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FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
•Level 1 inputs include quoted prices in active markets for identical assets or liabilities;
•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and
•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities and foreign currency exchange contracts are reported at their respective fair values on our Condensed Consolidated Balance Sheets. Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Short-term and long-term debt are reported at their amortized costs on our Condensed Consolidated Balance Sheets. The remaining financial instruments are reported on our Condensed Consolidated Balance Sheets at amounts that approximate current fair values.
The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
 March 31, 2021December 31, 2020
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:        
Available-for-sale debt securities:
U.S. treasury securities$464 $— $— $464 $309 $— $— $309 
Certificates of deposit— 358 — 358 — 216 — 216 
Non-U.S. government securities— 62 — 62 — 43 — 43 
Corporate debt securities— 1,247 — 1,247 — 1,142 — 1,142 
Residential mortgage and asset-backed securities— 347 — 347 — 316 — 316 
Equity securities:
Money market funds2,216 — — 2,216 4,361 — — 4,361 
Equity investment in Galapagos1,302 — — 1,302 1,648 — — 1,648 
Other publicly traded equity securities968 — — 968 743 — — 743 
Deferred compensation plan235 — — 235 218 — — 218 
Foreign currency derivative contracts — 32 — 32 — 12 — 12 
Total$5,185 $2,046 $— $7,231 $7,279 $1,729 $— $9,008 
Liabilities:        
Liability for MYR contingent consideration$— $— $341 $341 $— $— $— $— 
Deferred compensation plan235 — — 235 218 — — 218 
Foreign currency derivative contracts— 41 — 41 — 121 — 121 
Total$235 $41 $341 $617 $218 $121 $— $339 
Equity Securities
The following table summarizes the classification of our equity securities measured at fair value on a recurring basis on our Condensed Consolidated Balance Sheets:
(in millions)March 31, 2021December 31, 2020
Cash and cash equivalents$2,216 $4,361 
Prepaid and other current assets(1)
797 853 
Other long-term assets(1)
1,708 1,756 
Total$4,721 $6,970 
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(1)     Includes equity investment in Galapagos NV (“Galapagos”)
Equity investments not measured at fair value and excluded from the above tables were limited partnerships and other equity method investments of $69 million and $58 million at March 31, 2021 and December 31, 2020, respectively, and other equity investments without readily determinable fair values of $225 million and $204 million at March 31, 2021 and December 31, 2020, respectively. These amounts were included in Other long-term assets on our Condensed Consolidated Balance Sheets.
Changes in the fair value of equity securities resulted in net unrealized losses of $351 million and $283 million for the three months ended March 31, 2021 and 2020, respectively, which were included in Other income (expense), net on our Condensed Consolidated Statements of Income.
Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities in our Condensed Consolidated Balance Sheets. See Note 4. Available-For-Sale Debt Securities for additional information.
Equity Investment in Galapagos
The following table summarizes the classification of our equity investment in Galapagos in our Condensed Consolidated Balance Sheets:
(in millions)March 31, 2021December 31, 2020
Prepaid and other current assets$276 $351 
Other long-term assets1,026 1,297 
Total$1,302 $1,648 
We elected and applied the fair value option to account for our equity investment in Galapagos whereby the investment is marked to market through earnings each reporting period based on the market price of Galapagos shares. We believe the fair value option best reflects the underlying economics of the investment. The portion of the investment subject to long-term contractual lock-up provisions is classified within Other long-term assets and the remainder is classified as Prepaid and other current assets on our Condensed Consolidated Balance Sheets. Subsequent to the first quarter of 2021, we amended the Galapagos subscription agreement to extend the initial lock-up provision for certain Galapagos shares from August 2021 to August 2024. As a result, all of our equity investment in Galapagos became subject to long-term contractual lock-up provisions and will be classified as Other long-term assets commencing in the second quarter of 2021.
Level 2 Inputs
We estimate the fair values of Level 2 financial instruments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.
Substantially all of our foreign currency derivative contracts have maturities within an 18-month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes 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, London Interbank Offered Rates and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
The total estimated fair values of our aggregate short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $31.6 billion and $34.6 billion as of March 31, 2021 and December 31, 2020, respectively, and the carrying values were $29.1 billion and $30.3 billion as of March 31, 2021 and December 31, 2020, respectively.
Level 3 Inputs
During the three months ended March 31, 2021, we measured assets acquired and liabilities assumed at fair value on a nonrecurring basis, in connection with our acquisition of MYR GmbH (“MYR”). Total consideration for the MYR acquisition included a liability for contingent consideration of $341 million as of the acquisition date. This contingent liability was measured at fair value using probability-weighted scenarios for FDA approval. See Note 6. Acquisitions for additional information.
As of March 31, 2021 and December 31, 2020, the carrying value of the liability related to future royalties assumed from the fourth quarter 2020 Immunomedics, Inc. (“Immunomedics”) acquisition approximated fair value, determined using Level 3 inputs. See Note 10. Debt and Credit Facilities for additional information.