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Basis of Presentation and Significant Accounting Policies and Practices | 9 Months Ended
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Sep. 30, 2016
Accounting Policies [Abstract] |
Basis of presentation and significant accounting policies and practices | 2. Basis of presentation and significant accounting policies and practices Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2015. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2016 and 2015, and the Consolidated Balance Sheet as of September 30, 2016, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2015. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results. The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per-share amounts, are stated in millions of U.S. dollars unless otherwise indicated. Significant accounting policies and practices Earnings per share (EPS) Unvested share-based payment awards that contain non-forfeitable rights to receive dividends or dividend equivalents, such as our restricted stock units (RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of Net income is allocated to these participating securities and, therefore, is excluded from the calculation of EPS allocated to common stock, as shown in the table below. Computation and reconciliation of earnings per common share are as follows (shares in millions):
| For Three Months Ended September 30, |
| 2016 |  |  | 2015 |
| Net |  |  |  |  |  |  |  |  |  | Net |  |  |  |  |  |  |  |
| Income |  |  | Shares |  |  | EPS |  |  | Income |  |  | Shares |  |  | EPS |
Basic EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ |  | 968 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 798 |  |  |  |  |  |  |  |  |  |
Income allocated to RSUs |  |  | (11 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (11 | ) |  |  |  |  |  |  |  |  |
Income allocated to common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
for basic EPS calculation | $ |  | 957 |  |  |  | 1,003 |  |  | $ |  | .95 |  |  | $ |  | 787 |  |  |  | 1,023 |  |  | $ |  | .77 |
Adjustment for dilutive shares: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation plans |  |  |  |  |  |  | 14 |  |  |  |  |  |  |  |  |  |  |  |  |  | 12 |  |  |  |  |  |
Diluted EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ |  | 968 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 798 |  |  |  |  |  |  |  |  |  |
Income allocated to RSUs |  |  | (11 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (11 | ) |  |  |  |  |  |  |  |  |
Income allocated to common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
for diluted EPS calculation | $ |  | 957 |  |  |  | 1,017 |  |  | $ |  | .94 |  |  | $ |  | 787 |  |  |  | 1,035 |  |  | $ |  | .76 |
| For Nine Months Ended September 30, |
| 2016 |  |  | 2015 |
| Net |  |  |  |  |  |  |  |  |  | Net |  |  |  |  |  |  |  |
| Income |  |  | Shares |  |  | EPS |  |  | Income |  |  | Shares |  |  | EPS |
Basic EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ |  | 2,415 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,150 |  |  |  |  |  |  |  |  |  |
Income allocated to RSUs |  |  | (30 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (31 | ) |  |  |  |  |  |  |  |  |
Income allocated to common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
for basic EPS calculation | $ |  | 2,385 |  |  |  | 1,004 |  |  | $ |  | 2.37 |  |  | $ |  | 2,119 |  |  |  | 1,036 |  |  | $ |  | 2.05 |
Adjustment for dilutive shares: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation plans |  |  |  |  |  |  | 13 |  |  |  |  |  |  |  |  |  |  |  |  |  | 13 |  |  |  |  |  |
Diluted EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ |  | 2,415 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,150 |  |  |  |  |  |  |  |  |  |
Income allocated to RSUs |  |  | (29 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (30 | ) |  |  |  |  |  |  |  |  |
Income allocated to common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
for diluted EPS calculation | $ |  | 2,386 |  |  |  | 1,017 |  |  | $ |  | 2.34 |  |  | $ |  | 2,120 |  |  |  | 1,049 |  |  | $ |  | 2.02 |
There were no potentially dilutive securities excluded from the computation of diluted earnings per common share during the third quarter of 2016. Potentially dilutive securities representing 14 million shares of common stock that were outstanding during the third quarter of 2015, and 8 million and 12 million shares outstanding during the first nine months of 2016 and 2015, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive. Derivatives and hedging We use derivative financial instruments to manage exposure to foreign currency exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments. In connection with the issuance of long-term debt, we occasionally use financial derivatives such as treasury rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material. We do not use derivatives for speculative or trading purposes. Fair values of financial instruments The fair values of our derivative financial instruments were not material as of September 30, 2016. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our postretirement plan assets and deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. The carrying value of our long-term debt approximates the fair value as measured using broker-dealer quotes, which are Level 2 inputs. See Note 5 for the definition of Level 2 inputs. Changes in accounting standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures, and is effective for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption, but not before December 15, 2016, and permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the potential impact of this standard on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believe the new standard will not have a material impact on our financial position and results of operations, as we do not expect to change the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory. In April 2016, the FASB issued an amendment to this guidance, ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which, among other things, provides clarification about whether revenue related to a distinct license of intellectual property is recognized over time or at a point in time. Based on our preliminary assessment of this amendment, the periods over which we recognize revenue from our fixed-payment royalty arrangements from licensing our intellectual property may change. However, the effect of such change on our financial position and results of operations recognized in any reporting period is not expected to be material. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Under this standard, all equity investments except those accounted for under the equity method are required to be measured at fair value. Equity investments that do not have a readily determinable fair value may, as a practical expedient, be measured at cost, adjusted for changes in observable prices minus impairment. This standard is effective for our interim and annual periods beginning January 1, 2018. This standard must be applied using a cumulative-effect adjustment in net income to the beginning of the fiscal year of adoption, except for equity investments without a readily determinable fair value, which are to be applied prospectively to equity investments as of the adoption date. We do not expect this standard to have a material impact on our financial position and results of operations, as nearly all of our equity investments are already recorded at fair value or under the equity method. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position and results of operations. In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard provides for several changes to the accounting for share-based awards. Among other changes, this standard will require recognition of certain income tax effects of awards in net income in the period in which the awards are settled or vested, rather than through additional paid-in capital in the equity section of the balance sheet. The standard also changes the presentation of excess tax benefits and statutory tax withholdings in the statement of cash flows. This standard will be effective for our interim and annual periods beginning January 1, 2017; however, early adoption is permitted. Each of the various provisions within this standard has its own specified transition method; some will be applied prospectively and others will be applied on a retrospective or modified retrospective basis. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position and results of operations. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which required waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. This standard will be effective for our interim and annual periods beginning after December 15, 2019, and permits earlier application but not before December 15, 2018. The standard will be applied using a modified retrospective approach. We are currently evaluating the potential impact of this standard, but we expect it will not have a material impact on our financial position and results of operations.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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