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Fair Value Measurements (Tables)

9 Months Ended

Oct. 03, 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 third quarters ended in 2021 and 2020, net of tax:

			October 3, 2021															September 27, 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			$	—		—			—			(62)			—			—			—			—						—
Derivatives designated as hedging instruments			—			—			—			62			—			—			—			—						—
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			—			—			—			34			—			—			—			—			39			—
Amount of gain or (loss) recognized in AOCI			—			—			—			34			—			—			—			—			39			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			(3)			58			8			—			19			3			(81)			(13)			—			(8)
Amount of gain or (loss) recognized in AOCI			(35)			(155)			37			—			42			16			156			(36)			—			(41)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			117			—			—						—			84			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			144			—			—			—			—			65			—

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

			October 3, 2021															September 27, 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			$	—		—			—			(56)			—			—			—			—						—
Derivatives designated as hedging instruments			—			—			—			56			—			—			—			—						—
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			—			—			—			115			—			—			—			—			118			—
Amount of gain or (loss) recognized in AOCI			—			—			—			115			—			—			—			—			118			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			25			106			(1)			—			24			10			(316)			(121)			—			(10)
Amount of gain or (loss) recognized in AOCI			(41)			(398)			80			—			67			25			330			(156)			—			(55)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			307			—			—			—			—			265			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			122			—			—			—			—			790			—

The following table is the effect of net investment hedges for the fiscal third 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)						October 3, 2021						September 27, 2020												October 3, 2021						September 27, 2020
Debt						$	115					(169)						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	141					(234)						Interest (income) expense						—						—

The following table is the effect of net investment hedges for the fiscal nine 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)						October 3, 2021						September 27, 2020												October 3, 2021						September 27, 2020
Debt						$	279					(217)						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	432					407						Interest (income) expense						—						—

Schedule of Derivative Financial Instruments and Classification on Consolidated Balance Sheet

As of October 3, 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)

October 3, 2021

January 3, 2021

October 3, 2021

January 3, 2021

Long-term Debt

9,851

—

(73)

—

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 third quarters and fiscal nine months in 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 Third Quarter Ended

Fiscal Nine Months Ended

Derivatives Not Designated as Hedging Instruments

October 3, 2021

September 27, 2020

October 3, 2021

September 27, 2020

Foreign Exchange Contracts

Other (income) expense

$

(13)

1

(50)

66

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																		October 3, 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					(83)						469						1,867						1,867
Equity Investments without readily determinable value						$	738					392						(545)						585						585

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

						October 3, 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						$	—					459						—						459						849
Interest rate contracts (2)						—						707						—						707						240
Total						—						1,166						—						1,166						1,089
Liabilities:
Forward foreign exchange contracts						—						768						—						768						702
Interest rate contracts (2)						—						468						—						468						1,569
Total						—						1,236						—						1,236						2,271
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts						—						51						—						51						49
Liabilities:
Forward foreign exchange contracts						—						48						—						48						38
Other Investments:
Equity investments (3)						1,867						—						—						1,867						1,481
Debt securities (4)						—						18,911						—						18,911						14,042
Other Liabilities
Contingent consideration (5)						$	—					—						613						613						633

Gross to Net Derivative Reconciliation						October 3, 2021						January 3, 2021
(Dollars in Millions)
Total Gross Assets						$	1,217					1,138
Credit Support Agreement (CSA)						(1,058)						(1,107)
Total Net Asset						159						31
Total Gross Liabilities						1,284						2,309
Credit Support Agreement (CSA)						(1,260)						(2,172)
Total Net Liabilities						$	24					137

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

						October 3, 2021						September 27, 2020
(Dollars in Millions)
Beginning Balance						$	633					$	1,715
Changes in estimated fair value (6)						28						(1,088)
Additions						—						107
Payments						(48)						(98)
Ending Balance						$	613					$	636

(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 October 3, 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 $595 million and $594 million, classified as non-current other liabilities as of October 3, 2021 and January 3, 2021, respectively. Includes $18 million and $39 million classified as current liabilities as of October 3, 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 $1,148 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 October 3, 2021 comprised:

(Dollars in Millions)			Carrying Amount						Unrecognized Gain						Unrecognized Loss						Estimated Fair Value						Cash & Cash Equivalents						Current Marketable Securities
Cash			$	2,607					—						—						2,607						2,607						—
Non-U.S. sovereign securities(1)			870						—						—						870						—						870
U.S. reverse repurchase agreements			1,715						—						—						1,715						1,715						—
Corporate debt securities(1)			3,604						—						—						3,604						274						3,330
Money market funds			2,120						—						—						2,120						2,120						—
Time deposits(1)			1,174						—						—						1,174						1,174						—
Subtotal			12,090						—						—						12,090						7,890						4,200
									Unrealized Gain						Unrealized Loss
U.S. Gov't securities			18,657						—						—						18,657						9,697						8,960
Other sovereign securities			3						—						—						3						2						1
Corporate debt securities			251						—						—						251						15						236
Subtotal available for sale debt(2)			$	18,911					—						—						18,911						9,714						9,197
Total cash, cash equivalents and current marketable securities			$	31,001					—						—						31,001						17,604						13,397

(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 October 3, 2021 are as follows:

(Dollars in Millions)						Cost Basis						Fair Value
Due within one year						$	18,895					18,895
Due after one year through five years						16						16
Due after five years through ten years						—						—
Total debt securities						$	18,911					18,911

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 October 3, 2021:

(Dollars in Millions)						Carrying Amount						Estimated Fair Value
Financial Liabilities
Current Debt						$	3,798					3,808
Non-Current Debt
6.73% Debentures due 2023						250						285
3.375% Notes due 2023						802						857
2.05% Notes due 2023						499						511
0.650% Notes due 2024 (750MM Euro 1.1581)						867						889
5.50% Notes due 2024 (500 MM GBP 1.3465)						671						769
2.625% Notes due 2025						749						794
0.55% Notes due 2025						993						982
2.45% Notes due 2026						1,995						2,119
2.95% Notes due 2027						989						1,078
0.95% Notes due 2027						1,489						1,464
2.90% Notes due 2028						1,495						1,622
1.150% Notes due 2028 (750MM Euro 1.1581)						863						932
6.95% Notes due 2029						297						414
1.30% Notes due 2030						1,733						1,678
4.95% Debentures due 2033						498						647
4.375% Notes due 2033						855						1,059
1.650% Notes due 2035 (1.5B Euro 1.1581)						1,723						1,963
3.55% Notes due 2036						980						1,134
5.95% Notes due 2037						993						1,439
3.625% Notes due 2037						1,481						1,721
3.40% Notes due 2038						992						1,122
5.85% Debentures due 2038						696						1,013
4.50% Debentures due 2040						540						693
2.10% Notes due 2040						979						933
4.85% Notes due 2041						297						393
4.50% Notes due 2043						496						640
3.70% Notes due 2046						1,975						2,319
3.75% Notes due 2047						974						1,157
3.50% Notes due 2048						743						860
2.25% Notes due 2050						986						928
2.45% Notes due 2060						1,225						1,150
Other						5						6
Total Non-Current Debt						$	30,130					33,571

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