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Financial Instruments

3 Months Ended

Mar. 31, 2022

Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments. Wholesale distributors of life science products account for a substantial portion of our trade receivables; collateral is generally not required. We seek to mitigate the risk associated with this concentration through our ongoing credit-review procedures and insurance. A large portion of our cash is held by a few major financial institutions. We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations. In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate issuer. We are exposed to credit-related losses in the event of nonperformance by counterparties to risk-management instruments but do not expect any counterparties to fail to meet their obligations given their high credit ratings.

We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. The cost of these investments approximates fair value.

Our equity investments are accounted for using three different methods depending on the type of equity investment:

•Investments in companies over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other-net, (income) expense.

•For equity investments that do not have readily determinable fair values, we measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any change in recorded value is recorded in other-net, (income) expense.

•Our public equity investments are measured and carried at fair value. Any change in fair value is recognized in other-net, (income) expense.

We review equity investments other than public equity investments for indications of impairment and observable price changes on a regular basis.

Our derivative activities are initiated within the guidelines of documented corporate risk-management policies and are intended to offset losses and gains on the assets, liabilities, and transactions being hedged. Management reviews the correlation and effectiveness of our derivatives on a quarterly basis.

For derivative instruments that are designated and qualify as fair value hedges, the derivative instrument is marked to market, with gains and losses recognized currently in income to offset the respective losses and gains recognized on the underlying exposure. For derivative instruments that are designated and qualify as cash flow hedges, gains and losses are reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period the hedged transaction affects earnings. For derivative and non-derivative instruments that are designated and qualify as net investment hedges, the foreign currency translation gains or losses due to spot rate fluctuations are reported as a component of accumulated other comprehensive loss. Derivative contracts that are not designated as hedging instruments are recorded at fair value with the gain or loss recognized in earnings during the period of change.

We may enter into foreign currency forward or option contracts to reduce the effect of fluctuating currency exchange rates (principally the euro, British pound, and Japanese yen). Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures. Forward and option contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. These contracts are recorded at fair value with the gain or loss recognized in other–net, (income) expense. We may enter into foreign currency forward and option contracts and currency swaps as fair value hedges of firm commitments. Forward contracts generally have maturities not exceeding 12 months. At March 31, 2022, we had outstanding foreign currency forward commitments to purchase 3.47 billion U.S. dollars and sell 3.13 billion euro; commitments to purchase 5.05 billion euro and sell 5.61 billion U.S. dollars; commitments to purchase 195.6 million U.S. dollars and sell 1.25 billion Chinese yuan; commitments to purchase 89.4 million U.S. dollars and sell 10.85 billion Japanese yen; and commitments to purchase 191.6 million British pounds and sell 252.4 million U.S. dollars, which all have settlement dates within 180 days.

Foreign currency exchange risk is also managed through the use of foreign currency debt and cross-currency interest rate swaps. Our foreign currency-denominated notes had carrying amounts of $7.12 billion and $7.90 billion as of March 31, 2022 and December 31, 2021, respectively, of which $4.90 billion and $5.79 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, we had outstanding cross-currency swaps with notional amounts of $1.02 billion swapping U.S. dollars to euro and $1.00 billion swapping Swiss francs to U.S. dollars which have settlement dates ranging through 2028. Our cross-currency interest rate swaps, for which a majority convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign-denominated fixed-rate debt, have also been designated as, and are effective as, economic hedges of net investments.

In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating. We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments. The objective of controlling these risks is to limit the impact of fluctuations in interest rates on earnings. Our primary interest-rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest-rate exposures, we strive to achieve an acceptable balance between fixed- and floating-rate debt and investment positions and may enter into interest rate swaps or collars to help maintain that balance.

Interest rate swaps or collars that convert our fixed-rate debt to a floating rate are designated as fair value hedges of the underlying instruments. Interest rate swaps or collars that convert floating-rate debt to a fixed rate are designated as cash flow hedges. Interest expense on the debt is adjusted to include the payments made or received under the swap agreements. Cash proceeds from or payments to counterparties resulting from the termination of interest rate swaps are classified as operating activities in our consolidated condensed statements of cash flows. At March 31, 2022, substantially all of our total long-term debt is at a fixed rate. We have converted approximately 14 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.

We also may enter into forward-starting interest rate swaps, which we designate as cash flow hedges, as part of any anticipated future debt issuances in order to reduce the risk of cash flow volatility from future changes in interest rates. The change in fair value of these instruments is recorded as part of other comprehensive income, and upon completion of a debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt. As of March 31, 2022, the total notional amounts of forward-starting interest rate contracts in designated cash flow hedging instruments were $1.75 billion, which have settlement dates ranging between 2023 and 2025.

The Effect of Risk-Management Instruments on the Consolidated Condensed Statements of Operations

The following effects of risk-management instruments were recognized in other–net, (income) expense:


	Three Months Ended March 31,
	2022		2021
Fair value hedges:
Effect from hedged fixed-rate debt	$	(94.6)	$	(81.5)
Effect from interest rate contracts	94.6		81.5
Cash flow hedges:
Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss	4.1		4.1
Cross-currency interest rate swaps	8.3		71.5
Net (gains) losses on foreign currency exchange contracts not designated as hedging instruments	(6.1)		133.0
Total	$	6.3	$	208.6

During the three months ended March 31, 2022 and 2021, the amortization of losses related to the portion of our risk management hedging instruments, fair value hedges, and cash flow hedges that was excluded from the assessment of effectiveness was not material.

The Effect of Risk-Management Instruments on Other Comprehensive Income (Loss)

The effective portion of risk-management instruments that was recognized in other comprehensive income (loss) is as follows:


	Three Months Ended March 31,
	2022		2021
Net investment hedges:
Foreign currency-denominated notes	$	54.4	$	207.7
Cross-currency interest rate swaps	10.8		150.6

Cash flow hedges:
Forward-starting interest rate swaps	122.5		295.1
Cross-currency interest rate swaps	17.1		26.3

During the next 12 months, we expect to reclassify $16.5 million of pretax net losses on cash flow hedges from accumulated other comprehensive loss to other–net, (income) expense. During the three months ended March 31, 2022 and 2021, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.

Fair Value of Financial Instruments

The following tables summarize certain fair value information at March 31, 2022 and December 31, 2021 for assets and liabilities measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:


					Fair Value Measurements Using
	Carrying Amount		Cost(1)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
March 31, 2022
Cash equivalents	$	1,104.1	$	1,104.1	$	1,095.0	$	9.1	$	—	$	1,104.1

Short-term investments:
U.S. government and agency securities	$	45.1	$	45.4	$	45.1	$	—	$	—	$	45.1
Corporate debt securities	50.6		50.7		—		50.6		—		50.6
Mortgage-backed securities	0.2		0.2		—		0.2		—		0.2
Asset-backed securities	2.9		3.0		—		2.9		—		2.9
Other securities	10.3		10.3		—		—		10.3		10.3

Short-term investments	$	109.1

Noncurrent investments:
U.S. government and agency securities	$	116.2	$	123.0	$	116.2	$	—	$	—	$	116.2

Corporate debt securities	212.3		224.3		—		224.3		—		224.3
Mortgage-backed securities	105.1		109.0		—		105.1		—		105.1
Asset-backed securities	34.6		35.4		—		34.6		—		34.6
Other securities	112.5		15.3		—		—		112.5		112.5
Marketable equity securities	807.9		481.9		807.9		—		—		807.9
Equity investments without readily determinable fair values(2)	569.5
Equity method investments(2)	769.2
Noncurrent investments	$	2,727.3

December 31, 2021
Cash equivalents	$	2,379.5	$	2,379.5	$	2,361.0	$	18.5	$	—	$	2,379.5

Short-term investments:
U.S. government and agency securities	$	25.7	$	25.6	$	25.7	$	—	$	—	$	25.7
Corporate debt securities	43.7		43.7		—		43.7		—		43.7
Mortgage-backed securities	0.2		0.2		—		0.2		—		0.2
Asset-backed securities	6.2		6.2		—		6.2		—		6.2
Other securities	14.3		14.3		—		—		14.3		14.3

Short-term investments	$	90.1

Noncurrent investments:
U.S. government and agency securities	$	137.0	$	136.8	$	137.0	$	—	$	—	$	137.0
Corporate debt securities	235.3		232.7		—		235.3		—		235.3
Mortgage-backed securities	109.8		108.1		—		109.8		—		109.8
Asset-backed securities	23.1		23.1		—		23.1		—		23.1
Other securities	108.1		22.2		—		—		108.1		108.1
Marketable equity securities	1,279.7		487.0		1,279.7		—		—		1,279.7
Equity investments without readily determinable fair values(2)	548.1
Equity method investments(2)	771.5
Noncurrent investments	$	3,212.6

(1) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost.

(2) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments.


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Short-term commercial paper borrowings
March 31, 2022	$	(499.7)	$	—	$	(499.7)	$	—	$	(499.7)
December 31, 2021	—		—		—		—		—
Long-term debt, including current portion
March 31, 2022	$	(16,009.1)	$	—	$	(15,798.9)	$	—	$	(15,798.9)
December 31, 2021	(16,884.7)		—		(18,157.7)		—		(18,157.7)


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
March 31, 2022
Risk-management instruments:
Interest rate contracts designated as fair value hedges:
Other receivables	$	1.3	$	—	$	1.3	$	—	$	1.3
Other noncurrent assets	22.8		—		22.8		—		22.8

Other noncurrent liabilities	(43.2)		—		(43.2)		—		(43.2)


Interest rate contracts designated as cash flow hedges:
Other noncurrent assets	140.0		—		140.0		—		140.0

Cross-currency interest rate contracts designated as net investment hedges:
Other receivables	2.0		—		2.0		—		2.0
Other noncurrent assets	40.0		—		40.0		—		40.0


Cross-currency interest rate contracts designated as cash flow hedges:
Other noncurrent assets	40.8		—		40.8		—		40.8

Foreign exchange contracts not designated as hedging instruments:
Other receivables	38.8		—		38.8		—		38.8
Other current liabilities	(45.8)		—		(45.8)		—		(45.8)


Contingent consideration liability:

Other noncurrent liabilities	(70.0)		—		—		(70.0)		(70.0)

December 31, 2021
Risk-management instruments:
Interest rate contracts designated as fair value hedges:
Other receivables	$	4.8	$	—	$	4.8	$	—	$	4.8
Other noncurrent assets	78.3		—		78.3		—		78.3

Other noncurrent liabilities	(7.6)		—		(7.6)		—		(7.6)
Interest rate contracts designated as cash flow hedges:
Other noncurrent assets	49.2		—		49.2		—		49.2
Other noncurrent liabilities	(31.7)		—		(31.7)		—		(31.7)
Cross-currency interest rate contracts designated as net investment hedges:

Other noncurrent assets	31.3		—		31.3		—		31.3
Other current liabilities	(1.2)		—		(1.2)		—		(1.2)

Cross-currency interest rate contracts designated as cash flow hedges:
Other noncurrent assets	33.2		—		33.2		—		33.2
Other noncurrent liabilities	(1.3)		—		(1.3)		—		(1.3)
Foreign exchange contracts not designated as hedging instruments:
Other receivables	9.9		—		9.9		—		9.9
Other current liabilities	(35.3)		—		(35.3)		—		(35.3)
Contingent consideration liabilities:

Other noncurrent liabilities	(70.5)		—		—		(70.5)		(70.5)

Risk-management instruments above are disclosed on a gross basis. There are various rights of setoff associated with certain of the risk-management instruments above that are subject to enforceable master netting arrangements or similar agreements. Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties to the risk-management instruments above, individually, these financial rights are not material.

We determine our Level 1 and Level 2 fair value measurements based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions. Fair values are not readily available for certain equity investments measured under the measurement alternative. As of March 31, 2022, we had approximately $843 million of unfunded commitments to invest in venture capital funds, which we anticipate will be paid over a period of up to 10 years.

Contingent consideration liability relates to our liability arising in connection with the CVR issued as a result of the Prevail acquisition. The fair value of the CVR liability was estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payment associated with the first potential regulatory approval of a Prevail compound in the applicable countries based on probabilities of technical success, timing of the potential approval events for the compounds, and an estimated discount rate. See Note 3 for additional information related to the CVR arrangement.

The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of March 31, 2022:


	Maturities by Period
	Total		Less Than 1 Year		1-5 Years		6-10 Years		More Than 10 Years
Fair value of debt securities	$	567.1	$	98.9	$	197.7	$	110.7	$	159.8

The net gains (losses) recognized in our consolidated condensed statements of operations for equity securities were $(425.4) million and $301.5 million for the three months ended March 31, 2022 and 2021, respectively. The net gains/losses recognized for the three months ended March 31, 2022 and 2021 on equity securities sold during the respective periods were not material.

We adjust our equity investments without readily determinable fair values based upon changes in the equity instruments' values resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Downward adjustments resulting from an impairment are recorded based upon impairment considerations, including the financial condition and near term prospects of the issuer, general market conditions, and industry specific factors. Adjustments recorded for the three months ended March 31, 2022 and 2021 were not material.

A summary of the amount of unrealized gains and losses in accumulated other comprehensive loss and the fair value of available-for-sale securities in an unrealized gain or loss position follows:


	March 31, 2022		December 31, 2021
Unrealized gross gains	$	1.3	$	9.7
Unrealized gross losses	25.2		5.2
Fair value of securities in an unrealized gain position	89.5		250.7
Fair value of securities in an unrealized loss position	440.6		290.2

We periodically assess our investment in available-for-sale securities for impairment losses and credit losses. The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost. Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration. Impairment and credit losses related to available-for-sale securities were not material for the three months ended March 31, 2022 and 2021.

As of March 31, 2022, the available-for-sale securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions. Approximately 97 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities. As of March 31, 2022, we do not intend to sell, and it is not more likely than not that we will be required to sell, the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of default on interest or principal payments for any of our debt securities.

Activity related to our available-for-sale securities was as follows:


	Three Months Ended March 31,
	2022		2021
Proceeds from sales	$	35.2	$	43.3
Realized gross gains on sales	0.1		1.1
Realized gross losses on sales	0.8		0.4

Realized gains and losses on sales of available-for-sale investments are computed based upon specific identification of the initial cost adjusted for any other-than-temporary declines in fair value that were recorded in earnings.

Accounts Receivable Factoring Arrangements

We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over and, risk related to, the receivables to the buyers. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $449.5 million and $550.5 million of accounts receivable as of March 31, 2022 and December 31, 2021, respectively, under these factoring arrangements. The costs of factoring such accounts receivable on our consolidated condensed results of operations for the three months ended March 31, 2022 and 2021 were not material.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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