Financial Instruments (Tables)

3 Months Ended

Mar. 29, 2015

Financial Instruments [Abstract]

Information about Certain Financial Assets and Liabilities

The following table provides additional information about certain of our financial assets and liabilities:
(MILLIONS OF DOLLARS)	March 29, 2015		December 31, 2014
Selected financial assets measured at fair value on a recurring basis(a)
Trading equity funds	$	94	$	—
Trading debt funds	102		—
Trading securities held in trust(b)	85		105
Available-for-sale debt securities(c)	34,930		39,762
Available-for-sale money market funds	1,883		2,174
Available-for-sale equity securities, excluding money market funds(c)	393		397
Derivative financial instruments in a receivable position(d):
Interest rate swaps	935		801
Foreign currency swaps	577		593
Foreign currency forward-exchange contracts	594		547
	39,592		44,379
Other selected financial assets
Held-to-maturity debt securities, carried at amortized cost(c), (e)	4,323		7,255
Private equity securities, carried at equity-method or at cost(e),(f)	1,969		1,993
	6,292		9,248
Total selected financial assets	$	45,884	$	53,627
Selected financial liabilities measured at fair value on a recurring basis(a)
Derivative financial instruments in a liability position(g):
Interest rate swaps	$	72	$	17
Foreign currency swaps	1,342		594
Foreign currency forward-exchange contracts	142		78
	1,556		689
Other selected financial liabilities(h)
Short-term borrowings, carried at historical proceeds, as adjusted(e)	6,555		5,141
Long-term debt, carried at historical proceeds, as adjusted(i), (j)	29,370		31,541
	35,925		36,682
Total selected financial liabilities	$	37,481	$	37,371

^(a)  We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs.

^(b)  Trading securities are equity securities as of March 27, 2015, and debt and equity securities as of December 31, 2014, held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.

^(c)  Gross unrealized gains and losses are not significant.

^(d)  Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $114 million as of March 29, 2015; and foreign currency forward-exchange contracts with fair values of $159 million as of December 31, 2014.

^(e)  The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of March 29, 2015 or December 31, 2014. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities carried at cost are based on Level 3 inputs.

^(f)  Our private equity securities represent investments in the life sciences sector.

^(g)  Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $233 million and foreign currency forward-exchange contracts with fair values of $59 million as of March 29, 2015; and foreign currency swaps with fair values of $121 million and foreign currency forward-exchange contracts with fair values of $54 million as of December 31, 2014.

^(h)  Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps.

⁽ⁱ⁾  Includes foreign currency debt with fair values of $557 million as of March 29, 2015 and $560 million as of December 31, 2014, which are used as hedging instruments.

^(j)  The fair value of our long-term debt (not including the current portion of long-term debt) was $34.8 billion as of March 29, 2015 and $36.6 billion as of December 31, 2014. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Generally, the difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance.

Selected Financial Assets and Liabilities Presented in the Condensed Consolidated Balance Sheets

The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets:
(MILLIONS OF DOLLARS)	March 29, 2015		December 31, 2014
Assets
Cash and cash equivalents	$	1,345	$	1,389
Short-term investments	24,145		32,779
Long-term investments	18,289		17,518
Other current assets(a)	1,073		1,059
Other noncurrent assets(b)	1,032		881
	$	45,884	$	53,627
Liabilities
Short-term borrowings, including current portion of long-term debt	$	6,555	$	5,141
Other current liabilities(c)	174		93
Long-term debt	29,370		31,541
Other noncurrent liabilities(d)	1,382		596
	$	37,481	$	37,371

^(a)  As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($500 million) and foreign currency forward-exchange contracts ($572 million) and, as of December 31, 2014, includeinterest rate swaps ($34 million), foreign currency swaps ($494 million) and foreign currency forward-exchange contracts ($531 million).

^(b)  As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($934 million), foreign currency swaps ($76 million) and foreign currency forward-exchange contracts ($22 million) and, as of December 31, 2014, include interest rate swaps ($767 million), foreign currency swaps ($99 million) and foreign currency forward-exchange contracts ($15 million).

^(c)  As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($33 million) and foreign currency forward-exchange contracts ($140 million) and, as of December 31, 2014, include interest rate swaps ($1 million), foreign currency swaps ($13 million) and foreign currency forward-exchange contracts ($78 million).

^(d)  As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($71 million), foreign currency swaps ($1.3 billion) and foreign currency forward-exchange contracts ($1 million) and, as of December 31, 2014, include interest rate swaps ($16 million) and foreign currency swaps ($581 million).

Contractual Maturities of Available-for-sale and Held-to-maturity Debt Securities

The following table provides the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	Years								March 29, 2015
(MILLIONS OF DOLLARS)	Within 1		Over 1 to 5		Over 5 to 10		Over 10		Total
Available-for-sale debt securities
Western European, Asian and other government debt(a)	$	10,827	$	2,228	$	—	$	—	$	13,055
Corporate debt(b)	3,562		4,062		1,814		66		9,504
Western European, Scandinavian and other government agency debt(a)	2,295		502		—		—		2,798
U.S. government debt	—		2,437		94		—		2,531
Supranational debt(a)	1,084		854		—		—		1,938
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities	19		1,902		8		5		1,933
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities	290		699		—		—		989
Other asset-backed debt(c)	914		959		8		—		1,882
Reverse repurchase agreements(d)	300		—		—		—		300
Held-to-maturity debt securities
Time deposits, corporate debt and other(a)	2,865		4		3		—		2,872
Western European and other government debt(a)	1,451		—		—		—		1,451
Total debt securities	$	23,608	$	13,647	$	1,927	$	71	$	39,253

^(a)  Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade.

^(b)  Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade.

^(c)  Includes loan-backed, receivable-backed, and mortgage-backed securities, all of which are investment-grade and in senior positions in the capital structure of the security. Loan-backed securities are collateralized by senior secured obligations of a diverse pool of companies or student loans, and receivable-backed securities are collateralized by credit cards receivables. Mortgage-backed securities are collateralized by diversified pools of residential and commercial mortgages.

^(d)  Involving U.S. securities.

Derivative Instruments, Gain (Loss)

The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk:
	Amount of Gains/(Losses) Recognized in OID(a), (b), (c)						Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d)						Amount of Gains/(Losses) Reclassified from OCI into OID (Effective Portion)(a), (d)
(MILLIONS OF DOLLARS)	March 29, 2015			March 30, 2014			March 29, 2015			March 30, 2014			March 29, 2015			March 30, 2014
Three Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign currency swaps	$	—		$	—		$	(732	)	$	(15	)	$	(607	)	$	9
Foreign currency forward-exchange contracts	—			—			417			(43		)	373			(21		)
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency swaps	—			—			—			(8		)	—			—
Foreign currency forward-exchange contracts	2			—			249			—			—			—
Derivative Financial Instruments Not Designated as Hedges:
Foreign currency forward-exchange contracts	(41		)	(12		)	—			—			—			—
Foreign currency swaps	1			(3		)	—			—			—			—
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency long-term debt	—			—			(3		)	(14		)	—			—
All other net	—			(3		)	—			—			—			—
	$	(38	)	$	(18	)	$	(68	)	$	(80	)	$	(234	)	$	(12	)

^(a)  OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in thecondensed consolidated statements of comprehensive income.

^(b)  Also, includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships.

^(c)  There was no significant ineffectiveness for any period presented.

^(d)  For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive loss––Unrealized holding losses on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive loss––Foreign currency translation adjustments.