Fair Value Measurements (Tables)

3 Months Ended

Apr. 01, 2018

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal first quarters in 2018 and 2017:



	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 First Quarters Ended
Cash Flow Hedges By Income Statement Caption	April 1, 2018			April 2, 2017		April 1, 2018		April 2, 2017		April 1, 2018	April 2, 2017
Sales to customers ⁽³⁾	$	31		(13	)	29		(33	)	—	—
Cost of products sold ⁽³⁾	3			(97	)	2		(31	)	12	(17	)
Research and development expense ⁽³⁾	(237		)	(109	)	(238	)	(102	)	—	5
Interest (income)/Interest expense, net ⁽⁴⁾	57			28		40		22		—	—
Other (income) expense, net ^{(3) (5)}	(18		)	(33	)	(11	)	(35	)	5	1
Total	$	(164	)	(224	)	(178	)	(179	)	17	(11	)

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. The equity collar contracts expired in December of 2017

Summary of Activity Related to Equity Investments

The following table is a summary of the activity related to equity investments for the fiscal first quarter of 2018:



(Dollars in Millions)	December 31, 2017					April 1, 2018
	Carrying Value		Changes in Fair Value Reflected in Net Income ⁽¹⁾		Sales/ Purchases/Other ⁽²⁾	Carrying Value	Non Current Other Assets
Equity Investments with readily determinable value	$	751	(27	)	7	731	731

Equity Investments without readily determinable value	$	510	(20	)	83	573	573

⁽¹⁾ Recorded in Other Income/Expense

⁽²⁾ Other includes impact of currency

Financial Assets and Liabilities at Fair Value

The Company’s significant financial assets and liabilities measured at fair value as of April 1, 2018 and December 31, 2017 were as follows:



	April 1, 2018					December 31, 2017
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts^{(7) (8)}	$	—	351	—	351	342
Interest rate contracts ⁽²⁾⁽⁴⁾	—		3	—	3	7
Total	—		354	—	354	349
Liabilities:
Forward foreign exchange contracts^{(7) (9)}	—		269	—	269	314
Interest rate contracts ^{(3)(4)(7) (10)}	—		19	—	19	15
Total	—		288	—	288	329
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		25	—	25	38
Liabilities:
Forward foreign exchange contracts	—		53	—	53	38
Other Investments:
Equity investments ⁽⁵⁾	731		—	—	731	751
Debt securities⁽⁶⁾	$	—	2,967	—	2,967	5,310


⁽¹⁾	2017 assets and liabilities are all classified as Level 2 with the exception of equity investments of $751 million, which are classified as Level 1.


⁽²⁾	Includes $2 million and $7 million of non-current other assets for April 1, 2018 and December 31, 2017, respectively.


⁽³⁾	Includes $14 million and $9 million of non-current other liabilities for April 1, 2018 and December 31, 2017, 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 $731 million and $751 million as of April 1, 2018 and December 31, 2017, respectively.


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


⁽⁷⁾	Includes collateral exchanged on the credit support agreements on derivatives


⁽⁸⁾	Forward foreign exchange contracts excluding CSA were $478 million and $418 million for April 1, 2018 and December 31, 2017, respectively.


⁽⁹⁾	Forward foreign exchange contracts excluding CSA were $364 million and $402 million for April 1, 2018 and December 31, 2017, respectively.


⁽¹⁰⁾	Interest rate contracts excluding CSA were $83 million and $165 million for April 1, 2018 and December 31, 2017, respectively.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of April 1, 2018 comprised:



	April 1, 2018
(Dollars in Millions)	Carrying Amount		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,656	2,656	2,656
Other Sovereign Securities⁽¹⁾	529		529	529
U.S. Reverse repurchase agreements	2,682		2,682	2,682
Other Reverse repurchase agreements	398		398	398
Corporate debt securities⁽¹⁾	1,869		1,869	1,864	5
Money market funds	2,944		2,944	2,944
Time deposits⁽¹⁾	1,159		1,159	1,159
Subtotal	12,237		12,237	12,232	5


Gov't securities	2,705		2,705	2,370	335
Other Sovereign Securities	2		2	—	2
Corporate debt securities	260		260	37	223
Subtotal available for sale debt⁽²⁾	$	2,967	2,967	2,407	560
Total cash, cash equivalents and current marketable securities				14,639	565

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

⁽²⁾Available for sale debt 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 1, 2018 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	2,887	2,887
Due after one year through five years	80		80
Due after five years through ten years	—		—
Total debt securities	$	2,967	2,967

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 1, 2018:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	2,696	2,696

Non-Current Debt
4.75% Notes due 2019 (1B Euro 1.2323)	1,230		1,330
1.875% Notes due 2019	495		492
3% Zero Coupon Convertible Subordinated Debentures due in 2020	52		92
1.950% Notes due 2020	499		492
2.95% Debentures due 2020	547		553
3.55% Notes due 2021	448		461
2.45% Notes due 2021	349		347
1.65% Notes due 2021	998		973
0.250% Notes due 2022 (1B Euro 1.2323)	1,229		1,236
2.25% Notes due 2022	995		975
6.73% Debentures due 2023	250		298
3.375% Notes due 2023	806		827
2.05% Notes due 2023	498		478
0.650% Notes due 2024 (750MM Euro 1.2323)	920		926
5.50% Notes due 2024 (500 MM GBP 1.4063)	697		865
2.625% Notes due 2025	747		722
2.45% Notes due 2026	1,991		1,877
2.95% Notes due 2027	995		968
2.90% Notes due 2028	1,492		1,443
1.150% Notes due 2028 (750MM Euro 1.2323)	916		923
6.95% Notes due 2029	296		397
4.95% Debentures due 2033	498		580
4.375% Notes due 2033	856		938
1.650% Notes due 2035 (1.5B Euro 1.2323)	1,830		1,907
3.55% Notes due 2036	987		978
5.95% Notes due 2037	991		1,289
3.625% Notes due 2037	1,486		1,479
3.40% Notes due 2038	990		961
5.85% Debentures due 2038	696		908
4.50% Debentures due 2040	538		604
4.85% Notes due 2041	296		340
4.50% Notes due 2043	495		545
3.70% Notes due 2046	1,971		1,966
3.75% Notes due 2047	991		991
3.50% Notes due 2048	742		716
Other	20		20
Total Non-Current Debt	$	29,837	30,897

- 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