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Fair Value Measurements (Tables)

3 Months Ended

Apr. 02, 2023

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 first quarters ended in 2023 and 2022, net of tax:

			April 2, 2023															April 3, 2022
(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			$	—		—			—			(929)			—			—			—			—			(531)			—
Derivatives designated as hedging instruments			—			—			—			929			—			—			—			—			531			—
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			—			—			—			—			45			—
Amount of gain or (loss) recognized in AOCI			—			—			—			34			—			—			—			—			45			—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income			12			(146)			(13)			—			2			(17)			(52)			23			—			(18)
Amount of gain or (loss) recognized in AOCI			24			145			(36)			—			(14)			22			(94)			33			—			(73)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income			—			—			—			108			—			—			—			—			120			—
Amount of gain or (loss) recognized in AOCI			$	—		—			—			417			—			—			—			—			(128)			—

The following table is the effect of net investment hedges for the fiscal first quarters ended in 2023 and 2022:

						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)						April 2, 2023						April 3, 2022												April 2, 2023						April 3, 2022
Debt						$	(77)					68						Interest (income) expense						—						—
Cross Currency interest rate swaps						$	690					560						Interest (income) expense						—						—

Schedule of Derivative Financial Instruments and Classification on Consolidated Balance Sheet

As of April 2, 2023, and January 1, 2023, 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)

April 2, 2023

January 1, 2023

April 2, 2023

January 1, 2023

Long-term Debt

$

8,860

8,665

(1,214)

(1,435)

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 first quarters ended 2023 and 2022:

Gain/(Loss) Recognized In Income on Derivative

(Dollars in Millions)

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

Fiscal First Quarter Ended

Derivatives Not Designated as Hedging Instruments

April 2, 2023

April 3, 2022

Foreign Exchange Contracts

Other (income) expense

$

(31)

29

Summary of Activity Related to Equity Investments

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

(Dollars in Millions)						January 1, 2023																		April 2, 2023
						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						$	576					(73)						2						505						505
Equity Investments without readily determinable value						$	698					(1)						27						724						724

(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 April 2, 2023 and January 1, 2023 were as follows:

						April 2, 2023																								January 1, 2023
(Dollars in Millions)						Level 1						Level 2						Level 3						Total						Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts						$	—					661						—						661						629
Interest rate contracts (2)						—						1,399						—						1,399						1,534
Total						—						2,060						—						2,060						2,163
Liabilities:
Forward foreign exchange contracts						—						349						—						349						511
Interest rate contracts (2)						—						2,553						—						2,553						2,778
Total						—						2,902						—						2,902						3,289
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts						—						32						—						32						38
Liabilities:
Forward foreign exchange contracts						—						56						—						56						68
Other Investments:
Equity investments (3)						505						—						—						505						576
Debt securities (4)						—						8,942						—						8,942						10,487
Other Liabilities
Contingent consideration (5)						$	—					—						1,142						1,142						1,120

Gross to Net Derivative Reconciliation						April 2, 2023						January 1, 2023
(Dollars in Millions)
Total Gross Assets						$	2,092					2,201
Credit Support Agreement (CSA)						(2,028)						(2,176)
Total Net Asset						64						25
Total Gross Liabilities						2,958						3,357
Credit Support Agreement (CSA)						(2,729)						(3,023)
Total Net Liabilities						$	229					334

Summarized information about changes in liabilities for contingent consideration for the fiscal first quarters ended 2023 and 2022 is as follows:

						April 2, 2023						April 3, 2022
(Dollars in Millions)
Beginning Balance						$	1,120					533
Changes in estimated fair value (6)						23						(47)
Additions						—						—
Payments						(1)						—
Ending Balance						$	1,142					486

(1)2022 assets and liabilities are all classified as Level 2 with the exception of equity investments of $576 million, which are classified as Level 1 and contingent consideration of $1,120 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 $1,138 million and $1,116 million, classified as non-current other liabilities as of April 2, 2023 and January 1, 2023, respectively. Includes $4 million and $4 million classified as current liabilities as of April 2, 2023 and January 1, 2023, respectively.

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

Marketable Securities

The Company's cash, cash equivalents, restricted cash and current marketable securities as of April 2, 2023 comprised:

(Dollars in Millions)			Carrying Amount												Gain/(Loss)						Estimated Fair Value						Cash & Cash Equivalents						Current Marketable Securities
Cash			$	4,674											—						4,674						4,674						—
Restricted cash(1)			7,695												—						7,695						7,695						—
U.S. reverse repurchase agreements			6,286												—						6,286						6,286						—
Corporate debt securities(2)			672												—						672						300						372
Money market funds			3,364												—						3,364						3,364						—
Time deposits(2)			675												—						675						675						—
Subtotal			23,366												—						23,366						22,994						372
															Unrealized Loss
U.S. Gov’t securities			8,462												(9)						8,453						3,804						4,649
U.S. Gov’t Agencies			185												(3)						182						—						182
Corporate debt securities			308												(1)						307						67						240
Subtotal available for sale debt(3)			$	8,955											(13)						8,942						3,871						5,071
Total cash, cash equivalents, restricted cash and current marketable securities			$	32,321											(13)						32,308						26,865						5,443

(1) Relates to the Kenvue Inc. (Kenvue) debt offering. See debt schedule below for additional details.

(2) Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.

(3) 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 April 2, 2023 are as follows:

(Dollars in Millions)						Cost Basis						Fair Value
Due within one year						$	8,901					8,889
Due after one year through five years						54						53
Due after five years through ten years						—						—
Total debt securities						$	8,955					8,942

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 April 2, 2023:

(Dollars in Millions)						Carrying Amount						Estimated Fair Value
Financial Liabilities
Current Debt						$	17,979					17,982
Non-Current Debt
0.650% Notes due 2024 (750MM Euro 1.0909)						812						796
5.50% Notes due 2024 (500MM GBP 1.2359)						617						626
2.625% Notes due 2025						749						732
0.55% Notes due 2025						936						920
2.45% Notes due 2026						1,997						1,924
2.95% Notes due 2027						896						968
0.95% Notes due 2027						1,412						1,329
2.90% Notes due 2028						1,496						1,438
1.150% Notes due 2028 (750MM Euro 1.0909)						814						737
6.95% Notes due 2029						298						368
1.30% Notes due 2030						1,628						1,469
4.95% Debentures due 2033						498						543
4.375% Notes due 2033						854						879
1.650% Notes due 2035 (1.5B Euro 1.0909)						1,629						1,369
3.55% Notes due 2036						864						933
5.95% Notes due 2037						993						1,161
3.625% Notes due 2037						1,359						1,389
3.40% Notes due 2038						992						896
5.85% Debentures due 2038						697						806
4.50% Debentures due 2040						540						551
2.10% Notes due 2040						852						726
4.85% Notes due 2041						297						311
4.50% Notes due 2043						496						501
3.70% Notes due 2046						1,976						1,785
3.75% Notes due 2047						837						899
3.50% Notes due 2048						743						651
2.25% Notes due 2050						834						667
2.45% Notes due 2060						1,080						819
5.50% Debentures due 2025*						748						775
5.35% Debentures due 2026*						747						776
5.05% Debentures due 2028*						993						1,038
5.00% Debentures due 2030*						992						1,033
4.90% Debentures due 2033*						1,240						1,271
5.10% Debentures due 2043*						741						774
5.05% Debentures due 2053*						1,476						1,540
5.20% Debentures due 2063*						738						776
Other						57						56
Total Non-Current Debt						$	34,928					34,232

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