Fair Value Measurements (Tables)

9 Months Ended

Oct. 01, 2017

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal third quarters in 2017 and 2016:



	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 1, 2017			October 2, 2016		October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016
Sales to customers⁽³⁾	$	18		(12	)	5		(8	)	—		(1	)
Cost of products sold⁽³⁾	(16		)	(4	)	(63	)	13		5		(4	)
Research and development expense⁽³⁾	(39		)	(5	)	(30	)	(2	)	(1	)	1
Interest (income)/Interest expense, net⁽⁴⁾	114			29		106		12		—		—
Other (income) expense, net^{(3) (5)}	(15		)	(4	)	(49	)	(12	)	—		—
Total	$	62		4		(31	)	3		4		(4	)

The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal nine months in 2017 and 2016:



	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 1, 2017			October 2, 2016		October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016
Sales to customers⁽³⁾	$	40		(39	)	(34	)	(29	)	(1	)	(1	)
Cost of products sold⁽³⁾	105			(226	)	(162	)	5		(11	)	(10	)
Research and development expense⁽³⁾	(167		)	(100	)	(131	)	(98	)	5		—
Interest (income)/Interest expense, net⁽⁴⁾	73			38		63		27		—		—
Other (income) expense, net^{(3) (5)}	(59		)	(110	)	(86	)	(14	)	—		(3	)
Total	$	(8	)	(437	)	(350	)	(109	)	(7	)	(14	)

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 1, 2017 and January 1, 2017 were as follows:



	October 1, 2017					January 1, 2017
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	$	—	556	—	556	747
Interest rate contracts ^(2)(4)(7)	—		16	—	16	31
Total	—		572	—	572	778
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		292	—	292	723
Interest rate contracts ^(3)(4)(8)	—		210	—	210	382
Equity collar contracts ⁽⁸⁾	—		6	—	6	57
Total	—		508	—	508	1,162
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts⁽⁷⁾	—		38	—	38	34
Liabilities:
Forward foreign exchange contracts⁽⁸⁾	—		72	—	72	57
Available For Sale Other Investments:
Equity investments⁽⁵⁾	920		—	—	920	1,209
Debt securities⁽⁶⁾	$	—	3,044	—	3,044	12,087


(1)	2016 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,209 million, which are classified as Level 1.


(2)	Includes $10 million and $23 million of non-current other assets for October 1, 2017 and January 1, 2017, respectively.


(3)	Includes $210 million and $382 million of non-current other liabilities for October 1, 2017 and January 1, 2017, respectively.


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

(5)

Classified as non-current other assets with the exception of $46 million of current assets for October 1, 2017. The original cost of the equity investments were $506 million and $520 million as of October 1, 2017 and January 1, 2017, respectively. The unrealized gains were $414 million and $757 million as of October 1, 2017 and January 1, 2017, respectively. The unrealized losses were less than $1 million and $68 million as of October 1, 2017 and January 1, 2017, respectively.


(6)	Classified as cash equivalents and current marketable securities.


(7)	Classified as other current assets, including the net effect of the CSA


(8)	Classified as accounts payable, including the net effect of the CSA.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of October 1, 2017 comprised:



	October 1, 2017
(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss	Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,813	—	—	2,813	2,813
U.S. Gov't Securities⁽¹⁾	—		—	—	—
Other Sovereign Securities⁽¹⁾	1,109		—	—	1,109	799	310
U.S. Reverse repurchase agreements	4,602		—	—	4,602	4,602
Other Reverse repurchase agreements	491		—	—	491	491
Corporate debt securities⁽¹⁾	1,957		—	—	1,957	1,952	5
Money market funds	1,078		—	—	1,078	1,078
Time deposits⁽¹⁾	1,091		—	—	1,091	1,091
Subtotal	13,141		—	—	13,141	12,826	315
			Unrealized Gain	Unrealized Loss
Gov't securities	2,906		—	—	2,906	2,876	30
Other Sovereign Securities	9		—	—	9	—	9
Corporate debt securities	129		—	—	129	19	110
Equity investments	6		40		46	—	46
Subtotal Available for Sale⁽²⁾	$	3,050	40	—	3,090	2,895	195
Total cash, cash equivalents and current marketable securities						15,721	510

⁽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 1, 2017 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	2,974	2,974
Due after one year through five years	70		70
Due after five years through ten years	—		—
Total debt securities	$	3,044	3,044

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 1, 2017:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	8,491	8,491

Non-Current Debt
1.65% Notes due 2018	601		602
4.75% Notes due 2019 (1B Euro 1.1777)	1,175		1,299
1.875% Notes due 2019	501		506
0.89% Notes due 2019	300		301
1.125% Notes due 2019	699		696
3% Zero Coupon Convertible Subordinated Debentures due in 2020	68		121
2.95% Debentures due 2020	547		567
3.55% Notes due 2021	448		480
2.45% Notes due 2021	349		358
1.65% Notes due 2021	998		991
0.250% Notes due 2022 (1B Euro 1.1777)	1,174		1,183
2.25% Notes due 2022	995		1,005
6.73% Debentures due 2023	250		310
3.375% Notes due 2023	806		853
2.05% Notes due 2023	497		494
0.650% Notes due 2024 (750MM Euro 1.1777)	879		887
5.50% Notes due 2024 (500 MM GBP 1.3415)	665		842
2.45% Notes due 2026	1,990		1,958
2.95% Notes due 2027	995		1,010
1.150% Notes due 2028 (750MM Euro 1.1777)	874		888
6.95% Notes due 2029	296		409
4.95% Debentures due 2033	498		601
4.375% Notes due 2033	856		976
1.650% Notes due 2035 (1.5B Euro 1.1777)	1,748		1,798
3.55% Notes due 2036	987		1,024
5.95% Notes due 2037	991		1,348
3.625% Notes due 2037	1,485		1,558
5.85% Debentures due 2038	696		934
4.50% Debentures due 2040	537		634
4.85% Notes due 2041	296		357
4.50% Notes due 2043	495		570
3.70% Notes due 2046	1,971		2,058
3.75% Notes due 2047	990		1,038
Other	18		19
Total Non-Current Debt	$	26,675	28,675

- 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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