Fair Value Measurements (Tables)

9 Months Ended

Sep. 27, 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 third quarters ended in 2020 and 2019, net of tax:

	September 27, 2020						September 29, 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	3		(81)	(13)	—	(8)	(8)	(77)	1,911	—	1
Amount of gain or (loss) recognized in AOCI	16		156	(36)	—	(41)	(23)	(197)	1,939	—	5
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	84	—	—		—	89	—
Amount of gain or (loss) recognized in AOCI	$	—	—	—	65	—	—	—	—	159	—

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

	September 27, 2020						September 29, 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	—		—	—	118	—	—	—	—	117	—
Amount of gain or (loss) recognized in AOCI	—		—	—	118	—	—	—	—	117	—
Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	10		(316)	(121)	—	(10)	(43)	(213)	1,808	—	9
Amount of gain or (loss) recognized in AOCI	25		330	(156)	—	(55)	(29)	(543)	1,847	—	15
Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	265	—	—	—	—	207	—
Amount of gain or (loss) recognized in AOCI	$	—	—	—	790	—	—	—	—	299	—

The following table is the effect of net investment hedges for the fiscal third 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)	September 27, 2020		September 29, 2019		September 27, 2020	September 29, 2019
Debt	$	(169)	162	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	(234)	152	Interest (income) expense	—	—

The following table is the effect of net investment hedges for the fiscal nine 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)	September 27, 2020		September 29, 2019		September 27, 2020	September 29, 2019
Debt	$	(217)	176	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	407	465	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 Third Quarter Ended			Fiscal Nine Months Ended
Derivatives Not Designated as Hedging Instruments		September 27, 2020		September 29, 2019	September 27, 2020	September 29, 2019
Foreign Exchange Contracts	Other (income) expense	$	1	(13)	66	(101)

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				September 27, 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	161	(169)	1,140	1,140
Equity Investments without readily determinable value	$	712	(36)	66	742	742

⁽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 27, 2020 and December 29, 2019 were as follows:

	September 27, 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	$	—	612	—	612	209
Interest rate contracts (2)(3)	—		635	—	635	693
Total	—		1,247	—	1,247	902
Liabilities:
Forward foreign exchange contracts	—		327	—	327	426
Interest rate contracts (3)	—		382	—	382	193
Total	—		709	—	709	619
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		64	—	64	23
Liabilities:
Forward foreign exchange contracts	—		56	—	56	33
Other Investments:
Equity investments (4)	1,140		—	—	1,140	1,148
Debt securities(5)	—		13,391	—	13,391	4,368
Other Liabilities
Contingent consideration (6)	$	—	—	636	636	1,715

Gross to Net Derivative Reconciliation	September 27, 2020		December 29, 2019
(Dollars in Millions)
Total Gross Assets	$	1,311	925
Credit Support Agreement (CSA)	(1,117)		(841)
Total Net Asset	194		84
Total Gross Liabilities	765		652
Credit Support Agreement (CSA)	(737)		(586)
Total Net Liabilities	$	28	66

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

	September 27, 2020		September 29, 2019
(Dollars in Millions)
Beginning Balance	$	1,715	$	397
Changes in estimated fair value (7)	(1,088)		117
Additions	107		1,133
Payments	(98)		(9)
Ending Balance	$	636	$	1,638

⁽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 $608 million and $1,631 million (primarily related to Auris Health at December 29, 2019), classified as non-current other liabilities as of September 27, 2020 and December 29, 2019, respectively. Includes $28 million and $84 million classified as current liabilities as of September 27, 2020 and December 29, 2019, respectively.

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

The Company recorded a contingent consideration reversal of $1,148 million related to the timing of certain developmental milestones associated with the Auris Health acquisition. The reversal of the contingent consideration was recorded in Other income and expense. 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 September 27, 2020 comprised:

(Dollars in Millions)	Carrying Amount		Unrecognized Gain	Unrecognized Loss	Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,231	—	—	2,231	2,231
Non-U.S. sovereign securities(1)	647		—	—	647	—	647
U.S. reverse repurchase agreements	3,094		—	—	3,094	3,094	—
Other reverse repurchase agreements	430		—	—	430	430
Corporate debt securities(1)	1,843		—	—	1,843	571	1,272
Money market funds	8,485		—	—	8,485	8,485
Time deposits(1)	660		—	—	660	660
Subtotal	17,390		—	—	17,390	15,471	1,919
			Unrealized Gain	Unrealized Loss
U.S. Gov't securities	13,133		1	—	13,134	3,483	9,651
Other sovereign securities	10		—	—	10	—	10
Corporate debt securities	247		—	—	247	11	236
Subtotal available for sale debt(2)	$	13,390	1	—	13,391	3,494	9,897
Total cash, cash equivalents and current marketable securities	$	30,780	1	—	30,781	18,965	11,816

⁽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 September 27, 2020 are as follows:

(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	13,368	13,369
Due after one year through five years	22		22
Due after five years through ten years	—		—
Total debt securities	$	13,390	13,391

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 27, 2020:

(Dollars in Millions)	Carrying Amount		Estimated Fair Value
Financial Liabilities
Current Debt	$	5,078	5,093
Non-Current Debt
2.45% Notes due 2021	350		358
0.250% Notes due 2022 (1B Euro 1.1641)	1,163		1,172
2.25% Notes due 2022	998		1,025
6.73% Debentures due 2023	250		299
3.375% Notes due 2023	803		881
2.05% Notes due 2023	499		518
0.650% Notes due 2024 (750MM Euro 1.1641)	870		899
5.50% Notes due 2024 (500 MM GBP 1.2757)	634		768
2.625% Notes due 2025	748		813
0.55% Notes due 2025(1)	996		990
2.45% Notes due 2026	1,994		2,180
2.95% Notes due 2027	997		1,119
0.95% Notes due 2027(1)	1,494		1,510
2.90% Notes due 2028	1,494		1,680
1.150% Notes due 2028 (750MM Euro 1.1641)	867		960
6.95% Notes due 2029	297		441
1.30% Notes due 2030(1)	1,743		1,739
4.95% Debentures due 2033	498		690
4.375% Notes due 2033	855		1,128
1.650% Notes due 2035 (1.5B Euro 1.1641)	1,731		2,101
3.55% Notes due 2036	989		1,197
5.95% Notes due 2037	992		1,536
3.625% Notes due 2037	1,488		1,819
3.40% Notes due 2038	991		1,176
5.85% Debentures due 2038	696		1,094
4.50% Debentures due 2040	539		737
2.10% Notes due 2040(1)	986		991
4.85% Notes due 2041	297		421
4.50% Notes due 2043	495		689
3.70% Notes due 2046	1,974		2,478
3.75% Notes due 2047	991		1,258
3.50% Notes due 2048	742		921
2.25% Notes due 2050(1)	984		984
2.45% Notes due 2060(1)	1,228		1,230
Other	7		10
Total Non-Current Debt	$	32,680	37,812