Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

The following table is the effect of net investment hedges for the fiscal first quarters ended in 2019 and 2018:



	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)	March 31, 2019		April 1, 2018			March 31, 2019	April 1, 2018
Debt	$	71	(150	)	Other (income) expense	—	—
Cross Currency interest rate swaps	$	370	—		Other (income) expense	—	—

The following table is a summary of the activity related to derivatives and hedges for the fiscal first quarters ended in 2019 and 2018:



	March 31, 2019										April 1, 2018
(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	$	—		—		—		1		—	—	—	—		5		—
Derivatives designated as hedging instruments	—			—		—		(1	)	—	—	—	—		(5	)	—

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	—			—		—		38		—	—	—	—		—		—
Amount of gain or (loss) recognized in AOCI	—			—		—		38		—	—	—	—		—		—

Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	(21		)	(35	)	(139	)	—		6	29	2	(238	)	—		(11	)

Amount of gain or (loss) recognized in AOCI	(6		)	(296	)	(110	)	—		13	31	3	(237	)	—		(18	)

Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—			—		—		55		—	—	—	—		40		—
Amount of gain or (loss) recognized in AOCI	$	—		—		—		59		—	—	—	—		57		—

Schedule of Derivatives Recorded in Consolidated Balance Sheet

As of March 31, 2019 and December 30, 2018, 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)	March 31, 2019		December 30, 2018	March 31, 2019	December 30, 2018
Current Portion of Long-term Debt	$	499	494	1	5
Long-term Debt	—		—	—	—

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 first quarters in 2019 and 2018:
		Gain/(Loss) Recognized In Income on Derivative
(Dollars in Millions)	Location of Gain /(Loss) Recognized in Income on Derivative	Fiscal First Quarters Ended
Derivatives Not Designated as Hedging Instruments		March 31, 2019		April 1, 2018
Foreign Exchange Contracts	Other (income) expense	(38	)	(19	)

Summary of Activity Related to Equity Investments

The following table is a summary of the activity related to equity investments:



(Dollars in Millions)	December 30, 2018				March 31, 2019
	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	$	511	143	176	830	830

Equity Investments without readily determinable value	$	681	4	13	698	698

⁽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 March 31, 2019 and December 30, 2018 were as follows:



	March 31, 2019					December 30, 2018
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts	$	—	280	—	280	501
Interest rate contracts ⁽²⁾⁽⁴⁾	—		383	—	383	161
Total	—		663	—	663	662
Liabilities:
Forward foreign exchange contracts	—		571	—	571	548
Interest rate contracts ⁽³⁾⁽⁴⁾	—		295	—	295	292
Total	—		866	—	866	840
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		33	—	33	32
Liabilities:
Forward foreign exchange contracts	—		26	—	26	32
Other Investments:
Equity investments ⁽⁵⁾	830		—	—	830	511
Debt securities⁽⁶⁾	$	—	4,673	—	4,673	9,734



Gross to Net Derivative Reconciliation	March 31, 2019			December 30, 2018
(Dollars in Millions)
Total Gross Assets	$	696		694
Credit Support Agreement (CSA)	(592		)	(423	)
Total Net Asset	104			271

Total Gross Liabilities	892			872
Credit Support Agreement (CSA)	(652		)	(605	)
Total Net Liabilities	$	240		267


⁽¹⁾	December 30, 2018 assets and liabilities are all classified as Level 2 with the exception of equity investments of $511 million, which are classified as Level 1.


⁽²⁾	Includes $6 million of non-current other assets for December 30, 2018.


⁽³⁾	Includes $2 million and $3 million of non-current other liabilities for March 31, 2019 and December 30, 2018, 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 $830 million and $511 million as of March 31, 2019 and December 30, 2018, respectively.


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

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of March 31, 2019 comprised:



	March 31, 2019
(Dollars in Millions)	Carrying Amount		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,778	2,778	2,778
Other sovereign securities⁽¹⁾	190		190	190
U.S. reverse repurchase agreements	2,068		2,068	2,068
Other reverse repurchase agreements	350		350	350
Corporate debt securities⁽¹⁾	549		549	449	100
Money market funds	4,195		4,195	4,195
Time deposits⁽¹⁾	533		533	533
Subtotal	10,663		10,663	10,563	100


Government securities	4,412		4,412	4,143	269
Other sovereign securities	—		—	—	—
Corporate debt securities	261		261	28	233
Subtotal available for sale debt⁽²⁾	$	4,673	4,673	4,171	502
Total cash, cash equivalents and current marketable securities				14,734	602

⁽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 March 31, 2019 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	4,613	4,613
Due after one year through five years	60		60
Due after five years through ten years	—		—
Total debt securities	$	4,673	4,673

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 March 31, 2019:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	1,708	1,708

Non-Current Debt
3% Zero Coupon Convertible Subordinated Debentures due in 2020	51		98
1.950% Notes due 2020	499		496
2.95% Debentures due 2020	548		553
3.55% Notes due 2021	449		460
2.45% Notes due 2021	349		350
1.65% Notes due 2021	999		985
0.250% Notes due 2022 (1B Euro 1.1222)	1,120		1,135
2.25% Notes due 2022	997		993
6.73% Debentures due 2023	250		298
3.375% Notes due 2023	805		838
2.05% Notes due 2023	498		492
0.650% Notes due 2024 (750MM Euro 1.1222)	838		866
5.50% Notes due 2024 (500 MM GBP 1.3114)	651		795
2.625% Notes due 2025	748		748
2.45% Notes due 2026	1,992		1,947
2.95% Notes due 2027	996		1,001
2.90% Notes due 2028	1,493		1,485
1.150% Notes due 2028 (750MM Euro 1.1222)	834		885
6.95% Notes due 2029	297		397
4.95% Debentures due 2033	498		587
4.375% Notes due 2033	856		961
1.650% Notes due 2035 (1.5B Euro 1.1222)	1,667		1,809
3.55% Notes due 2036	988		996
5.95% Notes due 2037	991		1,294
3.625% Notes due 2037	1,486		1,510
3.40% Notes due 2038	990		978
5.85% Debentures due 2038	696		908
4.50% Debentures due 2040	538		605
4.85% Notes due 2041	297		351
4.50% Notes due 2043	495		563
3.70% Notes due 2046	1,972		2,005
3.75% Notes due 2047	991		1,017
3.50% Notes due 2048	742		731
Other	39		39
Total Non-Current Debt	$	27,660	29,176