Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

The following table is a summary of the activity related to derivatives designated as hedges for the fiscal third quarters in 2012 and 2011:




	Gain/ (Loss) recognized in Accumulated OCI⁽¹⁾					Gain/(Loss) reclassified from Accumulated OCI into income⁽¹⁾				Gain/ (Loss) recognized in Other income/expense⁽²⁾
	Fiscal Third Quarters Ended
(Dollars in Millions)	September 30, 2012			October 2, 2011		September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Cash Flow Hedges by Income Statement Caption
Sales to customers⁽³⁾	$	30		(57	)	(12	)	4		(1	)	1
Cost of products sold⁽³⁾	(61		)	(58	)	(19	)	(21	)	(1	)	(1	)
Research and development expense⁽³⁾	22			6		43		(40	)	—		1
Interest (income)/Interest expense, net⁽⁴⁾	28			(67	)	(2	)	(6	)	—		—
Other (income)expense, net⁽³⁾	(24		)	59		19		(4	)	1		(1	)
Total	$	(5	)	(117	)	29		(67	)	(1	)	—

The following table is a summary of the activity related to derivatives designated as hedges for the fiscal nine months in 2012 and 2011:




	Gain/ (Loss) recognized in Accumulated OCI⁽¹⁾					Gain/ (Loss) reclassified from Accumulated OCI into income⁽¹⁾				Gain/ (Loss) recognized in Other income/expense⁽²⁾
	Fiscal Nine Months Ended
(Dollars in Millions)	September 30, 2012			October 2, 2011		September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Cash Flow Hedges by Income Statement Caption
Sales to customers⁽³⁾	$	16		(30	)	(42	)	(6	)	(1	)	(1	)
Cost of products sold⁽³⁾	(100		)	34		(53	)	(127	)	(1	)	2
Research and development expense⁽³⁾	33			(2	)	56		(21	)	—		(1	)
Interest (income)/Interest expense, net⁽⁴⁾	(14		)	(107	)	(11	)	(24	)	—		—
Other (income)expense, net⁽³⁾	(25		)	—		27		(7	)	—		1
Total	$	(90	)	(105	)	(23	)	(185	)	(2	)	1

All amounts shown in the tables above are net of tax.

(1) Effective portion

(2) Ineffective portion

(3) Foreign exchange contracts

(4) Cross currency interest rate swaps

Financial assets and liabilities at fair value

The Company’s significant financial assets and liabilities measured at fair value as of September 30, 2012 and January 1, 2012 were as follows:



	September 30, 2012					January 1, 2012
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total⁽²⁾
Derivatives designated as hedging instruments:
Assets:
Foreign exchange contracts	$	—	213	—	213	442
Cross currency interest rate swaps⁽³⁾	—		9	—	9	15
Total	—		222	—	222	457
Liabilities:
Foreign exchange contracts	—		315	—	315	452
Cross currency interest rate swaps⁽⁴⁾	—		583	—	583	594
Total	—		898	—	898	1,046
Derivatives not designated as hedging instruments:
Assets:
Foreign exchange contracts	—		18	—	18	29
Swiss Franc Option⁽⁵⁾	—		—	—	—	17
Total	—		18	—	18	46
Liabilities:
Foreign exchange contracts	—		27	—	27	34
Other Investments⁽¹⁾	$	1,258	—	—	1,258	1,563


(1)	Classified as non-current other assets.


(2)	As of January 1, 2012, these assets and liabilities are classified as Level 2 with the exception of Other Investments of $1,563 million which are classified as Level 1.


(3)	Includes $6 million and $15 million of non-current assets for September 30, 2012 and January 1, 2012, respectively.


(4)	Includes $576 million and $594 million of non-current liabilities for September 30, 2012 and January 1, 2012, respectively.

(5) Currency option related to the acquisition of Synthes, Inc., which expired in January 2012.

Financial assets and liabilities not measured at fair value

Financial Instruments not measured at Fair Value:

The following financial assets and liabilities are held at carrying amount on the consolidated balance sheet as of September 30, 2012:



(Dollars in Millions)	Carrying Amount		Estimated Fair Value
Financial Assets
Current Investments
Cash	$	3,204	3,204
Government securities and obligations	13,906		13,906
Corporate debt securities	617		617
Money market funds	1,554		1,554
Time deposits	490		490
Total cash, cash equivalents and current marketable securities	$	19,771	19,771

Fair value of government securities and obligations and corporate debt securities was estimated using quoted broker prices and significant other observable inputs.
Financial Liabilities

Current Debt	$	5,423	5,423
Non-Current Debt
3 month LIBOR+0.09% FRN due 2014	750		750
1.20% Notes due 2014	999		1,015
2.15% Notes due 2016	898		950
5.55% Debentures due 2017	1,000		1,217
5.15% Debentures due 2018	898		1,099
4.75% Notes due 2019 (1B Euro 1.2874)	1,281		1,562
3% Zero Coupon Convertible Subordinated Debentures due in 2020	205		193
2.95% Debentures due 2020	542		591
3.55% Notes due 2021	446		508
6.73% Debentures due 2023	250		363
5.50% Notes due 2024 (500 GBP 1.6227)	806		1,056
6.95% Notes due 2029	296		429
4.95% Debentures due 2033	500		638
5.95% Notes due 2037	995		1,409
5.85% Debentures due 2038	700		987
4.50% Debentures due 2040	539		669
4.85% Notes due 2041	298		388
Other	25		22
Total Non-Current Debt	$	11,428	13,846

- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References

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+ Details

- Definition

Tabular disclosure of the location and amount of gains and losses reported in the statement of financial performance, or when applicable, the statement of financial position. For example, (a) gains and losses recognized in the income statement on derivative instruments designated and qualifying as hedging instruments in fair value hedges and related hedged items designated and qualifying in fair value hedges and (b) gains and losses initially recognized in other comprehensive income on derivative instruments designated and qualifying as cash flow hedges.

+ References+ Details

- Definition

Tabular disclosure of the location and fair value amounts of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments) reported in the statement of financial position.

+ References+ Details