Fair Value Measurements (Tables)

9 Months Ended

Oct. 02, 2016

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal third quarters in 2016 and 2015:




	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 Third Quarters Ended
Cash Flow Hedges By Income Statement Caption	October 2, 2016			September 27, 2015		October 2, 2016		September 27, 2015		October 2, 2016		September 27, 2015
Sales to customers⁽³⁾	$	(12	)	3		(8	)	(24	)	(1	)	(3	)
Cost of products sold⁽³⁾	(4		)	222		13		(34	)	(4	)	1
Research and development expense⁽³⁾	(5		)	(10	)	(2	)	7		1		—
Interest (income)/Interest expense, net⁽⁴⁾	29			(13	)	12		1		—		—
Other (income) expense, net^{(3) (5)}	(4		)	(42	)	(12	)	12		—		(1	)
Total	$	4		160		3		(38	)	(4	)	(3	)

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal nine months in 2016 and 2015:




	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 Nine Months Ended
Cash Flow Hedges By Income Statement Caption	October 2, 2016			September 27, 2015		October 2, 2016		September 27, 2015		October 2, 2016		September 27, 2015
Sales to customers⁽³⁾	$	(39	)	(52	)	(29	)	(95	)	(1	)	(5	)
Cost of products sold⁽³⁾	(226		)	106		5		82		(10	)	15
Research and development expense⁽³⁾	(100		)	(13	)	(98	)	(2	)	—		—
Interest (income)/Interest expense, net⁽⁴⁾	38			(42	)	27		(2	)	—		—
Other (income) expense, net^{(3) (5)}	(110		)	27		(14	)	54		(3	)	—
Total	$	(437	)	26		(109	)	37		(14	)	10

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

(5) Includes equity collar contracts

Financial Assets and Liabilities at Fair Value

The Company’s significant financial assets and liabilities measured at fair value as of October 2, 2016 and January 3, 2016 were as follows:



	October 2, 2016					January 3, 2016
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	$	—	222	—	222	452
Interest rate contracts ^(2)(4)(7)	—		50	—	50	28
Total	—		272	—	272	480
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		542	—	542	358
Interest rate contracts ^(3)(4)(8)	—		309	—	309	241
Equity collar contracts ⁽⁸⁾⁽⁹⁾	—		95	—	95	—
Total	—		946	—	946	599
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	—		14	—	14	33
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		33	—	33	41
Available For Sale Other Investments:
Equity investments⁽⁵⁾	1,332		—	—	1,332	1,494
Debt securities⁽⁶⁾	$	—	12,237	—	12,237	8,316


(1)	2015 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,494 million, which are classified as Level 1.


(2)	Includes $35 million and $20 million of non-current other assets for October 2, 2016 and January 3, 2016, respectively.


(3)	Includes $309 million and $239 million of non-current other liabilities for October 2, 2016 and January 3, 2016, respectively.


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

(5)

Classified as non-current other assets with the exception of $345 million of current other assets for October 2, 2016. The carrying amount of the equity investments were $544 million and $528 million as of October 2, 2016 and January 3, 2016, respectively. The unrealized gains were $802 million and $979 million as of October 2, 2016 and January 3, 2016, respectively. The unrealized losses were $14 million and $13 million as of October 2, 2016 and January 3, 2016, respectively.


(6)	Classified as current marketable securities.


(7)	Classified as other current assets.


(8)	Classified as accounts payable.


(9)	Includes $16 million of non-current other liabilities for October 2, 2016.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of October 2, 2016 comprised:



	October 2, 2016
(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	1,971	—	—		1,971	1,971
U.S. Gov't Securities⁽¹⁾	10,498		1	—		10,499	6,997	3,501
Other Sovereign Securities⁽¹⁾	3,385		—	—		3,385	952	2,433
U.S. Reverse repurchase agreements⁽¹⁾	5,883		—	—		5,883	4,882	1,001
Other Reverse repurchase agreements⁽¹⁾	96		—	—		96	96
Corporate debt securities⁽¹⁾	3,501		1	—		3,502	790	2,711
Money market funds	1,448		—	—		1,448	1,448
Time deposits⁽¹⁾	1,069		—	—		1,069	1,069
Subtotal	27,851		2	—		27,853	18,205	9,646
			Unrealized Gain	Unrealized Loss
Gov't securities	10,235		120	(1	)	10,354	—	10,354
Other Sovereign Securities	91		—	—		91	—	91
Corporate debt securities	1,782		11	(1	)	1,792	—	1,792
Equity investments	50		314	(19	)	345	—	345
Subtotal Available for Sale⁽²⁾	$	12,158	445	(21	)	12,582	—	12,582
Total cash, cash equivalents and current marketable securities							18,205	22,228

⁽¹⁾Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.

⁽²⁾Available for sale 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 at October 2, 2016 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	475	475
Due after one year through five years	11,445		11,575
Due after five years through ten years	188		187
Total debt securities	$	12,108	12,237

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, 2016:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	3,443	3,443

Non-Current Debt
1.125% Notes due 2017	703		705
5.15% Debentures due 2018	899		958
1.65% Notes due 2018	608		616
4.75% Notes due 2019 (1B Euro 1.1198)	1,115		1,287
1.875% Notes due 2019	511		524
0.89% Notes due 2019	299		300
1.125% Notes due 2019	699		700
3% Zero Coupon Convertible Subordinated Debentures due in 2020	94		152
2.95% Debentures due 2020	545		578
3.55% Notes due 2021	447		491
2.45% Notes due 2021	349		367
1.65% Notes due 2021	997		1,013
0.250% Notes due 2022 (1B Euro 1.1198)	1,116		1,132
6.73% Debentures due 2023	249		335
3.375% Notes due 2023	807		875
2.05% Notes due 2023	497		507
0.650% Notes due 2024 (750MM Euro 1.1198)	834		863
5.50% Notes due 2024 (500 MM GBP 1.3000)	643		868
2.45% Notes due 2026	1,989		2,059
1.150% Notes due 2028 (750MM Euro 1.1198)	830		886
6.95% Notes due 2029	296		440
4.95% Debentures due 2033	497		635
4.375% Notes due 2033	857		1,026
1.650% Notes due 2035 (1.5B Euro 1.1198)	1,660		1,884
3.55% Notes due 2036	987		1,098
5.95% Notes due 2037	991		1,457
5.85% Debentures due 2038	695		1,016
4.50% Debentures due 2040	537		674
4.85% Notes due 2041	296		390
4.50% Notes due 2043	495		624
3.70% Notes due 2046	1,970		2,213
Other	34		34
Total Non-Current Debt	$	23,546	26,707

- Definition

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

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