Fair Value Measurements (Tables)

6 Months Ended

Jun. 28, 2020

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 second quarters ended in 2020 and 2019, net of tax:

	June 28, 2020						June 30, 2019
(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 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	—		—	—	39	—	—	—	—	39	—
Amount of gain or (loss) recognized in AOCI	—		—	—	39	—	—	—	—	39	—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	(2)		(62)	2	—	—	(14)	(101)	36	—	2
Amount of gain or (loss) recognized in AOCI	(2)		(128)	(10)	—	22	—	(50)	18	—	(3)
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	83	—	—		—	64	—
Amount of gain or (loss) recognized in AOCI	$	—	—	—	100	—	—	—	—	82	—

The following table is a summary of the activity related to derivatives and hedges for the fiscal six months ended in 2020 and 2019, net of tax:

	June 28, 2020						June 30, 2019
(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 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	—		—	—	79	—	—	—	—	78	—
Amount of gain or (loss) recognized in AOCI	—		—	—	79	—	—	—	—	78	—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	7		(235)	(108)	—	(2)	(35)	(136)	(103)	—	8
Amount of gain or (loss) recognized in AOCI	9		174	(120)	—	(14)	(6)	(346)	(92)	—	10
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	181	—	—	—	—	118	—
Amount of gain or (loss) recognized in AOCI	$	—	—	—	725	—	—	—	—	140	—

The following table is the effect of net investment hedges for the fiscal second quarters ended in 2020 and 2019

	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)	June 28, 2020		June 30, 2019		June 28, 2020	June 30, 2019
Debt	$	(95)	(57)	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	(186)	(57)	Interest (income) expense	—	—

The following table is the effect of net investment hedges for the fiscal six months ended in 2020 and 2019

	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)	June 28, 2020		June 30, 2019		June 28, 2020	June 30, 2019
Debt	$	(48)	14	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	641	313	Interest (income) expense	—	—

Schedule of Derivatives Recorded in Consolidated Balance Sheet

Schedule of Effect of Derivatives not Designated as Hedging Instruments

		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 Second Quarter Ended			Fiscal Six Months Ended
Derivatives Not Designated as Hedging Instruments		June 28, 2020		June 30, 2019	June 28, 2020	June 30, 2019
Foreign Exchange Contracts	Other (income) expense	$	(24)	(50)	65	(88)

Summary of Activity Related to Equity Investments

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

(Dollars in Millions)	December 29, 2019				June 28, 2020
	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	$	1,148	196	144	1,488	1,488
Equity Investments without readily determinable value	$	712	(28)	28	712	712

⁽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 June 28, 2020 and December 29, 2019 were as follows:

	June 28, 2020					December 29, 2019
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts	$	—	395	—	395	209
Interest rate contracts (2)(3)	—		1,126	—	1,126	693
Total	—		1,521	—	1,521	902
Liabilities:
Forward foreign exchange contracts	—		260	—	260	426
Interest rate contracts (3)	—		251	—	251	193
Total	—		511	—	511	619
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		38	—	38	23
Liabilities:
Forward foreign exchange contracts	—		47	—	47	33
Other Investments:
Equity investments (4)	1,488		—	—	1,488	1,148
Debt securities(5)	$	—	10,047	—	10,047	4,368
Other Liabilities
Contingent consideration (6)				796	796	1,715

Gross to Net Derivative Reconciliation	June 28, 2020		December 29, 2019
(Dollars in Millions)
Total Gross Assets	$	1,559	925
Credit Support Agreement (CSA)	(1,437)		(841)
Total Net Asset	122		84
Total Gross Liabilities	558		652
Credit Support Agreement (CSA)	(510)		(586)
Total Net Liabilities	$	48	66

Summarized information about changes in liabilities for contingent consideration is as follows:

	June 28, 2020		June 30, 2019
(Dollars in Millions)
Beginning Balance	$	1,715	$	397
Changes in estimated fair value (7)	(938)		35
Additions	106		1,133
Payments	(87)		(3)
Ending Balance	$	796	$	1,562

⁽¹⁾December 30, 2019 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,148 million, which are classified as Level 1 and contingent consideration of $1,715 million, classified as Level 3.

⁽²⁾Includes $1 million of non-current other assets as of December 29, 2019.

⁽³⁾ Includes cross currency interest rate swaps and interest rate swaps.

⁽⁴⁾ Classified as non-current other assets.

⁽⁵⁾ Classified within cash equivalents and current marketable securities.

⁽⁶⁾ Includes $793 million and $1,631 million (primarily related to Auris Health), classified as non-current other liabilities as of June 28, 2020 and December 29, 2019, respectively. Includes $3 million and $84 million classified as current liabilities as of June 28, 2020 and December 29, 2019, respectively.

⁽⁷⁾ Ongoing fair value adjustment amounts are primarily recorded in Research and Development expense.

During the fiscal first quarter of 2020, the Company recorded a contingent consideration reversal of $983 million related to the timing of certain developmental milestones associated with the Auris Health acquisition. The one-time reversal of the contingent consideration was recorded in Other income and expense. As of June 28, 2020, the estimated fair value of the remaining contingent consideration is $169 million. For additional details see Note 10 to the Consolidated Financial Statements.

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of June 28, 2020 comprised:

(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss	Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,215	—	—	2,215	2,215
Non-U.S. sovereign securities(1)	655		—	—	655	225	430
U.S. reverse repurchase agreements	2,372		—	—	2,372	2,372	—
Other reverse repurchase agreements	460		—	—	460	460
Corporate debt securities(1)	1,279		—	—	1,279	301	978
Money market funds	1,528		—	—	1,528	1,528
Time deposits(1)	579		—	—	579	579
Subtotal	9,088		—	—	9,088	7,680	1,408
			Unrealized Gain	Unrealized Loss
U.S. Gov't securities	9,786		—	—	9,786	3,480	6,306
Other sovereign securities	5		—	—	5	—	5
Corporate debt securities	255		1	—	256	14	242
Subtotal available for sale debt(2)	$	10,046	1	—	10,047	3,494	6,553
Total cash, cash equivalents and current marketable securities	$	19,134	1	—	19,135	11,174	7,961

⁽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 as of June 28, 2020 are as follows:

(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	10,023	10,024
Due after one year through five years	23		23
Due after five years through ten years	—		—
Total debt securities	$	10,046	10,047

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 June 28, 2020:

(Dollars in Millions)	Carrying Amount		Estimated Fair Value
Financial Liabilities
Current Debt	$	5,332	5,388
Non-Current Debt
2.45% Notes due 2021	350		360
0.250% Notes due 2022 (1B Euro 1.1217)	1,121		1,131
2.25% Notes due 2022	998		1,029
6.73% Debentures due 2023	250		302
3.375% Notes due 2023	803		891
2.05% Notes due 2023	499		523
0.650% Notes due 2024 (750MM Euro 1.1217)	839		864
5.50% Notes due 2024 (500 MM GBP 1.2431)	618		749
2.625% Notes due 2025	748		813
2.45% Notes due 2026	1,993		2,179
2.95% Notes due 2027	997		1,111
2.90% Notes due 2028	1,494		1,681
1.150% Notes due 2028 (750MM Euro 1.1217)	835		917
6.95% Notes due 2029	297		435
4.95% Debentures due 2033	498		689
4.375% Notes due 2033	856		1,127
1.650% Notes due 2035 (1.5B Euro 1.1217)	1,667		1,974
3.55% Notes due 2036	989		1,170
5.95% Notes due 2037	992		1,531
3.625% Notes due 2037	1,487		1,791
3.40% Notes due 2038	991		1,168
5.85% Debentures due 2038	696		1,060
4.50% Debentures due 2040	539		736
4.85% Notes due 2041	297		420
4.50% Notes due 2043	495		685
3.70% Notes due 2046	1,974		2,467
3.75% Notes due 2047	991		1,255
3.50% Notes due 2048	742		923
Other	6		10
Total Non-Current Debt	$	25,062	29,991