XML 56 R35.htm IDEA: XBRL DOCUMENT v3.22.0.1
Financial Instruments (Tables)
 12 Months Ended
Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Effect of Net Investment Hedges
The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)
Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
Years Ended December 31202120202019202120202019
Net Investment Hedging Relationships
Foreign exchange contracts
$(49)$26 $(10)$(13)$(19)$(31)
Euro-denominated notes(296)385 (75)— — — 
(1) No amounts were reclassified from AOCL into income related to the sale of a subsidiary.
Summary of Interest Rate Derivatives At December 31, 2021, the Company was a party to nine pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below:
2021
Debt InstrumentPar Value of DebtNumber of Interest Rate Swaps HeldTotal Swap Notional Amount
2.40% notes due 2022
$1,000 4 $1,000 
2.35% notes due 2022 (1)
1,250 5 1,250 
(1) These interest rate swaps matured in February 2022.
Schedule of Fair Value Hedging Instruments, Statements of Financial Performance and Financial Position
The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges as of December 31:
Carrying Amount of Hedged LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
2021202020212020
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt$2,263 $1,150 $13 $— 
Long-Term Debt— 2,301 — 53 
Fair Value of Derivatives on a Gross Basis Segregated Between those Derivatives that are Designated as Hedging Instruments and those that are Not Designated as Hedging Instruments
Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments as of December 31:
  20212020
  Fair Value of
Derivative		U.S. Dollar
Notional		Fair Value of
Derivative		U.S. Dollar
Notional
 Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments
       
Interest rate swap contractsOther current assets$14 $— $2,250 $1 $— $1,150 
Interest rate swap contractsOther Assets— — — 54 — 2,250 
Foreign exchange contractsOther current assets271 — 6,778 12 — 3,183 
Foreign exchange contractsOther Assets43 — 1,551 45 — 2,030 
Foreign exchange contractsAccrued and other current liabilities— 24 1,623 — 217 5,049 
Foreign exchange contractsOther Noncurrent Liabilities— 1 43 — 1 52 
  $328 $25 $12,245 $112 $218 $13,714 
Derivatives Not Designated as Hedging Instruments
       
Foreign exchange contractsOther current assets$221 $— $10,073 $70 $— $7,260 
Foreign exchange contractsAccrued and other current liabilities— 96 10,640 — 307 11,810 
  $221 $96 $20,713 $70 $307 $19,070 
  $549 $121 $32,958 $182 $525 $32,784 
Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes at December 31:
20212020
AssetLiabilityAssetLiability
Gross amounts recognized in the consolidated balance sheet$549 $121 $182 $525 
Gross amounts subject to offset in master netting arrangements not offset in the consolidated balance sheet
(110)(110)(156)(156)
Cash collateral posted/received(164)— — (36)
Net amounts$275 $11 $26 $333 
Location and Pretax Gain or Loss Amounts for Derivatives
The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:
Sales
Other (income) expense, net (1)
Other comprehensive income (loss)
Years Ended December 31202120202019202120202019202120202019
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded$48,704 $41,518 $39,121 $(1,341)(890)129 $1,756 $(441)$(648)
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items
— — — (40)40 95 — — — 
Derivatives designated as hedging instruments
— — — 1 (76)(65)— — — 
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of gain (loss) recognized in OCI on derivatives
— — — — — — 333 (383)87 
(Decrease) increase in Sales as a result of AOCL reclassifications
(194)(6)255 — — — 194 6 (255)
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives
— — — (2)(4)(4)— — — 
Amount of loss recognized in OCI on derivatives
— — — — — — (2)(4)(6)
(1) Interest expense is a component of Other (income) expense, net.
Income Statement Effects of Derivatives Not Designated as Hedging Instruments
The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:
Amount of Derivative Pretax (Gain) Loss Recognized in Income
Years Ended December 31202120202019
Derivatives Not Designated as Hedging InstrumentsIncome Statement Caption
Foreign exchange contracts (1)
Other (income) expense, net$313 $(12)$174 
Foreign exchange contracts (2)
Sales9 13 1 
Interest rate contracts (3)
Other (income) expense, net— 9 — 
Forward contract related to Seagen common stockResearch and development expenses— 15 — 
(1) These derivative contracts primarily mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates. Amount in 2021 includes a loss on forward exchange contracts entered into in conjunction with the spin-off of Organon.
(2) These derivatives serve as economic hedges of forecasted transactions.
(3) These derivatives serve as economic hedges against rising treasury rates.
Information on Investments in Debt and Equity Securities
Information on investments in debt and equity securities at December 31 is as follows:
 
 20212020
 Amortized
Cost		Gross UnrealizedFair
Value		Amortized
Cost		Gross UnrealizedFair
Value
  
GainsLossesGainsLosses
U.S. government and agency securities$80 $— $— $80 $84 $— $— $84 
Foreign government bonds2 — — 2 5 — — 5 
Corporate notes and bonds4 — — 4 — — — — 
Total debt securities86 — — 86 89 — — 89 
Publicly traded equity securities (1)
1,647 1,787 
Total debt and publicly traded equity securities
$1,733 $1,876 
(1) Unrealized net losses recorded in Other (income) expense, net on equity securities still held at December 31, 2021 were $232 million during 2021. Unrealized net gains recorded in Other (income) expense, net on equity securities still held at December 31, 2020 were $163 million during 2020.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis at December 31 are summarized below:
 Fair Value Measurements UsingFair Value Measurements Using
  Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
  20212020
Assets
Investments
Foreign government bonds$— $2 $— $2 $— $5 $— $5 
Publicly traded equity securities
368 — — 368 780 — — 780 
 368 2 — 370 780 5 — 785 
Other assets (1)
U.S. government and agency securities
80 — — 80 84 — — 84 
Corporate notes and bonds4 — — 4 — — — — 
Publicly traded equity securities
1,279 — — 1,279 1,007 — — 1,007 
1,363 — — 1,363 1,091 — — 1,091 
Derivative assets (2)
Forward exchange contracts— 351 — 351 — 90 — 90 
Purchased currency options— 184 — 184 — 37 — 37 
Interest rate swaps— 14 — 14 — 55 — 55 
 — 549 — 549 — 182 — 182 
Total assets$1,731 $551 $— $2,282 $1,871 $187 $— $2,058 
Liabilities
Other liabilities
Contingent consideration$— $— $777 $777 $— $— $841 $841 
Derivative liabilities (2)
Forward exchange contracts— 120 — 120 — 505 — 505 
Written currency options— 1 — 1 — 20 — 20 
— 121 — 121 — 525 — 525 
Total liabilities$— $121 $777 $898 $— $525 $841 $1,366 
(1)     Investments included in other assets are restricted as to use, including for the payment of benefits under employee benefit plans.
(2)     The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.
Summarized Information about the Changes in Liabilities for Contingent Consideration
Summarized information about the changes in the fair value of liabilities for contingent consideration associated with business combinations is as follows:
20212020
Fair value January 1$841 $767 
Additions— 97 
Changes in estimated fair value (1)
57 83 
Payments(109)(106)
Other(12)— 
Fair value December 31 (2)(3)
$777 $841 
(1) Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.
(2) Balance at December 31, 2021 includes $151 million recorded as a current liability for amounts expected to be paid within the next 12 months.
(3) At December 31, 2021 and 2020, $620 million and $711 million, respectively, of the liabilities relate to the termination of the Sanofi Pasteur MSD joint venture in 2016. As part of the termination, Merck recorded a liability for contingent future royalty payments of 11.5% on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024. The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate of 8% to present value the cash flows.