Fair Value Measurements (Tables)

3 Months Ended

Apr. 02, 2017

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal first quarters in 2017 and 2016:



	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 Three Months Ended
Cash Flow Hedges By Income Statement Caption	April 2, 2017			April 3, 2016		April 2, 2017		April 3, 2016		April 2, 2017		April 3, 2016
Sales to customers⁽³⁾	$	(13	)	—		(33	)	(18	)	—		—
Cost of products sold⁽³⁾	(97		)	(44	)	(31	)	(21	)	(17	)	(4	)
Research and development expense⁽³⁾	(109		)	(107	)	(102	)	(95	)	5		—
Interest (income)/Interest expense, net⁽⁴⁾	28			12		22		8		—		—
Other (income) expense, net^{(3) (5)}	(33		)	(52	)	(35	)	4		1		(3	)
Total	$	(224	)	(191	)	(179	)	(122	)	(11	)	(7	)

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

(5) Includes equity collar contracts

Financial Assets and Liabilities at Fair Value

The Company’s significant financial assets and liabilities measured at fair value as of April 2, 2017 and January 1, 2017 were as follows:



	April 2, 2017					January 1, 2017
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	$	—	291	—	291	747
Interest rate contracts ^(2)(4)(7)	—		29	—	29	31
Total	—		320	—	320	778
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		576	—	576	723
Interest rate contracts ^(3)(4)(8)	—		345	—	345	382
Equity collar contracts ⁽⁸⁾	—		63	—	63	57
Total	—		984	—	984	1,162
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	—		26	—	26	34
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		62	—	62	57
Available For Sale Other Investments:
Equity investments⁽⁵⁾	1,008		—	—	1,008	1,209
Debt securities⁽⁶⁾	$	—	26,808	—	26,808	12,087


(1)	2016 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,209 million, which are classified as Level 1.


(2)	Includes $21 million and $23 million of non-current other assets for April 2, 2017 and January 1, 2017, respectively.


(3)	Includes $345 million and $382 million of non-current other liabilities for April 2, 2017 and January 1, 2017, respectively.


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

(5)

Classified as non-current other assets with the exception of $246 million of current other assets for April 2, 2017. The original cost of the equity investments were $471 million and $520 million as of April 2, 2017 and January 1, 2017, respectively. The unrealized gains were $607 million and $757 million as of April 2, 2017 and January 1, 2017, respectively. The unrealized losses were $70 million and $68 million as of April 2, 2017 and January 1, 2017, respectively.


(6)	Classified as cash equivalents and current marketable securities.


(7)	Classified as other current assets.


(8)	Classified as accounts payable.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of April 2, 2017 comprised:



	April 2, 2017
(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,205	—	—		2,205	2,205
U.S. Gov't Securities⁽¹⁾	1,899		—	—		1,899	—	1,899
Other Sovereign Securities⁽¹⁾	90		—	—		90	—	90
U.S. Reverse repurchase agreements	4,726		—	—		4,726	4,726	—
Other Reverse repurchase agreements	214		—	—		214	214
Corporate debt securities⁽¹⁾	80		—	—		80	—	80
Money market funds	1,923		—	—		1,923	1,923
Time deposits⁽¹⁾	1,152		—	—		1,152	1,152
Subtotal	12,289		—	—		12,289	10,220	2,069
			Unrealized Gain	Unrealized Loss
Gov't securities	24,903		6	(42	)	24,867	10,689	14,178
Other Sovereign Securities	91		—	—		91	—	91
Corporate debt securities	1,857		2	(9	)	1,850	—	1,850
Equity investments	23		223	—		246	—	246
Subtotal Available for Sale⁽²⁾	$	26,874	231	(51	)	27,054	10,689	16,365
Total cash, cash equivalents and current marketable securities							20,909	18,434

⁽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.

Schedule of Available for Sale Securities Maturities

The contractual maturities of the available for sale securities at April 2, 2017 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	16,571	16,568
Due after one year through five years	10,280		10,240
Due after five years through ten years	—		—
Total debt securities	$	26,851	26,808

Financial 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 April 2, 2017:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	5,355	5,355

Non-Current Debt
5.15% Debentures due 2018	899		942
1.65% Notes due 2018	601		605
4.75% Notes due 2019 (1B Euro 1.0725)	1,069		1,204
1.875% Notes due 2019	501		505
0.89% Notes due 2019	300		301
1.125% Notes due 2019	699		696
3% Zero Coupon Convertible Subordinated Debentures due in 2020	83		142
2.95% Debentures due 2020	546		566
3.55% Notes due 2021	447		473
2.45% Notes due 2021	349		355
1.65% Notes due 2021	997		986
0.250% Notes due 2022 (1B Euro 1.0725)	1,069		1,072
2.25% Notes due 2022	994		995
6.73% Debentures due 2023	249		310
3.375% Notes due 2023	807		851
2.05% Notes due 2023	497		486
0.650% Notes due 2024 (750MM Euro 1.0725)	799		805
5.50% Notes due 2024 (500 MM GBP 1.2474)	617		804
2.45% Notes due 2026	1,989		1,915
2.95% Notes due 2027	995		996
1.150% Notes due 2028 (750MM Euro 1.0725)	796		805
6.95% Notes due 2029	296		401
4.95% Debentures due 2033	498		589
4.375% Notes due 2033	857		951
1.650% Notes due 2035 (1.5B Euro 1.0725)	1,590		1,646
3.55% Notes due 2036	987		981
5.95% Notes due 2037	990		1,290
3.625% Notes due 2037	1,485		1,473
5.85% Debentures due 2038	695		908
4.50% Debentures due 2040	537		592
4.85% Notes due 2041	296		345
4.50% Notes due 2043	495		548
3.70% Notes due 2046	1,970		1,929
3.75% Notes due 2047	990		982
Other	26		26
Total Non-Current Debt	$	27,015	28,475

- Definition

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

+ References + Details