Financial Instruments (Tables)

9 Months Ended

Oct. 02, 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)	October 2, 2016			December 31, 2015
Selected financial assets measured at fair value on a recurring basis(a)
Trading funds and securities(b)	$	304		$	287
Available-for-sale debt securities(c)	17,522			32,078
Money market funds	1,724			934
Available-for-sale equity securities(c)	590			603
Derivative financial instruments in a receivable position(d):
Interest rate swaps	1,923			837
Foreign currency swaps	90			135
Foreign currency forward-exchange contracts	186			559
	22,340			35,433
Other selected financial assets
Held-to-maturity debt securities, carried at amortized cost(c), (e)	1,270			1,388
Private equity securities, carried at equity-method or at cost(e),(f)	1,003			1,336
	2,272			2,724
Total selected financial assets	$	24,613		$	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	$	3		$	139
Foreign currency swaps	1,349			1,489
Foreign currency forward-exchange contracts	503			81
	1,855			1,709
Other selected financial liabilities
Short-term borrowings:
Principal amount	13,602			10,160
Net fair value adjustments related to hedging and purchase accounting	47			2
Net unamortized discounts, premiums and debt issuance costs(h)	(16		)	(3		)
Total short-term borrowings, carried at historical proceeds, as adjusted(e)	13,633			10,159
Long-term debt:
Principal amount	28,073			27,573
Net fair value adjustments related to hedging and purchase accounting	2,447			1,294
Net unamortized discounts, premiums and debt issuance costs(h)	(83		)	(127		)
Total long-term debt, carried at historical proceeds, as adjusted(i)	30,437			28,740
	44,071			38,899
Total selected financial liabilities	$	45,926		$	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 2% that use Level 1 inputs and money market funds measured at net asset value.

^(b)  As of October 2, 2016, trading funds and securities are composed of $196 million of trading equity funds, $12 million of trading securities and $96 million of trading debt funds. As of December 31, 2015, trading funds and securities are composed of $185 million of trading equity funds and $102 million of trading debt funds. As of October 2, 2016 and December 31, 2015, trading equity funds of $69 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 $91 million as of October 2, 2016; and foreign currency forward-exchange contracts with fair values of $136 million as of December 31, 2015.

^(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 October 2, 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. 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.

^(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 $211 million and foreign currency forward-exchange contracts with fair values of $145 million as of October 2, 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)  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. See Note 1B for additional information.

⁽ⁱ⁾  The fair value of our long-term debt (not including the current portion of long-term debt) was $34.3 billion as of October 2, 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)	October 2, 2016		December 31, 2015
Assets
Cash and cash equivalents	$	628	$	978
Short-term investments	12,277		19,649
Other current assets(a)	293		587
Long-term investments	9,507		15,999
Other noncurrent assets(b)	1,907		944
	$	24,613	$	38,157
Liabilities
Short-term borrowings, including current portion of long-term debt(c)	$	13,633	$	10,159
Other current liabilities(d)	805		645
Long-term debt(c)	30,437		28,740
Other noncurrent liabilities(e)	1,050		1,064
	$	45,926	$	40,608

^(a)  As of October 2, 2016, derivative instruments at fair value include interest rate swaps ($49 million), foreign currency swaps ($67 million) and foreign currency forward-exchange contracts ($177 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 October 2, 2016, derivative instruments at fair value include interest rate swaps ($1.9 billion), foreign currency swaps ($23 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. See Note 1B for additional information.

^(d)  As of October 2, 2016, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($320 million) and foreign currency forward-exchange contracts ($483 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 October 2, 2016, derivative instruments at fair value include interest rate swaps ($2 million), foreign currency swaps ($1.0 billion) and foreign currency forward-exchange contracts ($20 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								October 2, 2016
(MILLIONS OF DOLLARS)	Within 1		Over 1 to 5		Over 5 to 10		Over 10		Total
Available-for-sale debt securities
Corporate debt(a)	$	2,399	$	3,824	$	2,088	$	25	$	8,336
Western European, Asian, Scandinavian and other government debt(b)	4,247		661		8		—		4,916
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities	3		56		1		—		61
U.S. government debt	702		93		—		—		795
Western European, Scandinavian and other government agency debt(b)	1,245		137		—		—		1,383
Supranational debt(b)	306		346		—		—		652
Other asset-backed debt(c)	449		331		20		3		803
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities	575		1		—		—		576
Held-to-maturity debt securities
Time deposits and other	1,046		1		—		—		1,048
Western European government debt(b)	222		—		—		—		222
Total debt securities	$	11,195	$	5,451	$	2,118	$	29	$	18,792

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

^(b)  Issued by governments, government agencies or supranational entities, as applicable, 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.

Schedule of Principal Amounts and Components of Unsecured Long-term Debt Issued

The following table provides the principal amounts and components of unsecured long-term debt issued in the second quarter of 2016:
(MILLIONS OF DOLLARS)	Maturity Date	As of October 2, 2016
1.20% Notes (2018 Notes)	June 1, 2018	$	1,250
1.45% Notes (2019 Notes)	June 3, 2019	850
1.95% Notes (2021 Notes)	June 3, 2021	1,150
2.75% Notes (2026 Notes)	June 3, 2026	1,250
4.40% Notes (2044 Notes)	May 15, 2044	500
Total long-term debt issued in the second quarter of 2016		$	5,000

Maturity Schedule of Long-term Debt Outstanding

The following table provides the maturity schedule of our Long-term debt outstanding as of October 2, 2016:
(MILLIONS OF DOLLARS)	2017		2018		2019		2020		After 2020		Total
Maturities	$	—	$	3,618	$	5,678	$	383	$	20,758	$	30,437

Information about Gains/(Losses) Incurred to Hedge or Offset Operational Foreign Exchange or Interest Rate Risk

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)	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign currency swaps	$	—		$	—		$	87		$	(96	)	$	(39	)	$	(86	)
Foreign currency forward-exchange contracts	2			—			(212		)	(89		)	(111		)	120
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency forward-exchange contracts	—			—			—			(5		)	—			—
Derivative Financial Instruments Not Designated as Hedges:
Foreign currency forward-exchange contracts	20			50			—			—			—			—
Foreign currency swaps	(4		)	—			—			—			—			—
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings	—			—			—			(12		)	—			—
All other net	—			—			—			(32		)	—			—
	$	18		$	49		$	(126	)	$	(235	)	$	(150	)	$	35
	Nine 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)	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign currency swaps	$	—		$	—		$	(204	)	$	(594	)	$	(165	)	$	(451	)
Foreign currency forward-exchange contracts	1			—			(770		)	532			(118		)	996
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency forward-exchange contracts	1			2			(15		)	254			—			—
Derivative Financial Instruments Not Designated as Hedges:
Foreign currency forward-exchange contracts	(49		)	(64		)	—			—			—			—
Foreign currency swaps	(9		)	(2		)	—			—			—			—
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings	—			—			(26		)	6			—			—
All other net	—			—			1			(18		)	—			—
	$	(56	)	$	(64	)	$	(1,014	)	$	180		$	(283	)	$	545

^(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 income/(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 income/(loss)––Foreign currency translation adjustments, net.