Hedging Activities and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2020

Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]

The following table presents the contractual amounts of our hedging instruments outstanding:


(in millions)	FASB ASC Topic 815 Designation	As of
						June 30, 2020	December 31, 2019
Forward currency contracts	Cash flow hedge	$	3,589	$	3,891
Forward currency contracts	Net investment hedge	967		953
Foreign currency-denominated debt (1)	Net investment hedge	979		997
Forward currency contracts	Non-designated	3,885		4,377

Total Notional Outstanding		$	9,420	$	10,218

(1) The €900 million (approximately $1.000 billion) debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our euro functional subsidiaries. We de-designated a portion of the net investment hedge in the second quarter of 2020.

Derivative Instruments, Gain (Loss) [Table Text Block]


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges									Unaudited Condensed Consolidated Statements of Operations (1)							Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item						Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Three Months Ended June 30, 2020
Forward currency contracts
Cash flow hedges	$	(8)	$	2	$	(6)	Cost of products sold	$	791		$	(28)	$	6	$	(21)
Net investment hedges (2)	(5)		1		(4)		Interest expense	91			(6)		1		(5)
Foreign currency-denominated debt
Net investment hedges (3)	(22)		5		(17)		Other, net	18			—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	91			1		—		1
Three Months Ended June 30, 2019
Forward currency contracts
Cash flow hedges	$	2	$	(1)	$	2	Cost of products sold	$	758		$	(16)	$	4	$	(12)
Net investment hedges (2)	(5)		1		(4)		Interest expense	89			(10)		2		(8)
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest Expense	89			1		—		1
Six Months Ended June 30, 2020
Forward currency contracts
Cash flow hedges	$	111	$	(25)	$	86	Cost of products sold	$	1,596		$	(51)	$	11	$	(39)
Net investment hedges (2)	17		(25)		(8)		Interest expense	179			(12)		3		(9)
Foreign currency-denominated debt
Net investment hedges (3)	2		3		5		Other, net	54			—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	179			3		(1)		2
Six Months Ended June 30, 2019
Forward currency contracts
Cash flow hedges	$	75	$	(17)	$	58	Cost of products sold	$	1,488		$	(25)	$	6	$	(19)
Net investment hedges (2)	28		(6)		22		Interest expense	198			(21)		5		(16)
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	198			2		—		1

(1) In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.

(2) For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.

(3) For our outstanding euro-denominated debt principal designated as a net investment hedge, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA) component of OCI. No amounts were reclassified from AOCI to current period earnings.

Derivative Instruments, Gain (Loss) that may be Reclassified from AOCI to Earnings within Twelve Months [Table Text Block]

As of June 30, 2020, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):

Designated Hedging Instrument

FASB ASC Topic 815 Designation

Location on Unaudited Condensed Consolidated Statements of Operations

Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings

Forward currency contracts

Cash flow hedge

Cost of products sold

107

Forward currency contracts

Net investment hedge

Interest expense

Interest rate derivative contracts

Cash flow hedge

Interest expense

(5)

Derivatives Not Designated as Hedging Instruments [Table Text Block]

Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:


	Location on Unaudited Condensed Consolidated Statements of Operations	Three Months Ended June 30,									Six Months Ended June 30,
(in millions)				2020			2019			2020			2019
Net gain (loss) on currency hedge contracts	Other, net	$	6		$	(152)		$	(9)		$	(130)
Net gain (loss) on currency transaction exposures	Other, net	(11)			(4)			(3)			2
Net currency exchange gain (loss)		$	(5)		$	(156)		$	(12)		$	(127)

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

The following are the balances of our derivative and nonderivative assets and liabilities:


	Location on Unaudited Condensed Consolidated Balance Sheets (1)	As of
(in millions)				June 30, 2020			December 31, 2019
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	124		$	72
Forward currency contracts	Other long-term assets	241			216
		364			288
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	37			33

Total Derivative and Nonderivative Assets		$	402		$	321

Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities	$	2		$	3
Forward currency contracts	Other long-term liabilities	6			8
Foreign currency-denominated debt	Other long-term liabilities	997			998

		1,005			1,009
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities	31			29
Total Derivative and Nonderivative Liabilities		$	1,036		$	1,037

(1) We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

Assets and liabilities measured at fair value on a recurring basis consist of the following:


	As of
	June 30, 2020														December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market and government funds	$	1,473	$	—	$	—	$	1,473	$	50	$	—	$	—	$	50
Publicly-held securities	—		—		—		—		1		—		—		1
Hedging instruments	—		402		—		402		—		321		—		321
Licensing arrangements	—		—		440		440		—		—		518		518
	$	1,473	$	402	$	440	$	2,316	$	51	$	321	$	518	$	890
Liabilities
Hedging instruments	$	—	$	1,036	$	—	$	1,036	$	—	$	1,037	$	—	$	1,037
Contingent consideration liability	—		—		208		208		—		—		354		354
Licensing arrangements	—		—		488		488		—		—		571		571
	$	—	$	1,036	$	696	$	1,732	$	—	$	1,037	$	925	$	1,963

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our unaudited condensed consolidated balance sheets as of June 30, 2020 include the following significant unobservable inputs:


Licensing Arrangements	Fair Value as of June 30, 2020	Valuation Technique	Unobservable Input	Range						Weighted Average (1)
Financial Asset	$440 million	Discounted Cash Flow	Discount Rate	11	%	-	15%	15%

							Projected Year of Payment	2020	-	2028	2024
Financial Liability	$488 million	Discounted Cash Flow	Discount Rate	12	%	-	15%	13%

							Projected Year of Payment	2020	-	2027	2024

(1) Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Changes in the fair value of our licensing arrangements' financial asset were as follows:


(in millions)
Balance as of December 31, 2019	$	518

Proceeds from royalty rights	(91)

Fair value adjustment (expense) benefit	13
Balance as of June 30, 2020	$	440

Changes in the fair value of our licensing arrangements' financial liability were as follows:


(in millions)
Balance as of December 31, 2019	$	571

Payments for royalty rights	(99)


Fair value adjustment expense (benefit)	17
Balance as of June 30, 2020	$	488