XML 46 R25.htm IDEA: XBRL DOCUMENT v3.20.4
Fair value measurement
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair value measurement Fair value measurement
To estimate the fair value of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing an asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
Level 2—Valuations for which all significant inputs are observable either directly or indirectly—other than Level 1 inputs
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.
The fair values of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in millions):
Fair value measurement as of December 31, 2020, using:Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)		Total
Assets:
Available-for-sale securities:
U.S. Treasury notes$130 $— $— $130 
U.S. Treasury bills4,948 — — 4,948 
Corporate debt securities:
Financial— — — — 
Industrial— — — — 
Other— — — — 
Residential-mortgage-backed securities— — — — 
Money market mutual funds4,765 — — 4,765 
Other short-term interest-bearing securities— 2 — 2 
Equity securities477 — — 477 
Derivatives:
Foreign currency contracts— 28 — 28 
Cross-currency swap contracts— 255 — 255 
Interest rate swap contracts— 66 — 66 
Total assets$10,320 $351 $— $10,671 
Liabilities:
Derivatives:
Foreign currency contracts$— $237 $— $237 
Cross-currency swap contracts— 318 — 318 
Interest rate swap contracts
— 15 — 15 
Contingent consideration obligations
— — 33 33 
Total liabilities$— $570 $33 $603 
Fair value measurement as of December 31, 2019, using:Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)		Total
Assets:
Available-for-sale securities:
U.S. Treasury notes$360 $— $— $360 
U.S. Treasury bills— — — — 
Corporate debt securities:
Financial— 1,121 — 1,121 
Industrial— 834 — 834 
Other— 198 — 198 
Residential-mortgage-backed securities— 182 — 182 
Money market mutual funds5,250 — — 5,250 
Other short-term interest-bearing securities— 289 — 289 
Equity securities303 — — 303 
Derivatives:
Foreign currency contracts— 224 — 224 
Cross-currency swap contracts— 66 — 66 
Interest rate swap contracts— 259 — 259 
Total assets$5,913 $3,173 $— $9,086 
Liabilities:
Derivatives:
Foreign currency contracts$— $31 $— $31 
Cross-currency swap contracts— 315 — 315 
Interest rate swap contracts— — — — 
Contingent consideration obligations
— — 61 61 
Total liabilities$— $346 $61 $407 
Interest-bearing and equity securities
The fair values of our U.S. Treasury securities, money market mutual funds and equity securities are based on quoted market prices in active markets, with no valuation adjustment.
We estimate the fair values of our corporate debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry-standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly to estimate fair value. The inputs include reported trades of and broker-dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.
We estimate the fair values of our residential-mortgage-backed securities by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry-standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly to estimate fair value. The inputs include reported trades of and broker-dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment or default projections based on historical data; and other observable inputs.
We value our other short-term interest-bearing securities at amortized cost, which approximates fair value given their near-term maturity dates.
Derivatives
All of our foreign currency forward and option derivative contracts have maturities of three years or less, and all are with counterparties that have minimum credit ratings of A– or equivalent by Standard & Poor’s Financial Services (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch Ratings, Inc. (Fitch). We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that uses an income-based industry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, LIBOR, swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts include implied volatility measures. These inputs, when applicable, are at commonly quoted intervals. See Note 18, Derivative instruments.
Our cross-currency swap contracts are with counterparties that have minimum credit ratings of A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that uses an income-based industry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, LIBOR, swap rates, obligor credit default swap rates and cross-currency basis swap spreads. See Note 18, Derivative instruments.
Our interest rate swap contracts are with counterparties that have minimum credit ratings of A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by using an income-based industry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include LIBOR, swap rates and obligor credit default swap rates. See Note 18, Derivative instruments.
During the years ended December 31, 2020 and 2019, there were no transfers of assets or liabilities between fair value measurement levels, and there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis. During the year ended December 31, 2018, we discontinued the internal development of a program that resulted in an impairment of an IPR&D asset of $330 million, which was recognized in Other operating expenses in the Consolidated Statements of Income and included in Other items, net, in the Consolidated Statements of Cash Flows.
Summary of the fair values of other financial instruments
Cash equivalents
The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.
Borrowings
We estimated the fair values of our borrowings by using Level 2 inputs. As of December 31, 2020 and 2019, the aggregate fair values of our borrowings were $39.4 billion and $33.7 billion, respectively, and the carrying values were $33.0 billion and $29.9 billion, respectively.
Investment in BeiGene
We estimated the fair value of our investment in BeiGene by using Level 1 inputs. As of December 31, 2020, the fair value and carrying value were $4.9 billion and $2.9 billion, respectively.