Fair Value Measurements (Tables)

6 Months Ended

Jun. 29, 2014

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal second quarters in 2014 and 2013:




	Gain/(Loss) Recognized In Accumulated OCI⁽¹⁾					Gain/(Loss) Reclassified From Accumulated OCI Into Income⁽¹⁾				Gain/(Loss) Recognized In Other Income/Expense⁽²⁾
(Dollars in Millions)	Fiscal Second Quarters Ended
Cash Flow Hedges By Income Statement Caption	June 29, 2014			June 30, 2013		June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
Sales to customers⁽³⁾	$	4		34		21		10		1		—
Cost of products sold⁽³⁾	(167		)	173		84		38		(2	)	6
Research and development expense⁽³⁾	(10		)	(17	)	(18	)	(14	)	—		—
Interest (income)/Interest expense, net⁽⁴⁾	(2		)	18		(1	)	(2	)	—		—
Other (income) expense, net⁽³⁾	12			(30	)	(12	)	(5	)	1		(1	)
Total	$	(163	)	178		74		27		—		5

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the first fiscal six months in 2014 and 2013:




	Gain/(Loss) Recognized In Accumulated OCI⁽¹⁾					Gain/(Loss) Reclassified From Accumulated OCI Into Income⁽¹⁾				Gain/(Loss) Recognized In Other Income/Expense⁽²⁾
(Dollars in Millions)	Fiscal Six Months Ended
Cash Flow Hedges By Income Statement Caption	June 29, 2014			June 30, 2013		June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
Sales to customers⁽³⁾	$	(30	)	(3	)	8		7		1		—
Cost of products sold⁽³⁾	(150		)	178		159		21		(2	)	4
Research and development expense⁽³⁾	3			(7	)	(13	)	(17	)	(1	)	(3	)
Interest (income)/Interest expense, net⁽⁴⁾	10			8		(6	)	(4	)	—		—
Other (income) expense, net⁽³⁾	14			7		(21	)	2		—		(1	)
Total	$	(153	)	183		127		9		(2	)	—

All amounts shown in the table above are net of tax.

(1) Effective portion

(2) Ineffective portion

(3) Forward foreign exchange contracts

(4) Cross currency interest rate swaps

Financial assets and liabilities at fair value

The Company’s significant financial assets and liabilities measured at fair value as of June 29, 2014 and December 29, 2013 were as follows:



	June 29, 2014					December 29, 2013
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets
Forward foreign exchange contracts	$	—	196	—	196	537
Interest rate contracts⁽²⁾	—		208	—	208	169
Total	—		404	—	404	706
Liabilities:
Forward foreign exchange contracts	—		266	—	266	133
Interest rate contracts⁽³⁾⁽⁴⁾	—		10	—	10	26
Total	—		276	—	276	159
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		23	—	23	25
Liabilities:
Forward foreign exchange contracts	—		26	—	26	29
Other Investments⁽⁵⁾	$	443	—	—	443	333


(1)	As of December 29, 2013, these assets and liabilities are classified as Level 2 with the exception of Other investments of $333 million, which are classified as Level 1.


(2)	Includes $207 million and $169 million of non-current assets for June 29, 2014 and December 29, 2013, respectively.


(3)	Includes $8 million and $19 million of non-current liabilities for June 29, 2014 and December 29, 2013, respectively.


(4)	Includes cross currency interest rate swaps and interest rate swaps.


(5)	Classified as non-current other assets.

Financial assets and liabilities not measured at fair value

Financial Instruments not measured at Fair Value:

The following financial assets and liabilities are held at carrying amount on the consolidated balance sheet as of June 29, 2014:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value
Financial Assets
Current Investments
Cash	$	2,309	2,309
Government securities and obligations	20,736		20,738
Reverse repurchase agreements	4,793		4,793
Corporate debt securities	1,657		1,657
Money market funds	1,467		1,467
Time deposits	662		662
Total cash, cash equivalents and current marketable securities	$	31,624	31,626

Fair value of government securities and obligations and corporate debt securities was estimated using quoted broker prices and significant other observable inputs.

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities.
The estimated fair value was the same as the amortized cost as of December 29, 2013.

Financial Liabilities

Current Debt	$	3,819	3,819
Non-Current Debt
2.15% Notes due 2016	898		926
3 month LIBOR+0.07% FRN due 2016	800		800
0.70% Notes due 2016	399		401
5.55% Debentures due 2017	1,000		1,137
5.15% Debentures due 2018	898		1,019
1.65% Notes due 2018	599		613
4.75% Notes due 2019 (1B Euro 1.3595)	1,354		1,621
3% Zero Coupon Convertible Subordinated Debentures due in 2020	168		289
2.95% Debentures due 2020	542		572
3.55% Notes due 2021	446		481
6.73% Debentures due 2023	250		326
3.375% Notes due 2023	550		576
5.50% Notes due 2024 (500 GBP 1.7014)	846		1,017
6.95% Notes due 2029	296		422
4.95% Debentures due 2033	500		580
4.375% Notes due 2033	646		700
5.95% Notes due 2037	995		1,295
5.85% Debentures due 2038	700		906
4.50% Debentures due 2040	539		595
4.85% Notes due 2041	298		336
4.50% Notes due 2043	499		536
Other	80		80
Total Non-Current Debt	$	13,303	15,228

The weighted average effective interest rate on non-current debt is 4.42%.

The excess of the fair value over the carrying value of debt was $1.4 billion at December 29, 2013.

Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs.

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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