Hedging Activities and Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

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
		September 30, 2021		December 31, 2020
Forward currency contracts	Cash flow hedge	$	4,344	$	4,531
Forward currency contracts	Net investment hedge	493		1,004
Foreign currency-denominated debt(1)	Net investment hedge	997		868
Forward currency contracts	Non-designated	4,838		4,946

Total Notional Outstanding		$	10,672	$	11,349

(1) Foreign currency-denominated debt is the portion of the €900 million debt principal designated as a net investment hedge.

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


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited 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 September 30, 2021
Forward currency contracts
Cash flow hedges	$	79	$	(18)	$	61	Cost of products sold	$	900	$	(16)	$	3	$	(12)
Net investment hedges(2)	7		(2)		6		Interest expense	86		(2)		—		(2)
Foreign currency-denominated debt
Net investment hedges(3)	25		(6)		20		Other, net	(181)		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	86		1		—		1


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited 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 September 30, 2020
Forward currency contracts
Cash flow hedges	$	(64)	$	14	$	(50)	Cost of products sold	$	869	$	(20)	$	4	$	(15)
Net investment hedges(2)	(21)		5		(16)		Interest expense	86		(6)		1		(5)
Foreign currency-denominated debt
Net investment hedges(3)	(46)		10		(36)		Other, net	(64)		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest Expense	86		1		—		1


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited 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
Nine Months Ended September 30, 2021
Forward currency contracts
Cash flow hedges	$	234	$	(53)	$	182	Cost of products sold	$	2,739	$	(31)	$	7	$	(24)
Net investment hedges (2)	50		(11)		39		Interest expense	254		(11)		3		(9)
Foreign currency-denominated debt
Net investment hedges (3)	60		(14)		47		Other, net	(192)		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	254		4		(1)		3


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited 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
Nine Months Ended September 30, 2020
Forward currency contracts
Cash flow hedges	$	47	$	(11)	$	36	Cost of products sold	$	2,465	$	(70)	$	16	$	(55)
Net investment hedges (2)	(4)		(21)		(25)		Interest expense	265		(18)		4		(14)
Foreign currency-denominated debt
Net investment hedges (3)	(44)		13		(31)		Other, net	(9)		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	265		4		(1)		3

(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 and prior 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 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 September 30, 2021, 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 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

108

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 Consolidated Statements of Operations	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)		2021		2020		2021		2020
Net gain (loss) on currency hedge contracts	Other, net	$	(15)	$	29	$	(17)	$	20
Net gain (loss) on currency transaction exposures	Other, net	7		(30)		1		(33)
Net currency exchange gain (loss)		$	(8)	$	(1)	$	(17)	$	(13)

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 Consolidated Balance Sheets(1)	As of
(in millions)		September 30, 2021		December 31, 2020
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	152	$	53
Forward currency contracts	Other long-term assets	176		109
		328		162
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	41		79

Total Derivative and Nonderivative Assets		$	369	$	242

Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities	$	24	$	44
Forward currency contracts	Other long-term liabilities	5		54
Foreign currency-denominated debt(2)	Other long-term liabilities	1,033		1,094

		1,063		1,191
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities	57		71
Total Derivative and Nonderivative Liabilities		$	1,120	$	1,262

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

(2) Foreign currency-denominated debt is the portion of the €900 million debt principal designated as a net investment hedge. A portion of this notional is subject to de-designation and re-designation based on changes in the underlying hedged item.

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
	September 30, 2021								December 31, 2020
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds and time deposits	$	1,537	$	—	$	—	$	1,537	$	1,584	$	—	$	—	$	1,584
Publicly-held equity securities	4		—		—		4		414		—		—		414
Hedging instruments	—		369		—		369		—		242		—		242
Licensing arrangements	—		—		280		280		—		—		365		365
	$	1,541	$	369	$	280	$	2,190	$	1,998	$	242	$	365	$	2,605
Liabilities
Hedging instruments	$	—	$	1,120	$	—	$	1,120	$	—	$	1,262	$	—	$	1,262
Contingent consideration liability	—		—		448		448		—		—		196		196
Licensing arrangements	—		—		297		297		—		—		407		407
	$	—	$	1,120	$	745	$	1,865	$	—	$	1,262	$	603	$	1,865

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our accompanying unaudited consolidated balance sheets as of September 30, 2021 include the following significant unobservable inputs:


Licensing Arrangements	Fair Value as of September 30, 2021	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
Financial Asset	$280 million	Discounted Cash Flow	Discount Rate	15%				15%

			Projected Year of Payment	2021		-	2025	2023
Financial Liability	$297 million	Discounted Cash Flow	Discount Rate	12	%	-	15%	13%

			Projected Year of Payment	2021		-	2026	2023

(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, 2020	$	365

Proceeds from royalty rights	(62)

Non-cash impact of transferred royalty rights	(62)
Fair value adjustment (expense) benefit	40
Balance as of September 30, 2021	$	280

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


(in millions)
Balance as of December 31, 2020	$	407

Payments for royalty rights	(85)


Non-cash impact of transferred royalty rights	(62)
Fair value adjustment expense (benefit)	37
Balance as of September 30, 2021	$	297