Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]

Assets and liabilities measured at fair value on a recurring basis

Changes in the fair value of our licensing arrangements' financial asset was as follows:

(in millions)
Balance as of December 31, 2018	$	—
Amounts recorded related to current year acquisition	567
Proceeds from royalty rights	(52		)
Fair value adjustment (expense) benefit	3
Balance as of December 31, 2019	$	518

Changes in the fair value of our licensing arrangements' financial liability was as follows:

(in millions)
Balance as of December 31, 2018	$	—
Amounts recorded related to current year acquisition	315
Proceeds from secured borrowings relating to royalty arrangements	256
Balance as of December 31, 2019	$	571

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our consolidated balance sheets as of December 31, 2019 include the following significant unobservable inputs:

Licensing Arrangements	Fair Value as of December 31, 2019	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
Financial Asset	$518 million	Discounted Cash Flow	Discount Rate	11	%	-	19%	19%
			Projected Year of Payment	2020		-	2028	2024
Financial Liability	$571 million	Discounted Cash Flow	Discount Rate	19%				19%
			Projected Year of Payment	2020		-	2027	2023

(1)

Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Assets and liabilities measured at fair value on a recurring basis consist of the following:

	As of
	December 31, 2019								December 31, 2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market and government funds	$	50	$	—	$	—	$	50	$	13	$	—	$	—	$	13
Publicly-held securities	1		—		—		1		—		—		—		—
Hedging instruments	—		321		—		321		—		304		—		304
Licensing arrangements	—		—		518		518		—		—		—		—
	$	51	$	321	$	518	$	890	$	14	$	304	$	—	$	318
Liabilities
Hedging instruments	$	—	$	1,037	$	—	$	1,037	$	—	$	80	$	—	$	80
Contingent consideration liability	—		—		354		354		—		—		347		347
Licensing arrangements	—		—		571		571		—		—		—		—
	$	—	$	1,037	$	925	$	1,963	$	—	$	80	$	347	$	427

Classification of derivative assets and liabilities within level 2

The following are the balances of our derivative and nonderivative assets and liabilities:

(in millions)	Location on Consolidated Balance Sheets (1)	As of December 31,
		2019		2018
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	72	$	55
Forward currency contracts	Other long-term assets	216		183
		288		237
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	33		67
Total Derivative and Nonderivative Assets		$	321	$	304
Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities	$	3	$	2
Forward currency contracts	Other long-term liabilities	8		3
Foreign currency-denominated debt	Other long-term liabilities	998		—
Interest rate contracts	Other current liabilities	—		44
		1,009		49
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities	29		31
Total Derivative and Nonderivative Liabilities		$	1,037	$	80

(1)

We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.

Derivative Instruments, Gain (Loss) that may be Reclassified from AOCI to Earnings within Twelve Months [Table Text Block]

As of December 31, 2019, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):

Designated Hedging Instrument	FASB ASC Topic 815 Designation	Location on Consolidated Statements of Operations	Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Forward currency contracts	Cash flow hedge	Cost of products sold	$	77
Forward currency contracts	Net investment hedge	Interest expense	24
Interest rate derivative contracts	Cash flow hedge	Interest expense	(5		)

Gains (losses) recognized in earnings for derivatives designed as hedging instruments

The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 on our accompanying consolidated statements of operations. Refer to Note P – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within the consolidated statements of comprehensive income (loss).

	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges									Consolidated Statements of Operations (1)			Amount Reclassified from AOCI into Earnings
	Pre-Tax Gain (Loss)			Tax Benefit (Expense)			Gain (Loss) Net of Tax			Location of Amount Reclassified	Total Amount of Line Item Presented		Pre-Tax (Gain) Loss			Tax (Benefit) Expense			(Gain) Loss Net of Tax
Year Ended December 31, 2019
Forward currency contracts
Cash flow hedges	$	150		$	(34	)	$	117		Cost of products sold	$	3,116	$	(73	)	$	16		$	(56	)
Net investment hedges (2)	68			(15		)	53			Interest expense	473		(43		)	10			(33		)
Foreign currency-denominated debt
Net investment hedges	(14		)	3			(11		)	Interest expense	473		—			—			—
Interest rate derivative contracts
Cash flow hedges	—			—			—			Interest expense	473		3			(1		)	2
Year Ended December 31, 2018
Forward currency contracts
Cash flow hedges	$	167		$	(38	)	$	130		Cost of products sold	$	2,813	$	19		$	(4	)	$	15
Net investment hedges (2)	56			(13		)	43			Interest expense	241		(27		)	6			(21		)
Interest rate derivative contracts
Cash flow hedges	(44		)	10			(34		)	Interest expense	241		(1		)	—			(1		)
Year Ended December 31, 2017
Forward currency contracts
Cash flow hedges	$	(101	)	$	37		$	(65	)	Cost of products sold	$	2,593	$	(64	)	$	23		$	(41	)
Interest rate derivative contracts
Cash flow hedges	—			—			—			Interest expense	229		(1		)	—			(1		)

(1) In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.

(2)

For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.

Schedule of Derivative Instruments [Table Text Block]

The following table presents the contractual amounts of our hedging instruments outstanding:

(in millions)	FASB ASC Topic 815 Designation	As of December 31,
		2019		2018
Forward currency contracts	Cash flow hedge	$	3,891	$	3,962
Forward currency contracts	Net investment hedge	953		1,483
Foreign currency-denominated debt(1)	Net investment hedge	997		—
Forward currency contracts	Non-designated	4,377		5,880
Interest rate derivative contracts	Cash flow hedge	—		1,000
Total Notional Outstanding		$	10,218	$	12,326

(1) The €900 million (approximately $1.000 billion) debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our Euro functional subsidiaries.

Net foreign currency gain (loss) [Table Text Block]

Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:

(in millions)	Location on Consolidated Statements of Operations	Year Ended December 31,
		2019			2018			2017
Net gain (loss) on currency hedge contracts	Other, net	$	(343	)	$	41		$	(25	)
Net gain (loss) on currency transaction exposures	Other, net	(15		)	(30		)	10
Net currency exchange gain (loss)		$	(358	)	$	11		$	(15	)