Fair Value Measurements (Tables)

6 Months Ended

Jul. 02, 2017

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal second 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 Second Quarters Ended
Cash Flow Hedges By Income Statement Caption	July 2, 2017			July 3, 2016		July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Sales to customers⁽³⁾	$	36		(27	)	(6	)	(3	)	(1	)	—
Cost of products sold⁽³⁾	218			(178	)	(68	)	13		1		(2	)
Research and development expense⁽³⁾	(19		)	12		1		(1	)	1		(1	)
Interest (income)/Interest expense, net⁽⁴⁾	(69		)	(3	)	(65	)	7		—		—
Other (income) expense, net^{(3) (5)}	(12		)	(54	)	(2	)	(6	)	(1	)	—
Total	$	154		(250	)	(140	)	10		—		(3	)

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal six months 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 Six Months Ended
Cash Flow Hedges By Income Statement Caption	July 2, 2017			July 3, 2016		July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Sales to customers⁽³⁾	$	22		(27	)	(39	)	(21	)	(1	)	—
Cost of products sold⁽³⁾	121			(222	)	(99	)	(8	)	(16	)	(6	)
Research and development expense⁽³⁾	(128		)	(95	)	(101	)	(96	)	6		(1	)
Interest (income)/Interest expense, net⁽⁴⁾	(41		)	9		(43	)	15		—		—
Other (income) expense, net^{(3) (5)}	(44		)	(106	)	(37	)	(2	)	—		(3	)
Total	$	(70	)	(441	)	(319	)	(112	)	(11	)	(10	)

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 July 2, 2017 and January 1, 2017 were as follows:



	July 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⁾	$	—	418	—	418	747
Interest rate contracts ^(2)(4)(7)	—		15	—	15	31
Total	—		433	—	433	778
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		454	—	454	723
Interest rate contracts ^(3)(4)(8)	—		273	—	273	382
Equity collar contracts ⁽⁸⁾	—		50	—	50	57
Total	—		777	—	777	1,162
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	—		56	—	56	34
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		31	—	31	57
Available For Sale Other Investments:
Equity investments⁽⁵⁾	1,040		—	—	1,040	1,209
Debt securities⁽⁶⁾	$	—	3,599	—	3,599	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 $11 million and $23 million of non-current other assets for July 2, 2017 and January 1, 2017, respectively.


(3)	Includes $273 million and $382 million of non-current other liabilities for July 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 $204 million of current assets for July 2, 2017. The original cost of the equity investments were $496 million and $520 million as of July 2, 2017 and January 1, 2017, respectively. The unrealized gains were $548 million and $757 million as of July 2, 2017 and January 1, 2017, respectively. The unrealized losses were $4 million and $68 million as of July 2, 2017 and January 1, 2017, respectively.


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


(7)	Classified as other current assets, including the net effect of the CSA


(8)	Classified as accounts payable, including the net effect of the CSA.

Marketable Securities

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



	July 2, 2017
(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss	Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,547	—	—	2,547	2,547
U.S. Gov't Securities⁽¹⁾	—		—	—	—
Other Sovereign Securities⁽¹⁾	210		—	—	210	210
U.S. Reverse repurchase agreements	2,841		—	—	2,841	2,841
Other Reverse repurchase agreements	271		—	—	271	271
Corporate debt securities⁽¹⁾	979		—	—	979	979
Money market funds	1,076		—	—	1,076	1,076
Time deposits⁽¹⁾	1,126		—	—	1,126	1,126
Subtotal	9,050		—	—	9,050	9,050	—
			Unrealized Gain	Unrealized Loss
Gov't securities	3,548		—	—	3,548	3,548
Other Sovereign Securities	1		—	—	1	—	1
Corporate debt securities	50		—	—	50	—	50
Equity investments	17		187		204	—	204
Subtotal Available for Sale⁽²⁾	$	3,616	187	—	3,803	3,548	255
Total cash, cash equivalents and current marketable securities						12,598	255

⁽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 July 2, 2017 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	3,588	3,588
Due after one year through five years	11		11
Due after five years through ten years	—		—
Total debt securities	$	3,599	3,599

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 July 2, 2017:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	7,209	7,209

Non-Current Debt
5.15% Debentures due 2018	899		933
1.65% Notes due 2018	599		601
4.75% Notes due 2019 (1B Euro 1.1397)	1,136		1,266
1.875% Notes due 2019	500		508
0.89% Notes due 2019	300		301
1.125% Notes due 2019	699		696
3% Zero Coupon Convertible Subordinated Debentures due in 2020	69		126
2.95% Debentures due 2020	546		566
3.55% Notes due 2021	448		476
2.45% Notes due 2021	349		357
1.65% Notes due 2021	997		991
0.250% Notes due 2022 (1B Euro 1.1397)	1,136		1,136
2.25% Notes due 2022	995		1,003
6.73% Debentures due 2023	250		311
3.375% Notes due 2023	807		866
2.05% Notes due 2023	497		493
0.650% Notes due 2024 (750MM Euro 1.1397)	850		852
5.50% Notes due 2024 (500 MM GBP 1.2965)	642		823
2.45% Notes due 2026	1,990		1,946
2.95% Notes due 2027	995		1,034
1.150% Notes due 2028 (750MM Euro 1.1397)	846		848
6.95% Notes due 2029	296		409
4.95% Debentures due 2033	498		596
4.375% Notes due 2033	857		982
1.650% Notes due 2035 (1.5B Euro 1.1397)	1,691		1,717
3.55% Notes due 2036	987		1,027
5.95% Notes due 2037	990		1,334
3.625% Notes due 2037	1,485		1,556
5.85% Debentures due 2038	695		933
4.50% Debentures due 2040	537		608
4.85% Notes due 2041	296		358
4.50% Notes due 2043	495		578
3.70% Notes due 2046	1,971		2,030
3.75% Notes due 2047	990		1,033
Other	25		25
Total Non-Current Debt	$	27,363	29,319

- 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.

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