FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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

	September 30, 2018					December 31, 2017
Dollars in Millions	Level 1		Level 2			Level 1		Level 2
Cash and cash equivalents - money market and other investments	$	—	$	4,861		$	—	$	4,728
Marketable securities
Certificates of deposit	—		15			—		141
Commercial paper	—		608			—		50
Corporate debt securities	—		2,675			—		3,548
Equity investments	—		141			—		132
Derivative assets	—		47			—		13
Equity investments	104		494			67		—
Derivative liabilities	—		(24		)	—		(52		)

As further described in "—Note 9. Financial Instruments and Fair Value Measurements" in our 2017 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). There were no Level 3 financial assets or liabilities as of September 30, 2018 and December 31, 2017.

Available-for-sale Securities

The following table summarizes available-for-sale securities:

	September 30, 2018									December 31, 2017
Dollars in Millions	Amortized Cost		Gross Unrealized							Amortized Cost		Gross Unrealized
			Gains		Losses			Fair Value				Gains		Losses			Fair Value
Certificates of deposit	$	15	$	—	$	—		$	15	$	141	$	—	$	—		$	141
Commercial paper	608		—		—			608		50		—		—			50
Corporate debt securities	2,720		—		(45		)	2,675		3,555		3		(10		)	3,548
Equity investments(a)	—		—		—			—		31		37		(1		)	67
	$	3,343	$	—	$	(45	)	$	3,298	$	3,777	$	40	$	(11	)	$	3,806
Equity investments(b)								739									132
Total								$	4,037								$	3,938

Dollars in Millions	September 30, 2018		December 31, 2017
Current marketable securities	$	1,422	$	1,391
Non-current marketable securities(c)	2,017		2,480
Other assets(a)	598		67
Total	$	4,037	$	3,938

(a) Includes equity investments with readily determinable fair values not measured using the fair value option as of December 31, 2017.

(b) Includes equity and fixed income funds measured using the fair value option at December 31, 2017. Refer to "—Note.1Basis of Presentation and Recently Issued Accounting Standards" for more information.

(c) All non-current marketable securities mature within five years as of September 30, 2018 and December 31, 2017.

Equity investments not measured at fair value and excluded from the above table were limited partnerships and other equity method investments of $109 million at September 30, 2018 and $66 million at December 31, 2017 and other equity investments without readily determinable fair values of $193 million at September 30, 2018 and $152 million at December 31, 2017. These amounts are included in Other assets. Adjustments to equity investments without readily determinable fair values for the nine months ended September 30, 2018 were $18 million resulting from observable price changes for similar securities of the same issuer and were recorded in Other income (net).

The following table summarizes net loss recorded for equity investments with readily determinable fair values held as of September 30, 2018:

Dollars in Millions	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Net gain/(loss) recognized	$	97	$	(262	)
Less: Net gain/(loss) recognized for equity investments sold	—		—
Net unrealized gain/(loss) on equity investments held	$	97	$	(262	)

Qualifying Hedges and Non-Qualifying Derivatives

The following table summarizes the fair value of outstanding derivatives:

	September 30, 2018									December 31, 2017
	Asset(a)				Liability(b)					Asset(a)				Liability(b)
Dollars in Millions	Notional		Fair Value		Notional		Fair Value			Notional		Fair Value		Notional		Fair Value
Derivatives designated as hedging instruments:
Interest rate swap contracts	$	—	$	—	$	755	$	(19	)	$	—	$	—	$	755	$	(6	)
Cross-currency interest rate swap contracts	175		2		125		(1		)	—		—		—		—
Foreign currency forward contracts	1,446		43		22		—			944		12		489		(9		)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	414		2		157		(4		)	206		1		1,369		(37		)

(a) Included in prepaid expenses and other and other assets.

(b) Included in accrued liabilities and pension and other liabilities.

The following table summarizes the financial statement classification and amount of gain/(loss) recognized on hedging instruments:

	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
Dollars in Millions	Cost of products sold		Other income (net)			Cost of products sold			Other income (net)
Interest rate swap contracts	$	—	$	5		$	—		$	18
Cross-currency interest rate swap contracts	—		2			—			6
Foreign currency forward contracts	13		10			(20		)	17
	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
Dollars in Millions	Cost of products sold		Other income (net)			Cost of products sold			Other income (net)
Interest rate swap contracts	$	—	$	7		$	—		$	23
Foreign currency forward contracts	3		(19		)	38			(42		)

The following table summarizes the effect of derivative and non-derivative instruments designated as hedging instruments in Other Comprehensive Income/(Loss):

Dollars in Millions	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Derivatives qualifying as cash flow hedges
Foreign currency forward contracts gain/(loss):
Recognized in Other Comprehensive Income/(Loss)(a)	$	18		$	63
Reclassified to Cost of products sold	(13		)	20
Derivatives qualifying as net investment hedges
Cross-currency interest rate swap contracts gain/(loss):
Recognized in Other Comprehensive Income/(Loss)	5			1
Non-derivatives qualifying as net investment hedges
Non U.S. dollar borrowings gain/(loss):
Recognized in Other Comprehensive Income/(Loss)	(6		)	10

(a) The amount is expected to be reclassified into earnings in the next 12 months.

Cash Flow Hedges — Foreign currency forward contracts are used to hedge certain forecasted intercompany inventory purchase transactions and certain foreign currency transactions. The fair value for contracts designated as cash flow hedges is temporarily reported in Accumulated other comprehensive loss and included in earnings when the hedged item affects earnings. Upon adoption of the amended guidance for derivatives and hedging, the entire change in fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in the derivatives qualifying as cash flow hedges component of Other Comprehensive Income/(Loss). The net gain or loss on foreign currency forward contracts is expected to be reclassified to net earnings (primarily included in cost of products sold) within the next twelve months. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ($861 million) and Japanese yen ($393 million) at September 30, 2018.

The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not significant during all periods presented. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring within 60 days after the originally forecasted date 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. Foreign currency forward contracts not designated as hedging instruments are used to offset exposures in certain foreign currency denominated assets, liabilities and earnings. Changes in the fair value of these derivatives are recognized in earnings as they occur.

Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ($1.1 billion) are designated to hedge euro 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 gain or loss on the remeasurement of euro debt was $10 million in 2018 and $132 million in 2017 and was recorded in the foreign currency translation component of Other Comprehensive Income/(Loss) with a related offset in long-term debt.

In January 2018, BMS entered into $300 million of cross-currency interest rate swap contracts maturing in December 2022 designated to hedge Japanese yen currency exposures of the Company's net investment in its Japan subsidiary. Contract fair value changes are recorded in the foreign currency translation component of Other Comprehensive Income/(Loss) with a related offset in Pension and other liabilities.

Fair Value Hedges — Fixed to floating interest rate swap contracts are designated as fair value hedges and used as an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The contracts and underlying debt for the hedged benchmark risk are recorded at fair value. Gains or losses resulting from changes in fair value of the underlying debt attributable to the hedged benchmark interest rate risk are recorded in interest expense with an associated offset to the carrying value of debt. Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged, all changes in fair value of the swap are recorded in interest expense with an associated offset to the derivative asset or liability on the consolidated balance sheet. As a result, there was no net impact in earnings. When the underlying swap is terminated prior to maturity, the fair value adjustment to the underlying debt is amortized as a reduction to interest expense over the remaining term of the debt.

Debt Obligations

Short-term debt obligations include:

Dollars in Millions	September 30, 2018		December 31, 2017
Commercial paper	$	—	$	299
Non-U.S. short-term borrowings	312		512
Current portion of long-term debt	1,247		—
Other	61		176
Total	$	1,620	$	987

The average amount of commercial paper outstanding was $25.1 million at a weighted-average rate of 1.3% during 2018. The maximum amount of commercial paper outstanding was $300 million with no outstanding balance at September 30, 2018.

Long-term debt and the current portion of long-term debt include:

Dollars in Millions	September 30, 2018			December 31, 2017
Principal Value	$	6,819		$	6,835
Adjustments to Principal Value
Fair value of interest rate swap contracts	(19		)	(6		)
Unamortized basis adjustment from swap terminations	207			227
Unamortized bond discounts and issuance costs	(73		)	(81		)
Total	$	6,934		$	6,975
Current portion of long-term debt	$	1,247		$	—
Long-term debt	5,687			6,975

In February 2017, BMS issued $1.5 billion in senior unsecured notes in a registered public offering. Proceeds, net of discount and deferred loan issuance costs, were $1.49 billion. The fair value of long-term debt was $7.1 billion at September 30, 2018 and $7.5 billion at December 31, 2017 valued using Level 2 inputs. Interest payments were $174 million and $172 million for the nine months ended September 30, 2018 and 2017, respectively, net of amounts related to interest rate swap contracts.

During the third quarter of 2017, the $750 million0.875% Notes matured and were repaid.

During the second quarter of 2017, the Company repurchased certain long-term debt obligations with interest rates ranging from 5.875% to 6.875%. The following summarizes the debt repurchase activity:

Dollars in Millions	2017
Principal amount	$	337
Carrying value	366
Debt redemption price	474
Loss on debt redemption(a)	109

(a) Including acceleration of debt issuance costs, gain on previously terminated interest rate swap contracts and other related fees.