Financial Instruments (Tables)

3 Months Ended

Apr. 03, 2016

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)	April 3, 2016		December 31, 2015
Selected financial assets measured at fair value on a recurring basis(a)
Trading funds(b)	$	260	$	287
Available-for-sale debt securities(c)	27,819		32,078
Money market funds	947		934
Available-for-sale equity securities(c)	497		603
Derivative financial instruments in a receivable position(d):
Interest rate swaps	1,433		837
Foreign currency swaps	103		135
Foreign currency forward-exchange contracts	333		559
	31,391		35,433
Other selected financial assets
Held-to-maturity debt securities, carried at amortized cost(c), (e)	1,065		1,388
Private equity securities, carried at equity-method or at cost(e),(f)	1,250		1,336
	2,315		2,724
Total selected financial assets	$	33,705	$	38,157
Selected financial liabilities measured at fair value on a recurring basis(a)
Derivative financial instruments in a liability position(g):
Interest rate swaps	$	9	$	139
Foreign currency swaps	1,311		1,489
Foreign currency forward-exchange contracts	432		81
	1,752		1,709
Other selected financial liabilities(h)
Short-term borrowings, carried at historical proceeds, as adjusted(e), (i)	11,546		10,159
Long-term debt, carried at historical proceeds, as adjusted(i), (j)	27,824		28,740
	39,370		38,899
Total selected financial liabilities	$	41,122	$	40,608

^(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 and money market funds measured at net asset value.

^(b)  As of April 3, 2016, trading funds are composed of $204 million of trading equity funds and $56 million of trading debt funds. As of December 31, 2015, trading funds are composed of $185 million of trading equity funds and $102 million of trading debt funds. As of April 3, 2016 and December 31, 2015, trading equity funds of $65 million and $85 million, respectively, are 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 $144 million as of April 3, 2016; and foreign currency forward-exchange contracts with fair values of $136 million as of December 31, 2015.

^(e)  Short-term borrowings include foreign currency short-term borrowings with fair values of $547 million as of December 31, 2015, which are used as hedging instruments. 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 April 3, 2016 or December 31, 2015. 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 $188 million and foreign currency forward-exchange contracts with fair values of $117 million as of April 3, 2016; and foreign currency swaps with fair values of $234 million and foreign currency forward-exchange contracts with fair values of $59 million as of December 31, 2015.

^(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⁾  We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-termdebt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-termdebt ($79 million) to conform to the current period presentation.

^(j)  The fair value of our long-term debt (not including the current portion of long-term debt) was $31.8 billion as of April 3, 2016 and $32.7 billion as of December 31, 2015. 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)	April 3, 2016		December 31, 2015
Assets
Cash and cash equivalents	$	809	$	978
Short-term investments	16,882		19,649
Long-term investments	14,146		15,999
Other current assets(a)	390		587
Other noncurrent assets(b)	1,478		944
	$	33,705	$	38,157
Liabilities
Short-term borrowings, including current portion of long-term debt(c)	$	11,546	$	10,159
Other current liabilities(d)	862		645
Long-term debt(c)	27,824		28,740
Other noncurrent liabilities(e)	890		1,064
	$	41,122	$	40,608

^(a)  As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($62 million) and foreign currency forward-exchange contracts ($323 million) and, as of December 31, 2015, include interest rate swaps ($2 million), foreign currency swaps ($46 million) and foreign currency forward-exchange contracts ($538 million).

^(b)  As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($1,428 million), foreign currency swaps ($41 million) and foreign currency forward-exchange contracts ($9 million) and, as of December 31, 2015, include interest rate swaps ($835 million), foreign currency swaps ($89 million) and foreign currency forward-exchange contracts ($20 million).

^(c)  We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-termdebt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-termdebt ($79 million) to conform to the current period presentation.

^(d)  As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($454 million) and foreign currency forward-exchange contracts ($403 million) and, as of December 31, 2015, include interest rate swaps ($5 million), foreign currency swaps ($560 million) and foreign currency forward-exchange contracts ($80 million).

^(e)  As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($4 million), foreign currency swaps ($857 million) and foreign currency forward-exchange contracts ($29 million) and, as of December 31, 2015, include interest rate swaps ($134 million), foreign currency swaps ($928 million) and foreign currency forward-exchange contracts ($1 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								April 3, 2016
(MILLIONS OF DOLLARS)	Within 1		Over 1 to 5		Over 5 to 10		Over 10		Total
Available-for-sale debt securities
Western European, Asian, Scandinavian and other government debt(a)	$	7,056	$	1,033	$	8	$	—	$	8,097
Corporate debt(b)	3,223		4,786		1,656		15		9,680
U.S. government debt	1,812		848		207		—		2,867
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities	34		2,110		71		11		2,227
Western European, Scandinavian and other government agency debt(a)	1,587		210		—		—		1,797
Supranational debt(a)	911		323		—		—		1,234
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities	599		112		18		—		729
Other asset-backed debt(c)	461		682		40		4		1,188
Held-to-maturity debt securities
Time deposits and other	1,024		5		—		—		1,029
Western European government debt(a)	36		—		—		—		36
Total debt securities	$	16,744	$	10,109	$	2,001	$	31	$	28,884

^(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. These securities are valued by third party models that use significant inputs derived from observable market data like prepayment rates, default rates, and recovery rates.

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:
	Three Months Ended
	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)	April 3, 2016			March 29, 2015			April 3, 2016			March 29, 2015			April 3, 2016		March 29, 2015
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign currency swaps	$	—		$	—		$	55		$	(732	)	$	118	$	(607	)
Foreign currency forward-exchange contracts	1			—			(328		)	417			221		373
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency forward-exchange contracts	(2		)	2			(12		)	249			—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign currency forward-exchange contracts	(1		)	(41		)	—			—			—		—
Foreign currency swaps	(23		)	1			—			—			—		—
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings	—			—			(26		)	—			—		—
Foreign currency long-term debt	—			—			—			(3		)	—		—
	$	(25	)	$	(38	)	$	(311	)	$	(68	)	$	339	$	(234	)

^(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, net.