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Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2018
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 third quarters in 2018 and 2017:
 
September 30, 2018
October 1, 2017
(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
$
—

—

—

(7
)
—

—

—

—

(4
)
—

    Derivatives designated as hedging instruments
—

—

—

7

—

—

—

—

4

—

 
 
 
 
 
 
 
 
 
 
 
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
—

—

—

25

—

—

—

—

—

—

   Amount of gain or (loss) recognized in AOCI
—

—

—

25

—

—

—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
Gain (Loss) on cash flow hedging relationship:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) reclassified from AOCI into income (1)
4

97

10

—

(3
)
5

(63
)
(30
)
—

(49
)
 
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) recognized in AOCI (1)
15

192

(4
)
—

(1
)
18

(16
)
(39
)
—

(15
)
 
 
 
 
 
 
 
 
 
 
 
Cross currency interest rate swaps contracts:
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) reclassified from AOCI into income
—

—

—

34

—

—


—

106

—

   Amount of gain or (loss) recognized in AOCI
$
—

—

—

35

—

—

—

—

114

—

 
 
 
 
 
 
 
 
 
 
 











The following table is a summary of the activity related to derivatives and hedges for the fiscal nine months in 2018 and 2017:
 
September 30, 2018
October 1, 2017
(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
$
—

—

—

3

—

—

—

—

(6
)
—

 Derivatives designated as hedging instruments
—

—

—

(3
)
—

—

—

—

6

—

 
 
 
 
 
 
 
 
 
 
 
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
—

—

—

27

—

—

—

—

—

—

   Amount of gain or (loss) recognized in AOCI
—

—

—

27

—

—

—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
Gain (Loss) on cash flow hedging relationship:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) reclassified from AOCI into income (1)
50

175

(242
)
—

(24
)
(34
)
(162
)
(131
)
—

(86
)
 
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) recognized in AOCI (1)
(3
)
138

(220
)
—

(16
)
40

105

(167
)
—

(59
)
 
 
 
 
 
 
 
 
 
 
 
Cross currency interest rate swaps contracts:
 
 
 
 
 
 
 
 
 
 
   Amount of gain or (loss) reclassified from AOCI into income
—

—

—

106

—

—

—

—

63

—

   Amount of gain or (loss) recognized in AOCI
$
—

—

—

111

—

—

—

—

73

—

 
 
 
 
 
 
 
 
 
 
 

(1) Includes equity collar contracts. The equity collar contracts expired in December of 2017
Schedule of Derivatives Recorded in Consolidated Balance Sheet
As of September 30, 2018 and December 31, 2017, 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 Adjustment Included in the Carrying Amount of the Hedged Liability
(Dollars in Millions)
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Current Portion of Long-term Debt
 
$
601

 
597

 
1

 
2

Long-term Debt
 
495

 
496

 
(4
)
 
3
Schedule of Effect of Derivatives not Designated as Hedging Instruments
The following table is the effect of derivatives not designated as hedging instrument for the fiscal third quarters and fiscal nine months in 2018 and 2017:
 
 
 
 
Gain/(Loss)
Recognized In
Income on Derivative
Gain/(Loss)
Recognized In
Income on Derivative
(Dollars in Millions)
 
Location of Gain /(Loss) Recognized in Income on Derivative
 
Fiscal Third Quarters Ended
Fiscal Nine Months Ended
Derivatives Not Designated as Hedging Instruments
 
 
 
September 30, 2018
 
October 1, 2017
September 30, 2018
 
October 1, 2017
Foreign Exchange Contracts
 
Other (income) expense
 
$
49

 
(12
)
(23
)
 
22
Schedule of Effect of Net Investment Hedges
The following table is the effect of net investment hedges for the fiscal third quarters in 2018 and 2017:
 
 
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)
 
Fiscal Third Quarters Ended
 
 
September 30, 2018
 
October 1, 2017
 
 
 
September 30, 2018
 
October 1, 2017
Debt
 
$
(50
)
 
(151
)
 
Other (income) expense
 
—

 
—

Cross Currency interest rate swaps
 
$
(75
)
 
—

 
Other (income) expense


 
—

 
—



The following table is the effect of net investment hedges for the fiscal nine months in 2018 and 2017:
 
 
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)
 
Fiscal Nine Months Ended
 
 
September 30, 2018
 
October 1, 2017
 
 
 
September 30, 2018
 
October 1, 2017
Debt
 
$
106

 
(529
)
 
Other (income) expense

 
—

 
—

Cross Currency interest rate swaps
 
$
(37
)
 
—

 
Other (income) expense


 
—

 
—
Summary of Activity Related to Equity Investments
The following table is a summary of the activity related to equity investments as of September 30, 2018:
(Dollars in Millions)
 
December 31, 2017
 
 
 
 
 
September 30, 2018
 
 
 
 
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
 
$
751

 
(35
)
 
(19
)
 
697

 
697

 
 
 
 
 
 
 
 
 
 
 
Equity Investments without readily determinable value
 
$
510

 
7

 
122

 
639

 
639


(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 September 30, 2018 and December 31, 2017 were as follows:
 
 
September 30, 2018
 
 
 
December 31, 2017
(Dollars in Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Total(1)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts
 
$
—

 
551

 
—

 
551

 
418

Interest rate contracts (2)(4)
 
—

 
19

 
—

 
19

 
7

Total
 
—

 
570

 
—

 
570

 
425

Liabilities:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts
 
—

 
401

 
—

 
401

 
402

Interest rate contracts (3)(4)
 
—

 
269

 
—

 
269

 
165

Total
 
—

 
670

 
—

 
670

 
567

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts
 
—

 
28

 
—

 
28

 
38

Liabilities:
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange contracts
 
—

 
45

 
—

 
45

 
38

Other Investments:
 
 
 
 
 
 
 
 
 
 
Equity investments (5)
 
697

 
—

 
—

 
697

 
751

Debt securities(6)
 
$
—

 
11,155

 
—

 
11,155

 
5,310


Gross to Net Derivative Reconciliation
 
September 30, 2018
 
December 31, 2017
(Dollars in Millions)
 
 
 
 
Total Gross Assets
 
$
598

 
463

Credit Support Agreement (CSA)
 
(290
)
 
(76
)
Total Net Asset
 
308

 
387

 
 
 
 
 
Total Gross Liabilities
 
715

 
605

Credit Support Agreement (CSA)
 
(443
)
 
(238
)
Total Net Liabilities
 
$
272

 
367

 
 
 
 
 

(1) 
2017 assets and liabilities are all classified as Level 2 with the exception of equity investments of $751 million, which are classified as Level 1.
(2) 
Includes $4 million and $7 million of non-current other assets for September 30, 2018 and December 31, 2017, respectively.
(3) 
Includes $6 million and $9 million of non-current other liabilities for September 30, 2018 and December 31, 2017, respectively.
(4) 
Includes cross currency interest rate swaps and interest rate swaps.
(5) 
Classified as non-current other assets. The carrying amount of the equity investments were $697 million and $751 million as of September 30, 2018 and December 31, 2017, respectively.
(6) 
Classified as cash equivalents and current marketable securities.
Marketable Securities
The Company's cash, cash equivalents and current marketable securities as of September 30, 2018 comprised:
 
September 30, 2018
(Dollars in Millions)
Carrying Amount
 
Unrecognized Gain
 
Unrecognized Loss
 
Estimated Fair Value
 
Cash & Cash Equivalents
 
Current Marketable Securities
Cash
$
2,575

 
—

 
—

 
2,575

 
2,575

 
 
Other sovereign securities(1)
—

 
—

 
—

 
—

 
—

 


U.S. reverse repurchase agreements
2,260

 
—

 
—

 
2,260

 
2,260

 

Other reverse repurchase agreements
479

 
—

 
—

 
479

 
479

 
 
Corporate debt securities(1)
200

 
—

 
—

 
200

 
200

 
—

Money market funds
1,763

 
—

 
—

 
1,763

 
1,763

 
 
Time deposits(1)
932

 
—

 
—

 
932

 
932

 
 
   Subtotal
8,209

 
—

 
—

 
8,209

 
8,209

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized Gain
 
Unrealized Loss
 
 
 
 
 
 
Government securities
10,885

 
—

 
(1
)
 
10,884

 
7,835

 
3,049

Other sovereign securities
—

 
—

 
—

 
—

 
—

 
—

Corporate debt securities
271

 
—

 
—

 
271

 
12

 
259

   Subtotal available for sale debt(2)
$
11,156

 
—

 
(1
)
 
11,155

 
7,847

 
3,308

Total cash, cash equivalents and current marketable securities


 


 


 


 
16,056

 
3,308

(1) Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.
(2) 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 at September 30, 2018 are as follows:
(Dollars in Millions)
 
Cost Basis
 
Fair Value
Due within one year
 
$
11,079

 
11,078

Due after one year through five years
 
77

 
77

Due after five years through ten years
 
—

 
—

Total debt securities
 
$
11,156

 
11,155
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 September 30, 2018:
(Dollars in Millions)
 
Carrying Amount
 
Estimated Fair Value
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
Current Debt
 
$
1,773

 
1,773

 
 
 
 
 
Non-Current Debt
 
 
 
 
4.75% Notes due 2019 (1B Euro 1.1681)
 
1,166

 
1,231

1.875% Notes due 2019
 
495

 
490

3% Zero Coupon Convertible Subordinated Debentures due in 2020
 
52

 
100

1.950% Notes due 2020
 
499

 
490

2.95% Debentures due 2020
 
548

 
551

3.55% Notes due 2021
 
448

 
454

2.45% Notes due 2021
 
349

 
345

1.65% Notes due 2021
 
998

 
967

0.250% Notes due 2022 (1B Euro 1.1681)
 
1,165

 
1,172

2.25% Notes due 2022
 
996

 
973

6.73% Debentures due 2023
 
250

 
291

3.375% Notes due 2023
 
805

 
829

2.05% Notes due 2023
 
498

 
477

0.650% Notes due 2024 (750MM Euro 1.1681)
 
872

 
881

5.50% Notes due 2024 (500 MM GBP 1.3123)
 
651

 
793

2.625% Notes due 2025

 
748

 
719

2.45% Notes due 2026
 
1,991

 
1,884

2.95% Notes due 2027
 
996

 
956

2.90% Notes due 2028
 
1,493

 
1,420

1.150% Notes due 2028 (750MM Euro 1.1681)
 
868

 
874

6.95% Notes due 2029
 
296

 
385

4.95% Debentures due 2033
 
498

 
559

4.375% Notes due 2033
 
856

 
912

1.650% Notes due 2035 (1.5B Euro 1.1681)
 
1,735

 
1,774

3.55% Notes due 2036
 
988

 
945

5.95% Notes due 2037
 
991

 
1,252

3.625% Notes due 2037
 
1,486

 
1,433

3.40% Notes due 2038
 
990

 
926

5.85% Debentures due 2038
 
696

 
874

4.50% Debentures due 2040
 
538

 
573

4.85% Notes due 2041
 
297

 
330

4.50% Notes due 2043
 
495

 
532

3.70% Notes due 2046
 
1,971

 
1,884

3.75% Notes due 2047
 
991

 
951

3.50% Notes due 2048
 
742

 
689

Other
 
22

 
22

Total Non-Current Debt
 
$
29,480

 
29,938