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Fair Value Measurements (Tables)

9 Months Ended

Oct. 02, 2022

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 2022 and 2021, net of tax:

			October 2, 2022															October 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			$	—		—			—			(322)			—			—			—			—			(62)			—
Derivatives designated as hedging instruments			—			—			—			322			—			—			—			—			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			—			—			—			13			—			—			—			—			34			—
Amount of gain or (loss) recognized in AOCI			—			—			—			13			—			—			—			—			34			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			(20)			(83)			53			—			22			(3)			58			8			—			19
Amount of gain or (loss) recognized in AOCI			(45)			(94)			91			—			36			(35)			(155)			37			—			42
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			120			—			—						—			117			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			(205)			—			—			—			—			144			—

The following table is a summary of the activity related to derivatives and hedges for the fiscal nine months ended in 2022 and 2021, net of tax:

			October 2, 2022															October 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			$	—		—			—			(1,094)			—			—			—			—			(56)			—
Derivatives designated as hedging instruments			—			—			—			1,094			—			—			—			—			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			—			—			—			102			—			—			—			—			115			—
Amount of gain or (loss) recognized in AOCI			—			—			—			102			—			—			—			—			115			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			(54)			(141)			118			—			(35)			25			106			(1)			—			24
Amount of gain or (loss) recognized in AOCI			(48)			(153)			193			—			(75)			(41)			(398)			80			—			67
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			342			—			—			—			—			307			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			(273)			—			—			—			—			122			—

The following table is the effect of net investment hedges for the fiscal third quarters ended in 2022 and 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)						October 2, 2022						October 3, 2021												October 2, 2022						October 3, 2021
Debt						$	208					115						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	261					141						Interest (income) expense						—						—

The following table is the effect of net investment hedges for the fiscal nine months ended in 2022 and 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)						October 2, 2022						October 3, 2021												October 2, 2022						October 3, 2021
Debt						$	478					279						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	1,134					432						Interest (income) expense						—						—

Schedule of Derivative Financial Instruments and Classification on Consolidated Balance Sheet

As of October 2, 2022, and January 2, 2022, 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 Gain/ (Loss) Included in the Carrying Amount of the Hedged Liability

(Dollars in Millions)

October 2, 2022

January 2, 2022

October 2, 2022

January 2, 2022

Long-term Debt

$

8,668

9,793

(1,430)

(142)

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 2022 and 2021:

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 2, 2022

October 3, 2021

October 2, 2022

October 3, 2021

Foreign Exchange Contracts

Other (income) expense

$

109

(13)

211

(50)

Summary of Activity Related to Equity Investments

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

(Dollars in Millions)						January 2, 2022																		October 2, 2022
						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						$	1,884					(607)						(755)						522						522
Equity Investments without readily determinable value						$	500					(29)						60						531						531

(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 2, 2022 and January 2, 2022 were as follows:

						October 2, 2022																								January 2, 2022
(Dollars in Millions)						Level 1						Level 2						Level 3						Total						Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts						$	—					1,942						—						1,942						540
Interest rate contracts (2)						—						2,533						—						2,533						796
Total						—						4,475						—						4,475						1,336
Liabilities:
Forward foreign exchange contracts						—						1,881						—						1,881						881
Interest rate contracts (2)						—						1,884						—						1,884						979
Total						—						3,765						—						3,765						1,860
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts						—						178						—						178						24
Liabilities:
Forward foreign exchange contracts						—						68						—						68						28
Other Investments:
Equity investments (3)						522						—						—						522						1,884
Debt securities (4)						—						22,124						—						22,124						19,727
Other Liabilities
Contingent consideration (5)						$	—					—						525						525						533

Gross to Net Derivative Reconciliation						October 2, 2022						January 2, 2022
(Dollars in Millions)
Total Gross Assets						$	4,653					1,360
Credit Support Agreement (CSA)						(4,440)						(1,285)
Total Net Asset						213						75
Total Gross Liabilities						3,833						1,888
Credit Support Agreement (CSA)						(3,636)						(1,855)
Total Net Liabilities						$	197					33

Summarized information about changes in liabilities for contingent consideration for each of the fiscal nine months ended is as follows:

						October 2, 2022						October 3, 2021
(Dollars in Millions)
Beginning Balance						$	533					$	633
Changes in estimated fair value (6)						(85)						28
Additions						89						—
Payments						(12)						(48)
Ending Balance						$	525					$	613

(1)2021 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,884 million, which are classified as Level 1 and contingent consideration of $533 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 within cash equivalents and current marketable securities.

(5)    Includes $507 million and $520 million, classified as non-current other liabilities as of October 2, 2022 and January 2, 2022, respectively. Includes $18 million and $13 million classified as current liabilities as of October 2, 2022 and January 2, 2022, respectively.

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

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of October 2, 2022 comprised:

(Dollars in Millions)			Carrying Amount												Gain/( Loss)						Estimated Fair Value						Cash & Cash Equivalents						Current Marketable Securities
Cash			$	4,037											—						4,037						4,037						—
Non-U.S. sovereign securities(1)			389																		389						89						300
U.S. reverse repurchase agreements			2,541												—						2,541						2,541						—
Corporate debt securities(1)			2,544												(5)						2,539												2,544
Money market funds			1,516												—						1,516						1,516						—
Time deposits(1)			928												—						928						928						—
Subtotal			11,955												(5)						11,950						9,111						2,844
															Unrealized Loss
U.S. Gov't securities			21,930												(48)						21,882						2,189						19,693
Corporate debt securities			243												(1)						242						55						187
Subtotal available for sale debt(2)			$	22,173											(49)						22,124						2,244						19,880
Total cash, cash equivalents and current marketable securities			$	34,128											(54)						34,074						11,355						22,724

(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 2, 2022 are as follows:

(Dollars in Millions)						Cost Basis						Fair Value
Due within one year						$	22,153					22,104
Due after one year through five years						20						20
Due after five years through ten years						—						—
Total debt securities						$	22,173					22,124

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 2, 2022:

(Dollars in Millions)						Carrying Amount						Estimated Fair Value
Financial Liabilities
Current Debt						$	4,424					4,422
Non-Current Debt
6.73% Debentures due 2023						250						256
3.375% Notes due 2023						802						797
0.650% Notes due 2024 (750MM Euro 0.9712)						722						702
5.50% Notes due 2024 (500MM GBP 1.0908)						544						548
2.625% Notes due 2025						749						721
0.550% Notes due 2025						922						826
2.45% Notes due 2026						1,996						1,868
2.95% Notes due 2027						877						829
0.95% Notes due 2027						1,396						1,185
2.90% Notes due 2028						1,496						1,379
1.150% Notes due 2028 (750MM Euro 0.9712)						724						649
6.95% Notes due 2029						298						342
1.30% Notes due 2030						1,606						1,276
4.95% Debentures due 2033						498						507
4.375% Notes due 2033						855						820
1.650% Notes due 2035 (1.5B Euro 0.9712)						1,450						1,181
3.55% Notes due 2036						841						726
5.95% Notes due 2037						993						1,074
3.625% Notes due 2037						1,334						1,154
3.40% Notes due 2038						992						822
5.85% Debentures due 2038						697						747
4.50% Debentures due 2040						540						506
2.10% Notes due 2040						827						551
4.85% Notes due 2041						297						291
4.50% Notes due 2043						496						457
3.70% Notes due 2046						1,976						1,626
3.75% Notes due 2047						811						668
3.50% Notes due 2048						743						593
2.25% Notes due 2050						809						500
2.45% Notes due 2060						1,054						619
Other						8						12
Total Non-Current Debt						$	27,603					24,232

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