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Fair Value Measurements | 9 Months Ended
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Sep. 29, 2013
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The Company uses forward exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany product and third-party purchases of materials denominated in foreign currency. The Company also uses cross currency interest rate swaps to manage currency risk primarily related to borrowings. Both types of derivatives are designated as cash flow hedges. The Company also uses forward exchange contracts to manage its exposure to the variability of cash flows for repatriation of foreign dividends. These contracts are designated as net investment hedges. Additionally, the Company uses forward exchange contracts to offset its exposure to certain foreign currency assets and liabilities. These forward exchange contracts are not designated as hedges, and therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities. The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features or requirements to post collateral. On an ongoing basis, the Company monitors counterparty credit ratings. The Company considers credit non-performance risk to be low, because the Company enters into agreements with commercial institutions that have at least an A (or equivalent) credit rating. As of September 29, 2013, the Company had notional amounts outstanding for forward foreign exchange contracts and cross currency interest rate swaps of $27.5 billion and $2.4 billion, respectively. All derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction. The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. Changes in the fair value of a derivative that is designated as a cash flow hedge and is highly effective are recorded in accumulated other comprehensive income until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. Gains/losses on net investment hedges are accounted for through the currency translation account and are insignificant. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes in the cash flows of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is included in current period earnings in Other (income) expense, net. As of September 29, 2013, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $179 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 7. The Company expects that substantially all of the amounts related to foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transaction exposure is 18 months excluding interest rate swaps. The amount ultimately realized in earnings will differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative. The following table is a summary of the activity related to derivatives designated as hedges for the fiscal third quarters in 2013 and 2012:
|  | Gain/(Loss) Recognized in Accumulated OCI(1) |  | Gain/(Loss) Reclassified from Accumulated OCI into Income(1) |  | Gain/(Loss) Recognized in Other Income/Expense(2)
|  | Fiscal Third Quarters Ended
Cash Flow Hedges by Income Statement Caption |  | September 29, 2013 |  | September 30, 2012 |  | September 29, 2013 |  | September 30, 2012 |  | September 29, 2013 |  | September 30, 2012
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |
Sales to customers(3) |  | $ | 25 |  |  | 30 |  |  | 17 |  |  | (12 | ) |  | — |  |  | (1 | )
Cost of products sold(3) |  | 42 |  |  | (61 | ) |  | 51 |  |  | (19 | ) |  | — |  |  | (1 | )
Research and development expense(3) |  | (20 | ) |  | 22 |  |  | (14 | ) |  | 43 |  |  | — |  |  | — |
Interest (income)/Interest expense, net(4) |  | 7 |  |  | 28 |  |  | (2 | ) |  | (2 | ) |  | — |  |  | — |
Other (income)expense, net(3) |  | (13 | ) |  | (24 | ) |  | (8 | ) |  | 19 |  |  | — |  |  | 1 |
Total |  | $ | 41 |  |  | (5 | ) |  | 44 |  |  | 29 |  |  | — |  |  | (1 | )
The following table is a summary of the activity related to derivatives designated as hedges for the fiscal nine months in 2013 and 2012:
|  | Gain/(Loss) Recognized in Accumulated OCI(1) |  | Gain/(Loss) Reclassified from Accumulated OCI into Income(1) |  | Gain/(Loss) Recognized in Other Income/Expense(2)
|  | Fiscal Nine Months Ended
Cash Flow Hedges by Income Statement Caption |  | September 29, 2013 |  | September 30, 2012 |  | September 29, 2013 |  | September 30, 2012 |  | September 29, 2013 |  | September 30, 2012
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |
Sales to customers(3) |  | $ | 22 |  |  | 16 |  |  | 24 |  |  | (42 | ) |  | — |  |  | (1 | )
Cost of products sold(3) |  | 220 |  |  | (100 | ) |  | 72 |  |  | (53 | ) |  | 4 |  |  | (1 | )
Research and development expense(3) |  | (27 | ) |  | 33 |  |  | (31 | ) |  | 56 |  |  | (3 | ) |  | — |
Interest (income)/Interest expense, net(4) |  | 15 |  |  | (14 | ) |  | (6 | ) |  | (11 | ) |  | — |  |  | — |
Other (income)expense, net(3) |  | (6 | ) |  | (25 | ) |  | (6 | ) |  | 27 |  |  | (1 | ) |  | — |
Total |  | $ | 224 |  |  | (90 | ) |  | 53 |  |  | (23 | ) |  | — |  |  | (2 | )
All amounts shown in the tables above are net of tax. (1) Effective portion (2) Ineffective portion (3) Foreign exchange contracts (4) Cross currency interest rate swaps For the fiscal third quarter ended September 29, 2013, no gain or loss was recognized and for the fiscal third quarter ended September 30, 2012, a gain of $35 million was recognized in Other (income)expense, net, relating to foreign exchange contracts not designated as hedging instruments. For the fiscal nine months ended September 29, 2013 and September 30, 2012, a gain of $50 million and a gain of $9 million, respectively, were recognized in Other (income)expense, net, relating to foreign exchange contracts not designated as hedging instruments. Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that is determined using assumptions that market participants would use in pricing an asset or liability. The authoritative literature establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 having the highest priority and Level 3 having the lowest. The fair value of a derivative financial instrument (i.e., foreign exchange contract or cross currency interest rate swap) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 because they are traded in an active exchange market. The Company did not have any other significant financial assets or liabilities which would require revised valuations under this standard that are recognized at fair value. The following three levels of inputs are used to measure fair value: Level 1 — Quoted prices in active markets for identical assets and liabilities. Level 2 — Significant other observable inputs. Level 3 — Significant unobservable inputs. The Company’s significant financial assets and liabilities measured at fair value as of September 29, 2013 and December 30, 2012 were as follows:
|  | September 29, 2013 |  |  |  | December 30, 2012
(Dollars in Millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Total(2)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | — |  |  | 482 |  |  | — |  |  | 482 |  |  | 423 |
Cross currency interest rate swaps(3) |  | — |  |  | 127 |  |  | — |  |  | 127 |  |  | 98 |
Total |  | — |  |  | 609 |  |  | — |  |  | 609 |  |  | 521 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 181 |  |  | — |  |  | 181 |  |  | 252 |
Cross currency interest rate swaps(4) |  | — |  |  | 10 |  |  | — |  |  | 10 |  |  | 10 |
Total |  | — |  |  | 191 |  |  | — |  |  | 191 |  |  | 262 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 37 |  |  | — |  |  | 37 |  |  | 75 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 15 |  |  | — |  |  | 15 |  |  | 23 |
Other Investments(1) |  | $ | 405 |  |  | — |  |  | — |  |  | 405 |  |  | 1,247 |
(1) | Classified as non-current other assets. The change in the fair value from December 30, 2012 was primarily due to the sale of Elan American Depositary Shares.
(2) | As of December 30, 2012, these assets and liabilities are classified as Level 2 with the exception of Other Investments of $1,247 million which are classified as Level 1.
(3) | Includes $127 million and $96 million of non-current assets for September 29, 2013 and December 30, 2012, respectively.
(4) | Includes $5 million and $4 million of non-current liabilities for September 29, 2013 and December 30, 2012, respectively.
Financial Instruments not measured at Fair Value: The following financial assets and liabilities are held at carrying amount on the consolidated balance sheet as of September 29, 2013:
(Dollars in Millions) |  | Carrying Amount |  |  | Estimated Fair Value |
Financial Assets |  |  |  |
Current Investments |  |  |  |
Cash |  | $ | 2,701 |  |  | 2,701 |
Government securities and obligations |  | 19,884 |  |  | 19,884 |
Corporate debt securities |  | 611 |  |  | 611 |
Money market funds |  | 1,399 |  |  | 1,399 |
Time deposits |  | 633 |  |  | 633 |
Total cash, cash equivalents and current marketable securities |  | $ | 25,228 |  |  | 25,228 |
Fair value of government securities and obligations and corporate debt securities was estimated using quoted broker prices and significant other observable inputs.
Financial Liabilities |  |  |  |
Current Debt |  | $ | 5,359 |  |  | 5,359 |
Non-Current Debt |  |  |  |
2.15% Notes due 2016 |  | 898 |  |  | 932 |
5.55% Debentures due 2017 |  | 1,000 |  |  | 1,159 |
5.15% Debentures due 2018 |  | 898 |  |  | 1,041 |
4.75% Notes due 2019 (1B Euro 1.3503) |  | 1,345 |  |  | 1,605 |
3% Zero Coupon Convertible Subordinated Debentures due in 2020 |  | 178 |  |  | 260 |
2.95% Debentures due 2020 |  | 542 |  |  | 564 |
3.55% Notes due 2021 |  | 446 |  |  | 470 |
6.73% Debentures due 2023 |  | 250 |  |  | 323 |
5.50% Notes due 2024 (500 GBP 1.6042) |  | 797 |  |  | 965 |
6.95% Notes due 2029 |  | 296 |  |  | 404 |
4.95% Debentures due 2033 |  | 500 |  |  | 561 |
5.95% Notes due 2037 |  | 995 |  |  | 1,226 |
5.85% Debentures due 2038 |  | 700 |  |  | 832 |
4.50% Debentures due 2040 |  | 539 |  |  | 556 |
4.85% Notes due 2041 |  | 298 |  |  | 322 |
Other |  | 66 |  |  | 66 |
Total Non-Current Debt |  | $ | 9,748 |  |  | 11,286 |
The weighted average effective interest rate on non-current debt is 5.12%. Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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