is a component of Other (income) expense, net.

Income Statement Effects of Derivatives Not Designated as Hedging Instruments

The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:



		Amount of Derivative Pretax (Gain) Loss Recognized in Income
		Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	Income Statement Caption	2018			2017			2018			2017
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts⁽¹⁾	Other (income) expense, net	$	(195	)	$	(3	)	$	(167	)	$	(49	)
Foreign exchange contracts ⁽²⁾	Sales	(14		)	—			(5		)	—

⁽¹⁾ These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

⁽²⁾ These derivative contracts serve as economic hedges of forecasted transactions.

Information on Investments in Debt and Equity Securities

Information on investments in debt and equity securities is as follows:



	June 30, 2018									December 31, 2017
	Fair Value		Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized
($ in millions)	Fair Value		Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses
Corporate notes and bonds	$	8,782	$	8,902	$	2	$	(122	)	$	9,806	$	9,837	$	9	$	(40	)
U.S. government and agency securities	1,620		1,640		—		(20		)	2,042		2,059		—		(17		)
Asset-backed securities	1,441		1,456		1		(16		)	1,542		1,548		1		(7		)
Foreign government bonds	649		658		—		(9		)	733		739		—		(6		)
Mortgage-backed securities	65		66		—		(1		)	626		634		1		(9		)
Commercial paper	30		30		—		—			159		159		—		—
Total debt securities	$	12,587	$	12,752	$	3	$	(168	)	$	14,908	$	14,976	$	11	$	(79	)
Publicly traded equity securities ⁽¹⁾	375									275		265		16		(6		)
Total debt and publicly traded equity securities	$	12,962								$	15,183	$	15,241	$	27	$	(85	)

⁽¹⁾Pursuant to the adoption of ASU 2016-01 (see Note 1), beginning on January 1, 2018, changes in the fair value of publicly traded equity securities are recognized in net income. Unrealized net gains of $7 million and $50 million, respectively, were recognized in Other (income) expense, net during the second quarter and first six months of 2018 on equity securities still held at June 30, 2018.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:



	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	June 30, 2018								December 31, 2017
Assets
Investments
Corporate notes and bonds	$	—	$	8,684	$	—	$	8,684	$	—	$	9,678	$	—	$	9,678
U.S. government and agency securities	—		1,396		—		1,396		68		1,767		—		1,835
Asset-backed securities⁽¹⁾	—		1,394		—		1,394		—		1,476		—		1,476
Foreign government bonds	—		649		—		649		—		732		—		732
Commercial paper	—		30		—		30		—		159		—		159
Mortgage-backed securities	—		—		—		—		—		547		—		547
Publicly traded equity securities	164		—		—		164		104		—		—		104
	164		12,153		—		12,317		172		14,359		—		14,531
Other assets ⁽²⁾
U.S. government and agency securities	64		160		—		224		—		207		—		207
Corporate notes and bonds	—		98		—		98		—		128		—		128
Mortgage-backed securities	—		65		—		65		—		79		—		79
Asset-backed securities⁽¹⁾	—		47		—		47		—		66		—		66
Foreign government bonds	—		—		—		—		—		1		—		1
Publicly traded equity securities	211		—		—		211		171		—		—		171
	275		370		—		645		171		481		—		652
Derivative assets ⁽³⁾
Purchased currency options	—		142		—		142		—		80		—		80
Forward exchange contracts	—		302		—		302		—		48		—		48
Interest rate swaps	—		—		—		—		—		2		—		2
	—		444		—		444		—		130		—		130
Total assets	$	439	$	12,967	$	—	$	13,406	$	343	$	14,970	$	—	$	15,313
Liabilities
Other liabilities
Contingent consideration	$	—	$	—	$	830	$	830	$	—	$	—	$	935	$	935
Derivative liabilities ⁽³⁾
Forward exchange contracts	—		62		—		62		—		162		—		162
Interest rate swaps	—		132		—		132		—		55		—		55
Written currency options	—		3		—		3		—		—		—		—
	—		197		—		197		—		217		—		217
Total liabilities	$	—	$	197	$	830	$	1,027	$	—	$	217	$	935	$	1,152


⁽¹⁾	Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.


⁽²⁾	Investments included in other assets are restricted as to use, primarily for the payment of benefits under employee benefit plans.


⁽³⁾	The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

Information About the Changes in Liabilities for Contingent Consideration

Summarized information about the changes in liabilities for contingent consideration is as follows:



	Six Months Ended June 30,
($ in millions)	2018			2017
Fair value January 1	$	935		$	891
Changes in fair value⁽¹⁾	122			108
Additions	8			3
Payments	(235		)	—
Fair value June 30 ⁽²⁾	$	830		$	1,002

⁽¹⁾ Recorded in Research and development expenses, Materials and production costs and Other (income) expense, net. Includes cumulative translation adjustments.

⁽²⁾ Balance at June 30, 2018 includes $92 million recorded as a current liability for amounts expected to be paid within the next 12 months.