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Loans Payable, Long-Term Debt and Leases

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

Loans Payable, Long-Term Debt and Leases

Loans Payable, Long-Term Debt and Leases

Loans Payable

Loans payable at December 31, 2023 included $1.3 billion of notes due in 2024 and $69 million of long-dated notes that are subject to repayment at the option of the holders. Loans payable at December 31, 2022 included $1.7 billion of notes due in 2023 and $197 million of long-dated notes that are subject to repayment at the option of the holders. The weighted-average interest rate of commercial paper borrowings was 5.14% and 0.65% for the years ended December 31, 2023 and 2022, respectively.

Long-Term Debt

Long-term debt at December 31 consisted of:

			2023						2022
2.75% notes due 2025			$	2,498					$	2,496
2.15% notes due 2031			1,988						1,986
2.75% notes due 2051			1,980						1,979
3.70% notes due 2045			1,979						1,978
3.40% notes due 2029			1,740						1,738
4.50% notes due 2033			1,547						—
1.70% notes due 2027			1,495						1,494
2.90% notes due 2061			1,484						1,483
5.00% notes due 2053			1,481						—
4.00% notes due 2049			1,473						1,471
4.15% notes due 2043			1,240						1,239
1.45% notes due 2030			1,238						1,237
2.45% notes due 2050			1,214						1,213
1.875% euro-denominated notes due 2026			1,103						1,060
0.75% notes due 2026			996						995
1.90% notes due 2028			995						994
5.15% notes due 2063			987						—
3.90% notes due 2039			986						985
2.35% notes due 2040			985						984
4.30% notes due 2030			745						—
4.90% notes due 2044			740						—
6.50% notes due 2033			707						711
1.375% euro-denominated notes due 2036			548						527
2.50% euro-denominated notes due 2034			548						526
4.05% notes due 2028			497						—
3.60% notes due 2042			492						492
6.55% notes due 2037			406						408
5.75% notes due 2036			339						339
5.95% debentures due 2028			307						307
5.85% notes due 2039			271						271
6.40% debentures due 2028			250						250
6.30% debentures due 2026			135						135
2.90% notes due 2024			—						749
0.50% euro-denominated notes due 2024			—						531
Other			289						167
			$	33,683					$	28,745

Other (as presented in the table above) includes borrowings at variable rates that resulted in effective interest rates of 4.82% and 1.40% for 2023 and 2022, respectively.

With the exception of the 6.30% debentures due 2026, the notes listed in the table above are redeemable in whole or in part, at Merck’s option at any time, at varying redemption prices. Effective as of November 3, 2009, the Company executed a full and unconditional guarantee of the then existing debt of its subsidiary Merck Sharp & Dohme Corp. (MSD) and MSD executed a full and unconditional guarantee of the then existing debt of the Company (excluding commercial paper), including for payments of principal and interest. These guarantees do not extend to debt issued subsequent to that date.

In May 2023, the Company issued $6.0 billion principal amount of senior unsecured notes consisting of $500 million of 4.05% notes due 2028, $750 million of 4.30% notes due 2030, $1.5 billion of 4.50% notes due 2033, $750 million of 4.90% notes due 2044, $1.5 billion of 5.00% notes due 2053, and $1.0 billion of 5.15% notes due 2063. The Company used a portion of the $5.9 billion net proceeds from this offering to fund a portion of the cash consideration paid for the acquisition of Prometheus (see Note 3), including related fees and expenses, and used the remaining net proceeds for general corporate purposes including to repay commercial paper borrowings and other indebtedness with upcoming maturities.

Certain of the Company’s borrowings require that Merck comply with covenants and, at December 31, 2023, the Company was in compliance with these covenants.

The aggregate maturities of long-term debt for each of the next five years are as follows: 2024, $1.4 billion; 2025, $2.5 billion; 2026, $2.2 billion; 2027, $1.5 billion; 2028, $2.1 billion. Interest payments related to these debt obligations are as follows: 2024, $1.2 billion; 2025, $1.1 billion; 2026, $1.1 billion; 2027, $1.0 billion; 2028, $1.0 billion.

The Company has a $6.0 billion credit facility that matures in May 2028. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Leases

The Company has operating leases primarily for manufacturing facilities, research and development facilities, corporate offices, employee housing, vehicles and certain equipment. The Company determines if an arrangement is a lease at inception. When evaluating contracts for embedded leases, the Company exercises judgment to determine if there is an explicit or implicit identified asset in the contract and if Merck controls the use of that asset. Embedded leases, primarily associated with contract manufacturing organizations, are immaterial. The lease term includes options to extend or terminate the lease when it is reasonably certain that Merck will exercise that option. Real estate leases for facilities have an average remaining lease term of approximately seven years, which include options to extend the leases for up to five years where applicable. Vehicle leases are generally in effect for four years. The Company elected to exclude short-term leases (leases with an initial term of 12 months or less) from the lease assets and liabilities on the balance sheet.

Lease expense for operating lease payments is recognized on a straight-line basis over the term of the lease. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term. Since the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments by asset class. On a quarterly basis, an updated incremental borrowing rate is determined based on the average remaining lease term of each asset class and the Company’s pretax cost of debt for that same term. The updated rates for each asset class are applied prospectively to new leases. The Company does not separate lease components (e.g., payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs) in the event that the agreement contains both. Merck includes both the lease and non-lease components for purposes of calculating the right-of-use asset and related lease liability (if the non-lease components are fixed). For vehicle leases and employee housing, the Company applies a portfolio approach to account for the operating lease assets and liabilities.

Certain of the Company’s lease agreements contain variable lease payments that are adjusted periodically for inflation or for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. Sublease income and activity related to sale and leaseback transactions are immaterial. Merck’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease cost was $339 million in 2023, $334 million in 2022 and $343 million in 2021. Cash paid for amounts included in the measurement of operating lease liabilities was $347 million in 2023, $335 million in 2022 and $340 million in 2021. Operating lease assets obtained in exchange for lease obligations were $122 million in 2023, $57 million in 2022 and $117 million in 2021.

Supplemental balance sheet information related to operating leases is as follows:

December 31			2023						2022
Assets
Other Assets (1)			$	1,437					$	1,346
Liabilities
Accrued and other current liabilities			285						281
Other Noncurrent Liabilities			928						1,013
			$	1,213					$	1,294
Weighted-average remaining lease term (years)			7.0						7.0
Weighted-average discount rate			3.3		%				3.1		%

(1)    Includes prepaid leases that have no related lease liability.

Maturities of operating leases liabilities are as follows:

2024			$	325
2025			268
2026			222
2027			139
2028			109
Thereafter			326
Total lease payments			1,389
Less: Imputed interest			176
			$	1,213

At December 31, 2023, the Company had entered into additional real estate operating leases that had not yet commenced; the obligations associated with these leases total $188 million.

Loans Payable, Long-Term Debt and Leases

Loans Payable, Long-Term Debt and Leases

Loans Payable

Loans payable at December 31, 2023 included $1.3 billion of notes due in 2024 and $69 million of long-dated notes that are subject to repayment at the option of the holders. Loans payable at December 31, 2022 included $1.7 billion of notes due in 2023 and $197 million of long-dated notes that are subject to repayment at the option of the holders. The weighted-average interest rate of commercial paper borrowings was 5.14% and 0.65% for the years ended December 31, 2023 and 2022, respectively.

Long-Term Debt

Long-term debt at December 31 consisted of:

			2023						2022
2.75% notes due 2025			$	2,498					$	2,496
2.15% notes due 2031			1,988						1,986
2.75% notes due 2051			1,980						1,979
3.70% notes due 2045			1,979						1,978
3.40% notes due 2029			1,740						1,738
4.50% notes due 2033			1,547						—
1.70% notes due 2027			1,495						1,494
2.90% notes due 2061			1,484						1,483
5.00% notes due 2053			1,481						—
4.00% notes due 2049			1,473						1,471
4.15% notes due 2043			1,240						1,239
1.45% notes due 2030			1,238						1,237
2.45% notes due 2050			1,214						1,213
1.875% euro-denominated notes due 2026			1,103						1,060
0.75% notes due 2026			996						995
1.90% notes due 2028			995						994
5.15% notes due 2063			987						—
3.90% notes due 2039			986						985
2.35% notes due 2040			985						984
4.30% notes due 2030			745						—
4.90% notes due 2044			740						—
6.50% notes due 2033			707						711
1.375% euro-denominated notes due 2036			548						527
2.50% euro-denominated notes due 2034			548						526
4.05% notes due 2028			497						—
3.60% notes due 2042			492						492
6.55% notes due 2037			406						408
5.75% notes due 2036			339						339
5.95% debentures due 2028			307						307
5.85% notes due 2039			271						271
6.40% debentures due 2028			250						250
6.30% debentures due 2026			135						135
2.90% notes due 2024			—						749
0.50% euro-denominated notes due 2024			—						531
Other			289						167
			$	33,683					$	28,745

Other (as presented in the table above) includes borrowings at variable rates that resulted in effective interest rates of 4.82% and 1.40% for 2023 and 2022, respectively.

With the exception of the 6.30% debentures due 2026, the notes listed in the table above are redeemable in whole or in part, at Merck’s option at any time, at varying redemption prices. Effective as of November 3, 2009, the Company executed a full and unconditional guarantee of the then existing debt of its subsidiary Merck Sharp & Dohme Corp. (MSD) and MSD executed a full and unconditional guarantee of the then existing debt of the Company (excluding commercial paper), including for payments of principal and interest. These guarantees do not extend to debt issued subsequent to that date.

In May 2023, the Company issued $6.0 billion principal amount of senior unsecured notes consisting of $500 million of 4.05% notes due 2028, $750 million of 4.30% notes due 2030, $1.5 billion of 4.50% notes due 2033, $750 million of 4.90% notes due 2044, $1.5 billion of 5.00% notes due 2053, and $1.0 billion of 5.15% notes due 2063. The Company used a portion of the $5.9 billion net proceeds from this offering to fund a portion of the cash consideration paid for the acquisition of Prometheus (see Note 3), including related fees and expenses, and used the remaining net proceeds for general corporate purposes including to repay commercial paper borrowings and other indebtedness with upcoming maturities.

Certain of the Company’s borrowings require that Merck comply with covenants and, at December 31, 2023, the Company was in compliance with these covenants.

The aggregate maturities of long-term debt for each of the next five years are as follows: 2024, $1.4 billion; 2025, $2.5 billion; 2026, $2.2 billion; 2027, $1.5 billion; 2028, $2.1 billion. Interest payments related to these debt obligations are as follows: 2024, $1.2 billion; 2025, $1.1 billion; 2026, $1.1 billion; 2027, $1.0 billion; 2028, $1.0 billion.

The Company has a $6.0 billion credit facility that matures in May 2028. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Leases

The Company has operating leases primarily for manufacturing facilities, research and development facilities, corporate offices, employee housing, vehicles and certain equipment. The Company determines if an arrangement is a lease at inception. When evaluating contracts for embedded leases, the Company exercises judgment to determine if there is an explicit or implicit identified asset in the contract and if Merck controls the use of that asset. Embedded leases, primarily associated with contract manufacturing organizations, are immaterial. The lease term includes options to extend or terminate the lease when it is reasonably certain that Merck will exercise that option. Real estate leases for facilities have an average remaining lease term of approximately seven years, which include options to extend the leases for up to five years where applicable. Vehicle leases are generally in effect for four years. The Company elected to exclude short-term leases (leases with an initial term of 12 months or less) from the lease assets and liabilities on the balance sheet.

Lease expense for operating lease payments is recognized on a straight-line basis over the term of the lease. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term. Since the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments by asset class. On a quarterly basis, an updated incremental borrowing rate is determined based on the average remaining lease term of each asset class and the Company’s pretax cost of debt for that same term. The updated rates for each asset class are applied prospectively to new leases. The Company does not separate lease components (e.g., payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs) in the event that the agreement contains both. Merck includes both the lease and non-lease components for purposes of calculating the right-of-use asset and related lease liability (if the non-lease components are fixed). For vehicle leases and employee housing, the Company applies a portfolio approach to account for the operating lease assets and liabilities.

Certain of the Company’s lease agreements contain variable lease payments that are adjusted periodically for inflation or for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. Sublease income and activity related to sale and leaseback transactions are immaterial. Merck’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease cost was $339 million in 2023, $334 million in 2022 and $343 million in 2021. Cash paid for amounts included in the measurement of operating lease liabilities was $347 million in 2023, $335 million in 2022 and $340 million in 2021. Operating lease assets obtained in exchange for lease obligations were $122 million in 2023, $57 million in 2022 and $117 million in 2021.

Supplemental balance sheet information related to operating leases is as follows:

December 31			2023						2022
Assets
Other Assets (1)			$	1,437					$	1,346
Liabilities
Accrued and other current liabilities			285						281
Other Noncurrent Liabilities			928						1,013
			$	1,213					$	1,294
Weighted-average remaining lease term (years)			7.0						7.0
Weighted-average discount rate			3.3		%				3.1		%

(1)    Includes prepaid leases that have no related lease liability.

Maturities of operating leases liabilities are as follows:

2024			$	325
2025			268
2026			222
2027			139
2028			109
Thereafter			326
Total lease payments			1,389
Less: Imputed interest			176
			$	1,213

At December 31, 2023, the Company had entered into additional real estate operating leases that had not yet commenced; the obligations associated with these leases total $188 million.

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The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.

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