Financial Instruments

9 Months Ended

Sep. 29, 2024

A. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis and Fair Value Hierarchy, using a Market Approach:


	September 29, 2024						December 31, 2023
(MILLIONS)	Total		Level 1		Level 2		Total		Level 1		Level 2
Financial assets:
Short-term investments
Equity securities with readily determinable fair values:
Money market funds	$	1,420	$	—	$	1,420	$	5,124	$	—	$	5,124

Available-for-sale debt securities:
Government and agency—non-U.S.	3,493		—		3,493		817		—		817
Government and agency—U.S.	2,120		—		2,120		2,601		—		2,601
Corporate and other	1,236		—		1,236		982		—		982
	6,849		—		6,849		4,400		—		4,400
Total short-term investments	8,269		—		8,269		9,524		—		9,524
Other current assets
Derivative assets:
Interest rate contracts	1		—		1		—		—		—
Foreign exchange contracts	280		—		280		298		—		298
Total other current assets	281		—		281		298		—		298
Long-term investments
Equity securities with readily determinable fair values(a)	1,368		1,368		—		2,779		2,772		7

Available-for-sale debt securities:
Government and agency—non-U.S.	—		—		—		124		—		124

Corporate and other	6		—		6		26		—		26
	6		—		6		150		—		150
Total long-term investments	1,374		1,368		7		2,929		2,772		156
Other noncurrent assets
Derivative assets:
Interest rate contracts	192		—		192		144		—		144
Foreign exchange contracts	160		—		160		258		—		258
Total derivative assets	352		—		352		402		—		402
Insurance contracts(b)	878		—		878		790		—		790
Total other noncurrent assets	1,231		—		1,231		1,191		—		1,191
Total assets	$	11,154	$	1,368	$	9,787	$	13,943	$	2,772	$	11,170

Financial liabilities:
Other current liabilities
Derivative liabilities:
Interest rate contracts	$	28	$	—	$	28	$	16	$	—	$	16
Foreign exchange contracts	488		—		488		404		—		404
Total other current liabilities	516		—		516		420		—		420
Other noncurrent liabilities
Derivative liabilities:
Interest rate contracts	216		—		216		275		—		275
Foreign exchange contracts	777		—		777		725		—		725
Total other noncurrent liabilities	993		—		993		1,000		—		1,000
Total liabilities	$	1,508	$	—	$	1,508	$	1,420	$	—	$	1,420

(a)Long-term equity securities of $127 million as of September 29, 2024 and $130 million as of December 31, 2023 were held in restricted trusts for U.S. non-qualified employee benefit plans.

(b)Includes life insurance policies held in restricted trusts for U.S. non-qualified employee benefit plans. The underlying invested assets in these contracts are marketable securities, which are carried at fair value, with changes in fair value recognized in Other (income)/deductions—net (see Note 4).

Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis––The carrying value of Long-term debt, excluding the current portion, was $58 billion as of September 29, 2024 and $62 billion as of December 31, 2023. The estimated fair value of such debt, using a market approach and Level 2 inputs, was $58 billion as of September 29, 2024 and $61 billion as of December 31, 2023.

The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities, long-term receivables and short-term borrowings not measured at fair value on a recurring basis were not significant

as of September 29, 2024 and December 31, 2023. The fair value measurements of our held-to-maturity debt securities and short-term borrowings are based on Level 2 inputs. The fair value measurements of our long-term receivables and private equity securities are based on Level 3 inputs.

B. Investments

Total Short-Term, Long-Term and Equity-Method Investments


The following summarizes our investments by classification type:
(MILLIONS)	September 29, 2024		December 31, 2023
Short-term investments
Equity securities with readily determinable fair values(a)	$	1,420	$	5,124
Available-for-sale debt securities	6,849		4,400
Held-to-maturity debt securities	591		313
Total Short-term investments	$	8,860	$	9,837

Long-term investments
Equity securities with readily determinable fair values(b)	$	1,368	$	2,779

Available-for-sale debt securities	6		150
Held-to-maturity debt securities	47		47
Private equity securities at cost(b)	759		755
Total Long-term investments	$	2,180	$	3,731
Equity-method investments	8,582		11,637
Total long-term investments and equity-method investments	$	10,762	$	15,368
Held-to-maturity cash equivalents	$	236	$	207

(a)Represent money market funds primarily invested in U.S. Treasury and government debt.

(b)Represent investments in the life sciences sector.

Debt Securities


Our investment portfolio consists of investment-grade debt securities issued across diverse governments, corporate and financial institutions:
	September 29, 2024														December 31, 2023
			Gross Unrealized						Contractual or Estimated Maturities (in Years)								Gross Unrealized
(MILLIONS)	Amortized Cost		Gains		Losses		Fair Value		Within 1		Over 1 to 5		Over 5		Amortized Cost		Gains		Losses		Fair Value
Available-for-sale debt securities
Government and agency––non-U.S.	$	3,443	$	51	$	(2)	$	3,493	$	3,493	$	—	$	—	$	953	$	2	$	(14)	$	941
Government and agency––U.S.	2,120		—		—		2,120		2,120		—		—		2,601		—		—		2,601
Corporate and other	1,239		4		(1)		1,242		1,236		6		—		1,006		4		(2)		1,007
Held-to-maturity debt securities
Time deposits and other	759		—		—		759		716		23		20		561		—		—		561
Government and agency––non-U.S.	115		—		—		115		111		4		1		4		—		—		4
Total debt securities	$	7,677	$	55	$	(3)	$	7,729	$	7,676	$	33	$	21	$	5,126	$	6	$	(16)	$	5,115

Any expected credit losses to these portfolios would be immaterial to our financial statements.

Equity Securities


The following presents the calculation of the portion of unrealized (gains)/losses that relates to equity securities, excluding equity-method investments, held at the reporting date:
	Three Months Ended				Nine Months Ended
(MILLIONS)	September 29, 2024		October 1, 2023		September 29, 2024		October 1, 2023
Net (gains)/losses recognized during the period on equity securities(a)	$	(446)	$	393	$	(129)	$	709
Less: Net (gains)/losses recognized during the period on equity securities sold during the period	(914)		(1)		(1,129)		(48)
Net unrealized (gains)/losses during the reporting period on equity securities still held at the reporting date(b)	$	468	$	394	$	1,000	$	757

(a)Reported in Other (income)/deductions––net. See Note 4.

(b)Included in net unrealized (gains)/losses are observable price changes on equity securities without readily determinable fair values. As of September 29, 2024, there were cumulative impairments and downward adjustments of $323 million and upward adjustments of $198 million. Impairments, downward and upward adjustments were not material to our operations in the third quarters and first nine months of 2024 and 2023.

C. Short-Term Borrowings


Short-term borrowings include:
(MILLIONS)	September 29, 2024		December 31, 2023
Commercial paper, principal amount	$	5,841	$	7,965
Current portion of long-term debt, principal amount	3,750		2,250
Other short-term borrowings, principal amount(a)	160		252
Total short-term borrowings, principal amount	9,751		10,467
Net fair value adjustments related to hedging and purchase accounting	—		5
Net unamortized discounts, premiums and debt issuance costs	(52)		(121)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted	$	9,699	$	10,350

(a)Primarily includes cash collateral. See Note 7F.

D. Long-Term Debt


The following summarizes the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt:
(MILLIONS)	September 29, 2024		December 31, 2023
Total long-term debt, principal amount	$	57,371	$	60,982
Net fair value adjustments related to hedging and purchase accounting	1,083		1,039
Net unamortized discounts, premiums and debt issuance costs	(453)		(483)

Total long-term debt, carried at historical proceeds, as adjusted	$	58,002	$	61,538

E. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk––A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. Where foreign exchange risk is not offset by other exposures, we manage our foreign exchange risk principally through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to mitigate the impact on net income as a result of remeasurement into another currency, or against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

The derivative financial instruments primarily hedge or offset exposures in the euro, U.K. pound, Chinese renminbi, Japanese yen, Canadian dollar and Swedish krona, and include a portion of our forecasted foreign exchange-denominated intercompany inventory sales hedged up to two years. We may seek to protect against possible declines in the reported net investments of our foreign business entities.

Interest Rate Risk––Our interest-bearing investments and borrowings are subject to interest rate risk. Depending on market conditions, we may change the profile of our outstanding debt or investments by entering into derivative financial instruments like interest rate swaps, either to hedge or offset the exposure to changes in the fair value of hedged items with fixed interest rates, or to convert variable rate debt or investments to fixed rates. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.


The following summarizes the fair value of the derivative financial instruments and notional amounts:
	September 29, 2024						December 31, 2023
			Fair Value						Fair Value
(MILLIONS)	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)	$	23,870	$	305	$	1,115	$	18,750	$	403	$	916
Interest rate contracts	6,750		193		244		6,750		144		290
			498		1,359				546		1,206
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	19,245	135		150		$	25,609	154		214

Total			$	633	$	1,508			$	700	$	1,420

(a)The notional amount of outstanding foreign exchange contracts hedging our intercompany forecasted inventory sales was $5.2 billion as of September 29, 2024 and $4.9 billion as of December 31, 2023.


The following summarizes information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk exposures:
	Gains/(Losses) Recognized in OID(a)				Gains/(Losses) Recognized in OCI(a)				Gains/(Losses) Reclassified from OCI into OID and COS(a)
	Three Months Ended
(MILLIONS)	Sept. 29, 2024		Oct. 1, 2023		Sept. 29, 2024		Oct. 1, 2023		Sept. 29, 2024		Oct. 1, 2023
Derivative Financial Instruments in Cash Flow Hedge Relationships:

Foreign exchange contracts(b)	$	—	$	—	$	(306)	$	359	$	171	$	20
Amount excluded from effectiveness testing and amortized into earnings(c)	—		—		3		49		3		46
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	332		(213)		—		—		—		—
Hedged item	(332)		195		—		—		—		—


Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—		—		(695)		297		—		—
Amount excluded from effectiveness testing and amortized into earnings(c)	—		—		93		5		40		35
Non-Derivative Financial Instruments in Net Investment Hedge Relationships(d):

Foreign currency long-term debt	—		—		(37)		22		—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	64		57		—		—		—		—

	$	64	$	39	$	(941)	$	733	$	215	$	102


	Gains/(Losses) Recognized in OID(a)				Gains/(Losses) Recognized in OCI(a)				Gains/(Losses) Reclassified from OCI into OID and COS(a)
	Nine Months Ended
(MILLIONS)	Sept. 29, 2024		Oct. 1, 2023		Sept. 29, 2024		Oct. 1, 2023		Sept. 29, 2024		Oct. 1, 2023
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Interest rate contracts	$	—	$	—	$	—	$	68	$	—	$	—
Foreign exchange contracts(b)	—		—		21		312		313		(210)
Amount excluded from effectiveness testing and amortized into earnings(c)	—		—		20		139		20		136
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	107		(210)		—		—		—		—
Hedged item	(107)		192		—		—		—		—


Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—		—		(380)		14		—		—
Amount excluded from effectiveness testing and amortized into earnings(c)	—		—		145		81		116		102
Non-Derivative Financial Instruments in Net Investment Hedge Relationships(d):

Foreign currency long-term debt	—		—		(11)		5		—		—
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	106		173		—		—		—		—

	$	106	$	155	$	(204)	$	620	$	450	$	29

(a)OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of operations. COS = Cost of Sales, included in Cost of sales in the condensed consolidated statements of operations. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income/(loss).

(b)The amounts reclassified from OCI into COS were:

•a net gain of $37 million in the third quarter of 2024;

•a net gain of $106 million in the first nine months of 2024;

•a net gain of $49 million in the third quarter of 2023; and

•a net gain of $195 million in the first nine months of 2023.

The remaining amounts were reclassified from OCI into OID. Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax loss of $91 million within the next 12 months into income. The maximum length of time over which we are hedging our exposure to the variability in future foreign exchange cash flows is approximately 19 years and relates to foreign currency debt.

(c)The amounts reclassified from OCI were reclassified into OID.

(d)Long-term debt includes foreign currency borrowings, which are used in net investment hedges; the related carrying values as of September 29, 2024 and December 31, 2023 were $836 million and $824 million, respectively.


The following summarizes cumulative basis adjustments to our long-term debt in fair value hedges:
	September 29, 2024						December 31, 2023
			Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount						Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount
(MILLIONS)	Carrying Amount of Hedged Assets/Liabilities(a)		Active Hedging Relationships		Discontinued Hedging Relationships		Carrying Amount of Hedged Assets/Liabilities(a)		Active Hedging Relationships		Discontinued Hedging Relationships



Long-term debt	$	7,165	$	(24)	$	908	$	7,196	$	(131)	$	957

(a)Carrying amounts exclude the cumulative amount of fair value hedging adjustments.

F. Credit Risk

A significant portion of our trade accounts receivable balances are due from wholesalers and governments. For additional information on our trade accounts receivables with significant customers, see Note 13C below and Note 17C in our 2023 Form 10-K.

As of September 29, 2024, the largest investment exposures in our portfolio consisted primarily of U.S. government money market funds, as well as sovereign debt instruments issued by the U.S.

With respect to our derivative financial instrument agreements with financial institutions, we do not expect to incur a significant loss from failure of any counterparty. Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements with credit-support annexes that contain zero threshold provisions requiring collateral to be exchanged daily depending on levels of exposure. As a result, there are no significant concentrations of credit risk with any individual financial institution. As of September 29, 2024, the aggregate fair value of these derivative financial instruments that are in a net payable position was $910 million, for which we have posted collateral of $917 million with a corresponding amount reported in Short-term investments. As of September 29, 2024, the aggregate fair value of our derivative financial instruments that are in a net receivable position was $104 million, for which we have received collateral of $129 million with a corresponding amount reported in Short-term borrowings, including current portion of long-term debt.