Fair Value Measurements (Tables)

9 Months Ended

Sep. 27, 2015

The Company's cash, cash equivalents and current marketable securities as of September 27, 2015 comprised:



	September 27, 2015
(Dollars in Millions)	Carrying Amount		Unrealized Gain	Unrealized Loss		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	1,976	—	—		1,976	1,976
U.S. Gov't Securities⁽¹⁾	15,694		5	—		15,699	1,700	13,994
Other Sovereign Securities⁽¹⁾	2,737		—	—		2,737	1,192	1,545
U.S. Reverse repurchase agreements⁽¹⁾	3,015		—	—		3,015	3,015
Other Reverse repurchase agreements⁽¹⁾	2,179		—	—		2,179	2,179
Corporate debt securities⁽¹⁾	4,237		—	—		4,237	1,378	2,859
Money market funds	1,358		—	—		1,358	1,358
Time deposits⁽¹⁾	841		—	—		841	841
Subtotal	32,037		5	—		32,042	13,639	18,398

Gov't Securities	4,255		14	(1	)	4,268	—	4,268
Corporate debt securities	1,002		2	(3	)	1,001	—	1,001
Subtotal Available for Sale⁽²⁾	$	5,257	16	(4	)	5,269	—	5,269

Total cash, cash equivalents and current marketable securities							13,639	23,667

⁽¹⁾Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.

⁽²⁾Available for sale securities are reported at fair value with unrealized gains and losses reported net of taxes in other comprehensive income.

Summary of designated derivatives

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal third quarters in 2015 and 2014:




	Gain/(Loss) Recognized In Accumulated OCI⁽¹⁾					Gain/(Loss) Reclassified From Accumulated OCI Into Income⁽¹⁾				Gain/(Loss) Recognized In Other Income/Expense⁽²⁾
(Dollars in Millions)	Fiscal Third Quarters Ended
Cash Flow Hedges By Income Statement Caption	September 27, 2015			September 28, 2014		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Sales to customers⁽³⁾	$	3		(43	)	(24	)	(2	)	(3	)	—
Cost of products sold⁽³⁾	222			(37	)	(34	)	37		1		(2	)
Research and development expense⁽³⁾	(10		)	25		7		8		—		—
Interest (income)/Interest expense, net⁽⁴⁾	(13		)	11		1		(6	)	—		—
Other (income) expense, net⁽³⁾	(42		)	58		12		12		(1	)	—
Total	$	160		14		(38	)	49		(3	)	(2	)

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the first fiscal nine months in 2015 and 2014:




	Gain/(Loss) Recognized In Accumulated OCI⁽¹⁾					Gain/(Loss) Reclassified From Accumulated OCI Into Income⁽¹⁾				Gain/(Loss) Recognized In Other Income/Expense⁽²⁾
(Dollars in Millions)	Fiscal Nine Months Ended
Cash Flow Hedges By Income Statement Caption	September 27, 2015			September 28, 2014		September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Sales to customers⁽³⁾	$	(52	)	(73	)	(95	)	6		(5	)	1
Cost of products sold⁽³⁾	106			(187	)	82		196		15		(4	)
Research and development expense⁽³⁾	(13		)	28		(2	)	(5	)	—		(1	)
Interest (income)/Interest expense, net⁽⁴⁾	(42		)	21		(2	)	(12	)	—		—
Other (income) expense, net⁽³⁾	27			72		54		(9	)	—		—
Total	$	26		(139	)	37		176		10		(4	)

All amounts shown in the table above are net of tax.

(1) Effective portion

(2) Ineffective portion

(3) Forward foreign exchange contracts

(4) Cross currency interest rate swaps

Financial assets and liabilities at fair value

The Company’s significant financial assets and liabilities measured at fair value as of September 27, 2015 and December 28, 2014 were as follows:



	September 27, 2015					December 28, 2014
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	$	—	791	—	791	996
Interest rate contracts ^(2)(4)(7)	—		51	—	51	31
Total	—		842	—	842	1,027
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		472	—	472	751
Interest rate contracts ⁽³⁾⁽⁴⁾	—		185	—	185	8
Total	—		657	—	657	759
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	—		56	—	56	29
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		39	—	39	51
Available For Sale Other Investments:
Equity investments⁽⁵⁾	1,130		—	—	1,130	679
Debt securities⁽⁶⁾	$	—	5,269	—	5,269	—


(1)	2014 assets and liabilities are all classified as Level 2 with the exception of equity investments of $679 million, which are classified as Level 1.


(2)	Includes $45 million and $29 million of non-current other assets for September 27, 2015 and December 28, 2014, respectively.


(3)	Includes $185 million and $8 million of non-current other liabilities for September 27, 2015 and December 28, 2014, respectively.


(4)	Includes cross currency interest rate swaps and interest rate swaps.

(5)

Classified as non-current other assets. The carrying amount of the equity investments were $531 million and $284 million as of September 27, 2015 and December 28, 2014, respectively. The unrealized gains were $648 million and $406 million as of September 27, 2015 and December 28, 2014, respectively. The unrealized losses were $49 million and $11 million as of September 27, 2015 and December 28, 2014, respectively.


(6)	Classified as current marketable securities.


(7)	Classified as other current assets.


(8)	Classified as accounts payable

Financial assets and liabilities not measured at fair value

Financial Instruments not measured at Fair Value:

The following financial liabilities are held at carrying amount on the consolidated balance sheet as of September 27, 2015:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	5,677	5,677

Non-Current Debt
3 month LIBOR+0.07% FRN due 2016	800		800
0.70% Notes due 2016	399		400
5.55% Debentures due 2017	1,000		1,084
1.125% Notes due 2017	706		710
5.15% Debentures due 2018	899		995
1.65% Notes due 2018	609		616
4.75% Notes due 2019 (1B Euro 1.1267)	1,123		1,322
1.875% Notes due 2019	510		517
3% Zero Coupon Convertible Subordinated Debentures due in 2020	140		181
2.95% Debentures due 2020	545		585
3.55% Notes due 2021	448		487
2.45% Notes due 2021	350		357
6.73% Debentures due 2023	250		326
3.375% Notes due 2023	811		856
5.50% Notes due 2024 (500 MM GBP 1.5215)	756		940
6.95% Notes due 2029	297		426
4.95% Debentures due 2033	500		571
4.375% Notes due 2033	864		932
5.95% Notes due 2037	996		1,275
5.85% Debentures due 2038	700		898
4.50% Debentures due 2040	541		585
4.85% Notes due 2041	298		345
4.50% Notes due 2043	499		539
Other	32		32
Total Non-Current Debt	$	14,073	15,779