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Fair Value Measurements (Tables)

6 Months Ended

Jul. 03, 2022

The following table is a summary of the activity related to derivatives and hedges for the fiscal second quarters ended in 2022 and 2021, net of tax:


	July 3, 2022						July 4, 2021
(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	$	—	—	—	(241)	—	—	—	—	(6)	—
Derivatives designated as hedging instruments	—		—	—	241	—	—	—	—	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	—		—	—	44	—	—	—	—	40	—
Amount of gain or (loss) recognized in AOCI	—		—	—	44	—	—	—	—	40	—

Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	(17)		(6)	42	—	(39)	11	14	104	—	2



Amount of gain or (loss) recognized in AOCI	(25)		35	69	—	(38)	(3)	(50)	119	—	8

Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	102	—	—		—	99	—

Amount of gain or (loss) recognized in AOCI	$	—	—	—	60	—	—	—	—	286	—

The following table is a summary of the activity related to derivatives and hedges for the fiscal six months ended in 2022 and 2021, net of tax:


	July 3, 2022						July 4, 2021
(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	$	—	—	—	(772)	—	—	—	—	(6)	—
Derivatives designated as hedging instruments	—		—	—	772	—	—	—	—	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	—		—	—	89	—	—	—	—	80	—
Amount of gain or (loss) recognized in AOCI	—		—	—	89	—	—	—	—	80	—

Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	(34)		(58)	65	—	(57)	28	48	(9)	—	5



Amount of gain or (loss) recognized in AOCI	(3)		(59)	102	—	(111)	(6)	(243)	43	—	25

Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	222	—	—	—	—	191	—

Amount of gain or (loss) recognized in AOCI	$	—	—	—	(68)	—	—	—	—	(21)	—

The following table is the effect of net investment hedges for the fiscal second quarters ended in 2022 and 2021:



	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)	July 3, 2022		July 4, 2021		July 3, 2022	July 4, 2021
Debt	$	202	(45)	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	313	(70)	Interest (income) expense	—	—

The following table is the effect of net investment hedges for the fiscal six months ended in 2022 and 2021



	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)	July 3, 2022		July 4, 2021		July 3, 2022	July 4, 2021
Debt	$	270	164	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	873	291	Interest (income) expense	—	—

Schedule of Derivative Financial Instruments and Classification on Consolidated Balance Sheet

As of July 3, 2022, and January 2, 2022, 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 Gain/ (Loss) Included in the Carrying Amount of the Hedged Liability

(Dollars in Millions)

July 3, 2022

January 2, 2022

July 3, 2022

January 2, 2022

Long-term Debt

9,035

9,793

(1,010)

(142)

Schedule of Effect of Derivatives not Designated as Hedging Instruments

The following table is the effect of derivatives not designated as hedging instruments for the fiscal second quarters ended 2022 and 2021:

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

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

Foreign Exchange Contracts

Other (income) expense

(21)

102

(37)

Summary of Activity Related to Equity Investments

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


(Dollars in Millions)	January 2, 2022				July 3, 2022
	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	$	1,884	(508)	(36)	1,340	1,340

Equity Investments without readily determinable value	$	500	(14)	35	521	521

(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 July 3, 2022 and January 2, 2022 were as follows:


	July 3, 2022					January 2, 2022
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts	$	—	1,314	—	1,314	540
Interest rate contracts (2)	—		1,979	—	1,979	796

Total	—		3,293	—	3,293	1,336
Liabilities:
Forward foreign exchange contracts	—		1,513	—	1,513	881
Interest rate contracts (2)	—		1,540	—	1,540	979

Total	—		3,053	—	3,053	1,860
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		47	—	47	24
Liabilities:
Forward foreign exchange contracts	—		44	—	44	28
Other Investments:
Equity investments (3)	1,340		—	—	1,340	1,884
Debt securities (4)	—		21,123	—	21,123	19,727
Other Liabilities
Contingent consideration (5)	$	—	—	536	536	533


Gross to Net Derivative Reconciliation	July 3, 2022		January 2, 2022
(Dollars in Millions)
Total Gross Assets	$	3,340	1,360
Credit Support Agreement (CSA)	(3,226)		(1,285)
Total Net Asset	114		75

Total Gross Liabilities	3,097		1,888
Credit Support Agreement (CSA)	(2,993)		(1,855)
Total Net Liabilities	$	104	33

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



	July 3, 2022		July 4, 2021
(Dollars in Millions)
Beginning Balance	$	533	$	633
Changes in estimated fair value (6)	(88)		8
Additions	91		—
Payments	—		(48)
Ending Balance	$	536	$	593

(1)2021 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,884 million, which are classified as Level 1 and contingent consideration of $533 million, classified as Level 3.

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

(3) Classified as non-current other assets.

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

(5) Includes $519 million and $520 million, classified as non-current other liabilities as of July 3, 2022 and January 2, 2022, respectively. Includes $17 million and $13 million classified as current liabilities as of July 3, 2022 and January 2, 2022, respectively.

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

Marketable Securities

The Company's cash, cash equivalents and current marketable securities as of July 3, 2022 comprised:


(Dollars in Millions)	Carrying Amount		Gain/( Loss)	Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	3,337	—	3,337	3,337	—

Non-U.S. sovereign securities(1)	538		(1)	537	—	538
U.S. reverse repurchase agreements	2,112		—	2,112	2,112	—

Corporate debt securities(1)	2,443		(8)	2,435	240	2,203
Money market funds	1,968		—	1,968	1,968	—
Time deposits(1)	1,047		—	1,047	1,047	—
Subtotal	11,445		(9)	11,436	8,704	2,741

			Unrealized Loss
U.S. Gov't securities	20,919		(45)	20,874	2,251	18,623
Other sovereign securities	3		—	3	—	3
Corporate debt securities	247		(1)	246	28	218
Subtotal available for sale debt(2)	$	21,169	(46)	21,123	2,279	18,844
Total cash, cash equivalents and current marketable securities	$	32,614	(55)	32,559	10,983	21,585

(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 July 3, 2022 are as follows:


(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	21,155	21,109
Due after one year through five years	14		14
Due after five years through ten years	—		—
Total debt securities	$	21,169	21,123

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 July 3, 2022:


(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	4,305	4,304

Non-Current Debt
6.73% Debentures due 2023	250		263
3.375% Notes due 2023	802		805

0.650% Notes due 2024 (750MM Euro 1.0408)	774		766
5.50% Notes due 2024 (500MM GBP 1.2143)	605		647
2.625% Notes due 2025	749		745
0.550% Notes due 2025	940		872

2.45% Notes due 2026	1,995		1,950
2.95% Notes due 2027	911		899

0.95% Notes due 2027	1,423		1,264
2.90% Notes due 2028	1,496		1,462
1.150% Notes due 2028 (750MM Euro 1.0408)	776		735
6.95% Notes due 2029	298		372
1.30% Notes due 2030	1,646		1,404
4.95% Debentures due 2033	498		554
4.375% Notes due 2033	855		895
1.650% Notes due 2035 (1.5B Euro 1.0408)	1,554		1,370
3.55% Notes due 2036	885		848
5.95% Notes due 2037	993		1,181
3.625% Notes due 2037	1,381		1,328
3.40% Notes due 2038	992		898
5.85% Debentures due 2038	697		817
4.50% Debentures due 2040	540		546
2.10% Notes due 2040	876		647
4.85% Notes due 2041	297		312
4.50% Notes due 2043	496		506
3.70% Notes due 2046	1,975		1,830
3.75% Notes due 2047	863		806
3.50% Notes due 2048	743		677
2.25% Notes due 2050	864		599
2.45% Notes due 2060	1,108		773
Other	10		10
Total Non-Current Debt	$	28,292	26,781