XML 39 R16.htm IDEA: XBRL DOCUMENT
v3.22.0.1

Fair Value Measurements | 12 Months Ended
--- | ---
Jan. 02, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The Company uses forward foreign exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany products and third-party purchases of materials denominated in a foreign currency. The Company uses cross currency interest rate swaps to manage currency risk primarily related to borrowings. Both types of derivatives are designated as cash flow hedges. Additionally, the Company uses interest rate swaps as an instrument to manage interest rate risk related to fixed rate borrowings. These derivatives are designated as fair value hedges. The Company uses cross currency interest rate swaps and forward foreign exchange contracts designated as net investment hedges. Additionally, the Company uses forward foreign exchange contracts to offset its exposure to certain foreign currency assets and liabilities. These forward foreign exchange contracts are not designated as hedges and therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities. The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. The Company maintains credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of January 2, 2022, the total amount of cash collateral paid by the Company under the CSA amounted to $570 million net, related to net investment and cash flow hedges. On an ongoing basis, the Company monitors counter-party credit ratings. The Company considers credit non-performance risk to be low, because the Company primarily enters into agreements with commercial institutions that have at least an investment grade credit rating. Refer to the table on significant financial assets and liabilities measured at fair value contained in this footnote for receivables and payables with these commercial institutions. As of January 2, 2022, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $45.8 billion, $37.4 billion and $10.0 billion, respectively. As of January 3, 2021, the Company had notional amounts outstanding for forward foreign exchange contracts and cross currency interest rate swaps of $37.8 billion and $30.6 billion, respectively. All derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction. The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. Foreign exchange contracts designated as cash flow hedges are accounted for under the forward method and all gains/losses associated with these contracts will be recognized in the income statement when the hedged item impacts earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. Gains and losses associated with interest rate swaps and changes in fair value of hedged debt attributable to changes in interest rates are recorded to interest expense in the period in which they occur. Gains and losses on net investment hedge are accounted through the currency translation account within accumulated other comprehensive income. The portion excluded from effectiveness testing is recorded through interest (income) expense using the spot method. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued. The Company designated its Euro denominated notes issued in May 2016 with due dates ranging from 2022 to 2035 as a net investment hedge of the Company's investments in certain of its international subsidiaries that use the Euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As of January 2, 2022, the balance of deferred net loss on derivatives included in accumulated other comprehensive income was $336 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 13. The Company expects that substantially all of the amounts related to forward foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transaction exposure is 18 months, excluding interest rate contracts and net investment hedges. The amount ultimately realized in earnings may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative. The following table is a summary of the activity related to derivatives and hedges for the fiscal years ended January 2, 2022 and January 3, 2021, net of tax:
| January 2, 2022 | January 3, 2021
(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 | $ | — |  | — |  | — |  | (109) |  | — |  | — |  | — |  | — |  | — |  | — |
Derivatives designated as hedging instruments | — |  | — |  | — |  | 109 |  | — |  | — |  | — |  | — |  | — |  | — |
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 | $ | — |  | — |  | — |  | 174 |  | — |  | — |  | — |  | — |  | 153 |  | — |
Amount of gain or (loss) recognized in AOCI | — |  | — |  | — |  | 174 |  | — |  | — |  | — |  | — |  | 153 |  | — |
Gain (Loss) on cash flow hedging relationship: |  |  |  |  |  |  |  |  |  |
Forward foreign exchange contracts: |  |  |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into income | 17 |  | 119 |  | 30 |  | — |  | 47 |  | 12 |  | (329) |  | (137) |  | — |  | (16) |
Amount of gain or (loss) recognized in AOCI | (94) |  | (557) |  | 123 |  | — |  | 146 |  | 44 |  | 298 |  | (91) |  | — |  | (52) |
Cross currency interest rate swaps contracts: |  |  |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into income | — |  | — |  | — |  | 402 |  | — |  | — |  | — |  | — |  | 370 |  | — |
Amount of gain or (loss) recognized in AOCI | $ | — |  | — |  | — |  | 9 |  | — |  | — |  | — |  | — |  | 748 |  | — |
As of January 2, 2022 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) |  | January 2, 2022 |  | January 3, 2021 |  | January 2, 2022 |  | January 3, 2021
Long-term Debt |  | $ | 9,793 |  |  | $ | — |  |  | $ | (142) |  |  | $ | — |
The following table is the effect of derivatives not designated as hedging instrument for the fiscal years ended January 2, 2022 and January 3, 2021:
(Dollars in Millions) |  | Location of Gain /(Loss) Recognized in Income on Derivative |  | Gain/(Loss) Recognized In Income on Derivative
Derivatives Not Designated as Hedging Instruments |  |  |  | January 2, 2022 |  | January 3, 2021
Foreign Exchange Contracts |  | Other (income) expense |  | $ | (70) |  |  | 24 |
The following table is the effect of net investment hedges for the fiscal years ended January 2, 2022 and January 3, 2021:
|  | 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) |  | January 2, 2022 |  | January 3, 2021 |  |  |  | January 2, 2022 |  | January 3, 2021
Debt |  | $ | 387 |  |  | (473) |  |  | Interest (income) expense |  | — |  |  | — |
Cross Currency interest rate swaps |  | $ | 548 |  |  | 65 |  |  | Interest (income) expense |  | — |  |  | — |
The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company measures equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The following table is a summary of the activity related to equity investments for the fiscal years ended January 2, 2022 and January 3, 2021:
|  | January 3, 2021 |  |  |  |  |  | January 2, 2022
(Dollars in Millions) |  | 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 |  |  | 198 |  |  | 205 |  |  | 1,884 |  |  | 1,884 |
Equity Investments without readily determinable value |  | $ | 738 |  |  | 394 |  |  | (632) |  |  | 500 |  |  | 500 |
|  | December 29, 2019 |  |  |  |  |  | January 3, 2021
(Dollars in Millions) |  | 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 |  | $ | 1,148 |  |  | 527 |  |  | (194) |  |  | 1,481 |  |  | 1,481 |
Equity Investments without readily determinable value |  | $ | 712 |  |  | (55) |  |  | 81 |  |  | 738 |  |  | 738 |
(1) Recorded in Other Income/Expense (2) Other includes impact of currency For the fiscal years ended January 2, 2022 and January 3, 2021 for equity investments without readily determinable market values, $28 million and $76 million, respectively, of the changes in fair value reflected in net income were the result of impairments. There were offsetting impacts of $422 million and $21 million, respectively, of changes in fair value reflected in net income due to changes in observable prices and gains on the disposal of investments. The impact in fiscal 2021 was driven by the gain on disposal of the Grail investment. Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement determined using assumptions that market participants would use in pricing an asset or liability. In accordance with ASC 820, a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 having the highest priority and Level 3 having the lowest. The fair value of a derivative financial instrument (i.e., forward foreign exchange contracts, interest rate contracts) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. Dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 and debt securities which are classified as Level 2. The Company holds acquisition related contingent liabilities based upon certain regulatory and commercial events, which are classified as Level 3, whose values are determined using discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant judgment or estimations. The following three levels of inputs are used to measure fair value: Level 1 — Quoted prices in active markets for identical assets and liabilities. Level 2 — Significant other observable inputs. Level 3 — Significant unobservable inputs. The Company’s significant financial assets and liabilities measured at fair value as of the fiscal year ended January 2, 2022 and January 3, 2021 were as follows:
|  | 2021 |  | 2020
(Dollars in Millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Total (1)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Forward foreign exchange contracts |  | $ | — |  |  | 540 |  |  | — |  |  | 540 |  |  | 849 |
Interest rate contracts (2) |  | — |  |  | 796 |  |  | — |  |  | 796 |  |  | 240 |
Total |  | $ | — |  |  | 1,336 |  |  | — |  |  | 1,336 |  |  | 1,089 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Forward foreign exchange contracts |  | — |  |  | 881 |  |  | — |  |  | 881 |  |  | 702 |
Interest rate contracts (2) |  | — |  |  | 979 |  |  | — |  |  | 979 |  |  | 1,569 |
Total |  | $ | — |  |  | 1,860 |  |  | — |  |  | 1,860 |  |  | 2,271 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Forward foreign exchange contracts |  | $ | — |  |  | 24 |  |  | — |  |  | 24 |  |  | 49 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Forward foreign exchange contracts |  | — |  |  | 28 |  |  | — |  |  | 28 |  |  | 38 |
Available For Sale Other Investments: |  |  |  |  |  |  |  |  |  |
Equity investments(3) |  | 1,884 |  |  | — |  |  | — |  |  | 1,884 |  |  | 1,481 |
Debt securities(4) |  | — |  |  | 19,727 |  |  | — |  |  | 19,727 |  |  | 14,042 |
Other Liabilities |  |  |  |  |  |  |  |  |  |
Contingent Consideration(5) |  | $ |  |  |  | 533 |  |  | 533 |  |  | 633 |
Gross to Net Derivative Reconciliation |  | 2021 |  | 2020
(Dollars in Millions) |  |  |  |
Total Gross Assets |  | $ | 1,360 |  |  | 1,138 |
Credit Support Agreement (CSA) |  | (1,285) |  |  | (1,107) |
Total Net Asset |  | 75 |  |  | 31 |
Total Gross Liabilities |  | 1,888 |  |  | 2,309 |
Credit Support Agreement (CSA) |  | (1,855) |  |  | (2,172) |
Total Net Liabilities |  | $ | 33 |  |  | 137 |
Summarized information about changes in liabilities for contingent consideration is as follows:
|  | 2021 | 2020 | 2019
(Dollars in Millions) |  |  |  |
Beginning Balance |  | $ | 633 |  | 1,715 |  | 397 |
Changes in estimated fair value (6) |  | (52) |  | (1,089) |  | 151 |
Additions |  | — |  | 106 |  | 1,246 |
Payments |  | (48) |  | (99) |  | (79) |
Ending Balance |  | $ | 533 |  | 633 |  | 1,715 |
(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. (3)Classified as non-current other assets. (4)Classified as cash equivalents and current marketable securities. (5)Includes $520 million, $594 million and $1,631 million, classified as non-current other liabilities as of January 2, 2022, January 3, 2021 and December 29, 2019, respectively. Includes $13 million, $39 million and $84 million classified as current liabilities as of January 2, 2022, January 3, 2021 and December 29, 2019, respectively. (6)Ongoing fair value adjustment amounts are recorded primarily 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. See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration