FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2015

Investments, Debt and Equity Securities [Abstract]

Financial Instruments [Text Block]

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	March 31, 2015											December 31, 2014
Dollars in Millions	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Cash and cash equivalents - Money market and other securities	$	—	$	5,794		$	—		$	5,794		$	—	$	5,051		$	—		$	5,051
Marketable securities:
Certificates of deposit	—		391			—			391			—		896			—			896
Corporate debt securities	—		5,081			—			5,081			—		5,259			—			5,259
Equity funds	—		97			—			97			—		94			—			94
Fixed income funds	—		11			—			11			—		11			—			11
Auction Rate Securities (ARS)	—		—			12			12			—		—			12			12
Derivative assets:
Interest rate swap contracts	—		38			—			38			—		46			—			46
Forward starting interest rate swap contracts	—		6			—			6			—		—			—			—
Foreign currency forward contracts	—		142			—			142			—		118			—			118
Equity investments	32		—			—			32			36		—			—			36
Derivative liabilities:
Interest rate swap contracts	—		—			—			—			—		(3		)	—			(3		)
Forward starting interest rate swap contracts	—		(35		)	—			(35		)	—		—			—			—
Foreign currency forward contracts	—		(4		)	—			(4		)	—		—			—			—
Written option liabilities	—		—			(93		)	(93		)	—		—			(198		)	(198		)
Contingent consideration liability	—		—			(8		)	(8		)	—		—			(8		)	(8		)

As further described in "Note 10. Financial Instruments and Fair Value Measurements" in our 2014 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs).

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

	2015								2014
Dollars in Millions	ARS		Written option liabilities			Contingent consideration liability			ARS		Written option liabilities			Contingent consideration liability
Fair value at January 1	$	12	$	(198	)	$	(8	)	$	12	$	(162	)	$	(8	)
Sales	—		69			—			—		—			—
Changes in fair value	—		36			—			—		(16		)	—
Fair value at March 31	$	12	$	(93	)	$	(8	)	$	12	$	(178	)	$	(8	)

Available-for-sale Securities

The following table summarizes available-for-sale securities:

Dollars in Millions	Amortized Cost		Gross Unrealized Gain in Accumulated OCI		Gross Unrealized Loss in Accumulated OCI			Fair Value
March 31, 2015
Certificates of deposit	$	391	$	—	$	—		$	391
Corporate debt securities	5,032		51		(2		)	5,081
ARS	9		3		—			12
Equity investments	14		18		—			32
Total	$	5,446	$	72	$	(2	)	$	5,516
December 31, 2014
Certificates of deposit	$	896	$	—	$	—		$	896
Corporate debt securities	5,237		30		(8		)	5,259
ARS	9		3		—			12
Equity investments	14		22		—			36
Total	$	6,156	$	55	$	(8	)	$	6,203

Available-for-sale securities included in current marketable securities were $1,205 million as of March 31, 2015 and $1,759 million as of December 31, 2014. As of March 31, 2015, all non-current available-for-sale securities mature within five years, except for ARS. Equity investments of $32 million are included in other assets as of March 31, 2015.

Fair Value Option for Financial Assets

Investments in equity and fixed income funds offsetting changes in fair value of certain employee retirement benefits were included in current marketable securities. Investment income resulting from the change in fair value for the investments in equity and fixed income funds was not significant.

Qualifying Hedges

The following table summarizes the fair value of outstanding derivatives:

		March 31, 2015					December 31, 2014
Dollars in Millions	Balance Sheet Location	Notional		Fair Value			Notional		Fair Value
Derivatives designated as hedging instruments:
Interest rate swap contracts	Other assets	$	1,250	$	38		$	847	$	46
Interest rate swap contracts	Other liabilities	500		—			1,050		(3		)
Forward starting interest rate swap contracts	Other assets	500		6			—		—
Forward starting interest rate swap contracts	Other liabilities	250		(11		)	—		—
Foreign currency forward contracts	Prepaid expenses and other	904		120			1,323		106
Foreign currency forward contracts	Other assets	100		22			100		12
Foreign currency forward contracts	Accrued expenses	500		(4		)	—		—

		March 31, 2015					December 31, 2014
Amounts in Millions	Balance Sheet Location	Notional		Fair Value			Notional		Fair Value
Derivatives designated as hedging instruments:
Forward starting interest rate swap contracts	Accrued expenses	€	500	$	(24	)	€	—	$	—

Cash Flow Hedges — Foreign currency forward contracts are primarily utilized to hedge forecasted intercompany inventory purchase transactions in certain foreign currencies. These contracts are designated as cash flow hedges with the effective portion of changes in fair value being temporarily reported in accumulated other comprehensive loss and recognized in earnings when the hedged item affects earnings. The net gains on foreign currency forward contracts are expected to be reclassified to cost of products sold within the next two years. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ($523 million) and the Japanese yen ($724 million) at March 31, 2015. The fair value of a foreign currency forward contract attributed to the Japanese yen (notional amount of $375 million) not designated as a cash flow hedge was $(4) million and was included in accrued expenses at March 31, 2015.

BMS entered into several forward starting interest rate contracts to hedge the variability of probable forecasted interest expense. The contracts are designated as cash flow hedges with the effective portion of fair value changes included in other comprehensive income. €500 million notional amount of euro contracts mature in May 2015 and $750 million of U.S. contracts mature in March 2017.

The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not significant during the three months ended March 31, 2015 and 2014. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. Assessments to determine whether derivatives designated as qualifying hedges are highly effective in offsetting changes in the cash flows of hedged items are performed at inception and on a quarterly basis. Any ineffective portion of the change in fair value is included in current period earnings.

Net Investment Hedges — Non-U.S. dollar borrowings of €541 million ($594 million) are designated to hedge the foreign currency exposures of the net investment in certain foreign affiliates. These borrowings are designated as net investment hedges and recognized in long-term debt. The effective portion of foreign exchange gains or losses on the remeasurement of the debt is recognized in the foreign currency translation component of accumulated other comprehensive loss with the related offset in long-term debt.

Fair Value Hedges — Fixed-to-floating interest rate swap contracts are designated as fair value hedges and are used as part of an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The swaps and underlying debt for the benchmark risk being hedged are recorded at fair value. When the underlying swap is terminated prior to maturity, the fair value basis adjustment to the underlying debt instrument is amortized into earnings as an adjustment to interest expense over the remaining term of the debt.

The notional amount of fixed-to-floating interest rate swap contracts terminated in 2015 was $147 million, generating proceeds of $28 million (including accrued interest of $1 million).

Long-term debt includes:

Dollars in Millions	March 31, 2015			December 31, 2014
Principal Value	$	6,677		$	6,804
Adjustments to Principal Value:
Fair value of interest rate swap contracts	38			43
Unamortized basis adjustment from interest rate swap contract terminations	470			454
Unamortized bond discounts	(58		)	(59		)
Total	$	7,127		$	7,242

The fair value of debt was $8,065 million at March 31, 2015 and $8,045 million at December 31, 2014 and was valued using Level 2 inputs. Interest payments were $34 million and $37 million for the three months ended March 31, 2015 and 2014, respectively, net of amounts related to interest rate swap contracts.

There were no debt redemptions in 2015, see below for the debt redemption in 2014:

	Three Months Ended
Dollars in Millions	March 31, 2014
Principal amount	$	582
Carrying value	633
Debt redemption price	676
Notional amount of interest rate swap contracts terminated	500
Interest rate swap contract termination payments	(4		)
Total loss	45