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Fair Value Measurements (Tables)

6 Months Ended

Jul. 04, 2021

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 ended in 2021 and 2020, net of tax:

			July 4, 2021															June 28, 2020
(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			$	—		—			—			(6)			—			—			—			—						—
Derivatives designated as hedging instruments			—			—			—			6			—			—			—			—						—
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			—			—			—			40			—			—			—			—			39			—
Amount of gain or (loss) recognized in AOCI			—			—			—			40			—			—			—			—			39			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			11			14			104			—			2			(2)			(62)			2			—			—
Amount of gain or (loss) recognized in AOCI			(3)			(50)			119			—			8			(2)			(128)			(10)			—			22
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			99			—			—						—			83			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			286			—			—			—			—			100			—

The following table is a summary of the activity related to derivatives and hedges for the fiscal six months ended in 2021 and 2020, net of tax:

			July 4, 2021															June 28, 2020
(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			$	—		—			—			(6)			—			—			—			—						—
Derivatives designated as hedging instruments			—			—			—			6			—			—			—			—						—
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			—			—			—			80			—			—			—			—			79			—
Amount of gain or (loss) recognized in AOCI			—			—			—			80			—			—			—			—			79			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			28			48			(9)			—			5			7			(235)			(108)			—			(2)
Amount of gain or (loss) recognized in AOCI			(6)			(243)			43			—			25			9			174			(120)			—			(14)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			191			—			—			—			—			181			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			(21)			—			—			—			—			725			—

The following table is the effect of net investment hedges for the fiscal second quarters ended in 2021 and 2020

						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)						July 4, 2021						June 28, 2020												July 4, 2021						June 28, 2020
Debt						$	(45)					(95)						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	(70)					(186)						Interest (income) expense						—						—

The following table is the effect of net investment hedges for the fiscal six months ended in 2021 and 2020

						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)						July 4, 2021						June 28, 2020												July 4, 2021						June 28, 2020
Debt						$	164					(48)						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	291					641						Interest (income) expense						—						—

Schedule of Derivative Financial Instruments and Classification on Consolidated Balance Sheet

As of July 4, 2021, and January 3, 2021, 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 4, 2021

January 3, 2021

July 4, 2021

January 3, 2021

Long-term Debt

1,975

—

8

—

Schedule of Effect of Derivatives not Designated as Hedging Instruments

The following table is the effect of derivatives not designated as hedging instruments for the fiscal second quarters 2021 and 2020:

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 Quarter Ended

Fiscal Six Months Ended

Derivatives Not Designated as Hedging Instruments

July 4, 2021

June 28, 2020

July 4, 2021

June 28, 2020

Foreign Exchange Contracts

Other (income) expense

$

(21)

(24)

(37)

65

Summary of Activity Related to Equity Investments

The following table is a summary of the activity related to equity investments:

(Dollars in Millions)						January 3, 2021																		July 4, 2021
						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						$	1,481					171						26						1,678						1,678
Equity Investments without readily determinable value						$	738					22						64						824						824

(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 4, 2021 and January 3, 2021 were as follows:

						July 4, 2021																								January 3, 2021
(Dollars in Millions)						Level 1						Level 2						Level 3						Total						Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts						$	—					405						—						405						849
Interest rate contracts (2)						—						451						—						451						240
Total						—						856						—						856						1,089
Liabilities:
Forward foreign exchange contracts						—						620						—						620						702
Interest rate contracts (2)						—						674						—						674						1,569
Total						—						1,294						—						1,294						2,271
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts						—						64						—						64						49
Liabilities:
Forward foreign exchange contracts						—						58						—						58						38
Other Investments:
Equity investments (3)						1,678						—						—						1,678						1,481
Debt securities(4)						—						13,056						—						13,056						14,042
Other Liabilities
Contingent consideration (5)						$	—					—						593						593						633

Gross to Net Derivative Reconciliation						July 4, 2021						January 3, 2021
(Dollars in Millions)
Total Gross Assets						$	920					1,138
Credit Support Agreement (CSA)						(833)						(1,107)
Total Net Asset						87						31
Total Gross Liabilities						1,352						2,309
Credit Support Agreement (CSA)						(1,327)						(2,172)
Total Net Liabilities						$	25					137

Summarized information about changes in liabilities for contingent consideration is as follows:

						July 4, 2021						June 28, 2020
(Dollars in Millions)
Beginning Balance						$	633					$	1,715
Changes in estimated fair value (6)						8						(938)
Additions						—						106
Payments						(48)						(87)
Ending Balance						$	593					$	796

(1)2020 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,481 million, which are classified as Level 1 and contingent consideration of $633 million, classified as Level 3.

(2) Includes cross currency interest rate swaps and interest rate swaps as of July 4, 2021. Includes cross currency interest rate swaps as of January 3, 2021.

(3)    Classified as non-current other assets.

(4)    Classified within cash equivalents and current marketable securities.

(5)    Includes $579 million and $594 million, classified as non-current other liabilities as of July 4, 2021 and January 3, 2021, respectively. Includes $14 million and $39 million classified as current liabilities as of July 4, 2021 and January 3, 2021, respectively.

(6) Ongoing fair value adjustment amounts are primarily recorded in Research and Development expense.

The Company recorded a contingent consideration reversal of $983 million in 2020 related to the timing of certain developmental milestones associated with the Auris Health acquisition. The reversal of the contingent consideration was recorded in Other income and expense, net.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of July 4, 2021 comprised:

(Dollars in Millions)			Carrying Amount						Unrecognized Gain						Unrecognized Loss						Estimated Fair Value						Cash & Cash Equivalents						Current Marketable Securities
Cash			$	2,313					—						—						2,313						2,313						—
Non-U.S. sovereign securities(1)			869						—						—						869						75						794
U.S. reverse repurchase agreements			2,091						—						—						2,091						2,091						—
Corporate debt securities(1)			3,230						—						—						3,230						2,191						1,039
Money market funds			2,618						—						—						2,618						2,618						—
Time deposits(1)			1,129						—						—						1,129						1,129						—
Subtotal			12,250						—						—						12,250						10,417						1,833
									Unrealized Gain						Unrealized Loss
U.S. Gov't securities			12,798						—						—						12,798						3,890						8,908
Other sovereign securities			1						—						—						1						—						1
Corporate debt securities			257						—						—						257						25						232
Subtotal available for sale debt(2)			$	13,056					—						—						13,056						3,915						9,141
Total cash, cash equivalents and current marketable securities			$	25,306					—						—						25,306						14,332						10,974

(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 as of July 4, 2021 are as follows:

(Dollars in Millions)						Cost Basis						Fair Value
Due within one year						$	13,043					13,043
Due after one year through five years						13						13
Due after five years through ten years						—						—
Total debt securities						$	13,056					13,056

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 4, 2021:

(Dollars in Millions)						Carrying Amount						Estimated Fair Value
Financial Liabilities
Current Debt						$	3,173					3,192
Non-Current Debt
6.73% Debentures due 2023						250						288
3.375% Notes due 2023						802						863
2.05% Notes due 2023						499						512
0.650% Notes due 2024 (750MM Euro 1.1870)						888						912
5.50% Notes due 2024 (500 MM GBP 1.3809)						688						801
2.625% Notes due 2025						749						798
0.55% Notes due 2025						997						988
2.45% Notes due 2026						1,994						2,127
2.95% Notes due 2027						997						1,092
0.95% Notes due 2027						1,494						1,471
2.90% Notes due 2028						1,495						1,639
1.150% Notes due 2028 (750MM Euro 1.1870)						884						958
6.95% Notes due 2029						297						419
1.30% Notes due 2030						1,743						1,697
4.95% Debentures due 2033						498						659
4.375% Notes due 2033						855						1,075
1.650% Notes due 2035 (1.5B Euro 1.1870)						1,766						2,033
3.55% Notes due 2036						990						1,156
5.95% Notes due 2037						993						1,456
3.625% Notes due 2037						1,488						1,743
3.40% Notes due 2038						991						1,132
5.85% Debentures due 2038						696						1,018
4.50% Debentures due 2040						540						701
2.10% Notes due 2040						986						942
4.85% Notes due 2041						297						398
4.50% Notes due 2043						496						649
3.70% Notes due 2046						1,975						2,359
3.75% Notes due 2047						992						1,198
3.50% Notes due 2048						743						867
2.25% Notes due 2050						991						932
2.45% Notes due 2060						1,229						1,169
Other						7						6
Total Non-Current Debt						$	30,310					34,058

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