The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.

A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives of and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.

The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and foreign exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts, and purchased collar options.

The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or OCI depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts are recorded in AOCL and reclassified into Sales when the hedged anticipated revenue is recognized. The amount reclassified into earnings as a result of the discontinuation of cash flow hedges because it was no longer deemed probable the forecasted hedged transactions would occur was not material for the years ended December 31, 2024, 2023 or 2022. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.

The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of foreign exchange on monetary assets and liabilities. Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The Company also uses a balance sheet risk management program to mitigate the exposure of such assets and liabilities from the effects of volatility in foreign exchange. Merck principally utilizes forward exchange contracts to

offset the effects of foreign exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the foreign exchange rate and the cost of the hedging instrument (primarily the euro, Swiss franc, Japanese yen, and Chinese renminbi). The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than six months. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in foreign exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI, and remain in AOCL until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded components). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded components on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Consolidated Statement of Cash Flows.

Foreign exchange risk is also managed through the use of foreign currency debt. Certain of the Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.


	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 31	2024		2023		2022		2024		2023		2022
Net Investment Hedging Relationships
Foreign exchange contracts	$	(30)	$	—	$	(48)	$	(4)	$	1	$	(1)
Euro-denominated notes	(192)		105		(162)		—		—		—

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal at risk.

The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark Secured Overnight Financing Rate (SOFR) swap rate. The fair value changes in the notes attributable to changes in the SOFR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. In January 2025, the Company entered into an additional interest rate swap contract with a notional amount of $250 million related to its 5.00% notes due 2053. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.


		2024						2023
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
		Asset		Liability				Asset		Liability
Derivatives Designated as Hedging Instruments	Balance Sheet Caption
Interest rate swap contracts	Other Assets	$	17	$	—	$	1,500	$	57	$	—	$	1,000
Foreign exchange contracts	Other current assets	323		—		8,662		106		—		6,138
Foreign exchange contracts	Other Assets	66		—		2,125		26		—		1,929
Foreign exchange contracts	Accrued and other current liabilities	—		1		162		—		76		3,680
Foreign exchange contracts	Other Noncurrent Liabilities	—		1		16		—		1		7
		$	406	$	2	$	12,465	$	189	$	77	$	12,754
Derivatives Not Designated as Hedging Instruments	Balance Sheet Caption
Foreign exchange contracts	Other current assets	$	323	$	—	$	12,544	$	153	$	—	$	9,693
Foreign exchange contracts	Accrued and other current liabilities	—		343		13,551		—		162		8,104
		$	323	$	343	$	26,095	$	153	$	162	$	17,797
		$	729	$	345	$	38,560	$	342	$	239	$	30,551

As noted above, the Company records its derivatives on a gross basis in the Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). 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 as of December 31:


	2024				2023
	Asset		Liability		Asset		Liability
Gross amounts recognized in the consolidated balance sheet	$	729	$	345	$	342	$	239
Gross amounts subject to offset in master netting arrangements not offset in the consolidated balance sheet	(299)		(299)		(215)		(215)
Cash collateral received	(165)		—		(3)		—
Net amounts	$	265	$	46	$	124	$	24


Years Ended December 31	2024		2023		2022		2024		2023		2022		2024		2023		2022
Financial Statement Caption in which Effects of Fair Value or Cash Flow Hedges are Recorded	Sales						Other (income) expense, net (1)						Other comprehensive income (loss)
	$	64,168	$	60,115	$	59,283	$	(24)	$	466	$	1,501	$	216	$	(393)	$	(339)
(Gain) loss on fair value hedging relationships:
Interest rate swap contracts
Hedged items	—		—		—		(39)		56		(13)		—		—		—
Derivatives designated as hedging instruments	—		—		—		39		(57)		4		—		—		—
Impact of cash flow hedging relationships:
Foreign exchange contracts
Amount of gain recognized in OCI on derivatives	—		—		—		—		—		—		508		114		684
Increase in Sales as a result of AOCL reclassifications	167		249		773		—		—		—		(167)		(249)		(773)
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives	—		—		—		(1)		(1)		(2)		—		—		—
Amount of (loss) gain recognized in OCI on derivatives	—		—		—		—		—		—		(1)		13		(2)


		Amount of Derivative Pretax Loss (Gain) Recognized in Income
Years Ended December 31		2024		2023		2022
Derivatives Not Designated as Hedging Instruments	Income Statement Caption
Foreign exchange contracts (1)	Other (income) expense, net	$	251	$	(6)	$	(49)
Foreign exchange contracts (2)	Sales	(28)		5		(37)

At December 31, 2024, the Company estimates $262 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual foreign exchange rates at maturity.


	2024								2023
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Commercial paper	$	348	$	—	$	—	$	348	$	252	$	—	$	—	$	252
U.S. government and agency securities	188		—		—		188		72		—		—		72
Corporate notes and bonds	—		—		—		—		13		—		—		13
Total debt securities	$	536	$	—	$	—	$	536	$	337	$	—	$	—	$	337
Publicly traded equity securities (1)							920								764
Total debt and publicly traded equity securities							$	1,456							$	1,101

(1) Unrealized net losses of $30 million were recorded in Other (income) expense, net in 2024 on equity securities still held at December 31, 2024. Unrealized net gains of $411 million were recorded in Other (income) expense, net in 2023 on equity securities still held at December 31, 2023.

At December 31, 2024 and 2023, the Company also had $863 million and $832 million, respectively, of equity investments without readily determinable fair values included in Other Assets. The Company records unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and records unrealized losses based on unfavorable observable price changes, which are included in Other (income) expense, net. During 2024, the Company recorded unrealized gains of $19 million and unrealized losses of $51 million related to certain of these equity investments still held at December 31, 2024. During 2023, the Company recorded unrealized gains of $10 million and unrealized losses of $61 million related to certain of these equity investments still held at December 31, 2023. Cumulative unrealized gains and cumulative unrealized losses based on observable price changes for investments in equity investments without readily determinable fair values still held at December 31, 2024 were $309 million and $107 million, respectively.

At December 31, 2024, 2023 and 2022, the Company also had $267 million, $417 million and $598 million, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds. Losses recorded in Other (income) expense, net relating to these investment funds were $29 million, $106 million and $1.0 billion for the years ended December 31, 2024, 2023 and 2022, respectively.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation.


	Fair Value Measurements Using								Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	2024								2023
Assets
Investments
Commercial paper	$	—	$	348	$	—	$	348	$	—	$	252	$	—	$	252
U.S. government and agency securities	—		99		—		99		—		—		—		—
Publicly traded equity securities	463		—		—		463		252		—		—		252
	463		447		—		910		252		252		—		504
Other assets (1)
U.S. government and agency securities	89		—		—		89		72		—		—		72
Corporate notes and bonds	—		—		—		—		13		—		—		13
Publicly traded equity securities (2)	457		—		—		457		512		—		—		512
	546		—		—		546		597		—		—		597
Derivative assets (3)
Forward exchange contracts	—		499		—		499		—		202		—		202
Purchased currency options	—		213		—		213		—		83		—		83
Interest rate swaps	—		17		—		17		—		57		—		57
	—		729		—		729		—		342		—		342
Total assets	$	1,009	$	1,176	$	—	$	2,185	$	849	$	594	$	—	$	1,443
Liabilities
Other liabilities
Contingent consideration	$	—	$	—	$	193	$	193	$	—	$	—	$	354	$	354
Derivative liabilities (3)
Forward exchange contracts	—		338		—		338		—		239		—		239
Written currency options	—		7		—		7		—		—		—		—
	—		345		—		345		—		239		—		239
Total liabilities	$	—	$	345	$	193	$	538	$	—	$	239	$	354	$	593

(2) Balance at December 31, 2024 includes securities with a fair value of $81 million, which are subject to a contractual sale restriction that expires in March 2025. Balance at December 31, 2023 includes securities with a fair value of $177 million, which were subject to a contractual sale restriction that expired in July 2024.

(2) Balance at December 31, 2024 includes $148 million of current liabilities, of which $123 million relates 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 to present value the cash flows.

The payments of contingent consideration in 2024 include $126 million related to the Sanofi Pasteur MSD liabilities described above and $25 million related to the first commercial sale of Lyfnua (gefapixant) in the European Union (EU). The payments of contingent consideration in 2023 relate to the Sanofi Pasteur MSD liabilities.

The estimated fair value of loans payable and long-term debt (including current portion) at December 31, 2024, was $32.6 billion compared with a carrying value of $37.1 billion and at December 31, 2023, was $32.0 billion compared with a carrying value of $35.1 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines.

The majority of the Company’s accounts receivable arise from product sales in the U.S., Europe and China and are primarily due from drug wholesalers, distributors and retailers, hospitals and government agencies. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor global economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business.

The Company’s customers with the largest accounts receivable balances are: McKesson Corporation, Cencora, Inc. and Cardinal Health, Inc., which represented approximately 21%, 21% and 13%, respectively, of total accounts receivable at December 31, 2024. Vaccines distributed by Chongqing Zhifei Biological Products Co., Ltd. (Zhifei) represent a substantial portion of total sales in China; however, nearly all of the accounts receivable for Zhifei were factored as of December 31, 2024, as part of the Company’s factoring program discussed below. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. Bad debts have been minimal. The Company does not normally require collateral or other security to support credit sales.

The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.1 billion and $3.0 billion of accounts receivable as of December 31, 2024 and 2023, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions, generally within thirty days after receipt. At December 31, 2024 and 2023, the Company had collected $55 million and $44 million, respectively, on behalf of the financial institutions, which is reflected as restricted cash in Other current assets, and the related obligation to remit the cash is recorded in Accrued and other current liabilities. The net cash flows related to these collections are reported as financing activities in the Consolidated Statement of Cash Flows. The cost of factoring such accounts receivable was de minimis.