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Fair Value Measurements (Tables)

6 Months Ended

Jul. 01, 2018

Fair Value Disclosures [Abstract]

Summary of Derivative Activity

The following table is a summary of the activity related to derivatives and hedges for the fiscal second quarters in 2018 and 2017:

	July 1, 2018											July 2, 2017
(Dollars in Millions)	Sales			Cost of Products Sold		R&D Expense		Interest (Income) Expense		Other (Income) Expense		Sales		Cost of Products Sold		R&D Expense		Interest (Income) Expense		Other (Income) Expense
The effects of fair value, net investment and cash flow hedging:
Gain (Loss) on fair value hedging relationship:
Interest rate swaps contracts:
Hedged items	$	—		—		—		5		—		—		—		—		5		—
Derivatives designated as hedging instruments	—			—		—		(5	)	—		—		—		—		(5	)	—
Gain (Loss) on net investment hedging relationship:
Cross currency interest rate swaps contracts:
Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing	—			—		—		2		—		—		—		—		—		—
Amount of gain or (loss) recognized in AOCI	—			—		—		2		—		—		—		—		—		—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income (1)	17			76		(14	)	—		(10	)	(6	)	(68	)	1		—		(2	)
Amount of gain or (loss) recognized in AOCI (1)	(49		)	(57	)	21		—		3		36		218		(19	)	—		(12	)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—			—		—		32		—		—				—		(65	)	—
Amount of gain or (loss) recognized in AOCI	$	—		—		—		19		—		—		—		—		(69	)	—

The following table is a summary of the activity related to derivatives and hedges for the fiscal six months in 2018 and 2017:

	July 1, 2018											July 2, 2017
(Dollars in Millions)	Sales			Cost of Products Sold		R&D Expense		Interest (Income) Expense		Other (Income) Expense		Sales		Cost of Products Sold		R&D Expense		Interest (Income) Expense		Other (Income) Expense
The effects of fair value, net investment and cash flow hedging:
Gain (Loss) on fair value hedging relationship:
Interest rate swaps contracts:
Hedged items	$	—		—		—		10		—		—		—		—		(1	)	—
Derivatives designated as hedging instruments	—			—		—		(10	)	—		—		—		—		1		—
Gain (Loss) on net investment hedging relationship:
Cross currency interest rate swaps contracts:
Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing	—			—		—		2		—		—		—		—		—		—
Amount of gain or (loss) recognized in AOCI	—			—		—		2		—		—		—		—		—		—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income (1)	46			78		(252	)	—		(21	)	(39	)	(99	)	(101	)	—		(37	)
Amount of gain or (loss) recognized in AOCI (1)	(18		)	(54	)	(216	)	—		(15	)	22		121		(128	)	—		(44	)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—			—		—		72		—		—		—		—		(43	)	—
Amount of gain or (loss) recognized in AOCI	$	—		—		—		76		—		—		—		—		(41	)	—

⁽¹⁾ Includes equity collar contracts. The equity collar contracts expired in December of 2017

Schedule of Derivatives Recorded in Consolidated Balance Sheet

As of July 1, 2018 and December 31, 2017, the following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges:

Line item in the Consolidated Balance Sheet in which the hedged item is included		Carrying Amount of the Hedged Liability							Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
(Dollars in Millions)		July 1, 2018				December 31, 2017			July 1, 2018			December 31, 2017
Current Portion of Long-term Debt		$	597			597			3			2
Long-term Debt		492				496			7			3

Schedule of Effect of Derivatives not Designated as Hedging Instruments

The following table is the effect of derivatives not designated as hedging instrument for the fiscal second quarters and fiscal six months in 2018 and 2017:

Gain/(Loss) Recognized In Income on Derivative

Gain/(Loss) Recognized In Income on Derivative

(Dollars in Millions)

Location of Gain /(Loss) Recognized in Income on Derivative

Fiscal Second Quarters Ended

Fiscal Six Months Ended

Derivatives Not Designated as Hedging Instruments

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Foreign Exchange Contracts

Other (income) expense

$

(53

)

63

(72

)

34

Schedule of Effect of Net Investment Hedges

The following table is the effect of net investment hedges for the fiscal second quarters in 2018 and 2017:
		Gain/(Loss) Recognized In Accumulated OCI							Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income		Gain/(Loss) Reclassified From Accumulated OCI Into Income
(Dollars in Millions)		Fiscal Second Quarters Ended
		July 1, 2018				July 2, 2017					July 1, 2018			July 2, 2017
Debt		$	306			(268	)		Other (income) expense		—			—
Cross Currency interest rate swaps		$	37			—			Other (income) expense		—			—

The following table is the effect of net investment hedges for the fiscal six months in 2018 and 2017:
		Gain/(Loss) Recognized In Accumulated OCI							Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income		Gain/(Loss) Reclassified From Accumulated OCI Into Income
(Dollars in Millions)		Fiscal Six Months Ended
		July 1, 2018				July 2, 2017					July 1, 2018			July 2, 2017
Debt		$	156			(378	)		Other (income) expense		—			—
Cross Currency interest rate swaps		$	37			—			Other (income) expense		—			—

Summary of Activity Related to Equity Investments

The following table is a summary of the activity related to equity investments as of July 1, 2018:

(Dollars in Millions)		December 31, 2017										July 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			(25	)		(29	)		697			697
Equity Investments without readily determinable value		$	510			13			101			624			624

⁽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 July 1, 2018 and December 31, 2017 were as follows:

		July 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		$	—			547			—			547			418
Interest rate contracts (2)(4)		—				46			—			46			7
Total (7)		—				593			—			593			425
Liabilities:
Forward foreign exchange contracts		—				471			—			471			402
Interest rate contracts (3)(4)		—				236			—			236			165
Total (8)		—				707			—			707			567
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts (7)		—				58			—			58			38
Liabilities:
Forward foreign exchange contracts (8)		—				71			—			71			38
Other Investments:
Equity investments (5)		697				—			—			697			751
Debt securities(6)		$	—			9,031			—			9,031			5,310

Gross to Net Derivative Reconciliation		July 1, 2018				December 31, 2017
(Dollars in Millions)
Total Gross Assets		$	651			463
Credit Support Agreement (CSA)		(295		)		(76	)
Total Net Asset		356				387
Total Gross Liabilities		778				605
Credit Support Agreement (CSA)		(421		)		(238	)
Total Net Liabilities		$	357			367

⁽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 $0 million and $7 million of non-current other assets for July 1, 2018 and December 31, 2017, respectively.

⁽³⁾  Includes $0 million and $9 million of non-current other liabilities for July 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 $697 million and $751 million as of July 1, 2018 and December 31, 2017, respectively.

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

⁽⁷⁾  Equal sum of total gross assets.

⁽⁸⁾  Equal sum total gross liabilities.

Marketable Securities

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

	July 1, 2018
(Dollars in Millions)	Carrying Amount				Estimated Fair Value			Cash & Cash Equivalents			Current Marketable Securities
Cash	$	2,473			2,473			2,473
Other sovereign securities(1)	180				180			180
U.S. reverse repurchase agreements	2,425				2,425			2,425
Other reverse repurchase agreements	425				425			425
Corporate debt securities(1)	—				—			—			—
Money market funds	2,507				2,507			2,507
Time deposits(1)	1,098				1,098			1,098
Subtotal	9,108				9,108			9,108			—
Government securities	8,766				8,766			8,437			329
Other sovereign securities	—				—			—			—
Corporate debt securities	265				265			24			241
Subtotal available for sale debt(2)	$	9,031			9,031			8,461			570
Total cash, cash equivalents and current marketable securities								17,569			570

⁽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 July 1, 2018 are as follows:

(Dollars in Millions)		Cost Basis				Fair Value
Due within one year		$	8,956			8,956
Due after one year through five years		75				75
Due after five years through ten years		—				—
Total debt securities		$	9,031			9,031

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 1, 2018:

(Dollars in Millions)		Carrying Amount				Estimated Fair Value
Financial Liabilities
Current Debt		$	2,678			2,678
Non-Current Debt
4.75% Notes due 2019 (1B Euro 1.1556)		1,154				1,234
1.875% Notes due 2019		492				488
3% Zero Coupon Convertible Subordinated Debentures due in 2020		52				88
1.950% Notes due 2020		499				491
2.95% Debentures due 2020		547				551
3.55% Notes due 2021		448				459
2.45% Notes due 2021		349				347
1.65% Notes due 2021		998				971
0.250% Notes due 2022 (1B Euro 1.1556)		1,153				1,162
2.25% Notes due 2022		996				974
6.73% Debentures due 2023		250				292
3.375% Notes due 2023		806				815
2.05% Notes due 2023		498				478
0.650% Notes due 2024 (750MM Euro 1.1556)		863				873
5.50% Notes due 2024 (500 MM GBP 1.3052)		647				799
2.625% Notes due 2025		747				718
2.45% Notes due 2026		1,991				1,866
2.95% Notes due 2027		995				959
2.90% Notes due 2028		1,492				1,436
1.150% Notes due 2028 (750MM Euro 1.1556)		859				873
6.95% Notes due 2029		296				388
4.95% Debentures due 2033		498				567
4.375% Notes due 2033		856				919
1.650% Notes due 2035 (1.5B Euro 1.1556)		1,716				1,776
3.55% Notes due 2036		987				957
5.95% Notes due 2037		991				1,269
3.625% Notes due 2037		1,486				1,461
3.40% Notes due 2038		990				941
5.85% Debentures due 2038		696				885
4.50% Debentures due 2040		538				579
4.85% Notes due 2041		296				333
4.50% Notes due 2043		495				540
3.70% Notes due 2046		1,971				1,907
3.75% Notes due 2047		991				967
3.50% Notes due 2048		742				695
Other		20				20
Total Non-Current Debt		$	29,405			30,078

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