NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
1. Summary of significant accounting policies
Business
Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.
Basis of presentation
The financial information for the three and six months ended June 30, 2021 and 2020, is unaudited but includes all adjustments (consisting of only normal, recurring adjustments unless otherwise indicated), which Amgen considers necessary for a fair presentation of its condensed consolidated results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.
The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020, and with our condensed consolidated financial statements and the notes thereto contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2021.
Principles of consolidation
The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
Property, plant and equipment, net
Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $9.1 billion and $9.0 billion as of June 30, 2021 and December 31, 2020, respectively.
Recent accounting pronouncements
In March 2020, the Financial Accounting Standards Board (FASB) issued a new accounting standard to ease the financial reporting burdens caused by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, commonly referred to as reference rate reform. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. Moreover, for all types of hedging relationships, an entity is permitted to change the reference rate without having to dedesignate the hedging relationship. The standard is generally effective for all contract modifications made and hedging relationships evaluated through December 31, 2022. In January 2021, the FASB issued a new accounting standard to expand on the scope of the original March 2020 standard to include derivative instruments on discounting transactions. We are currently evaluating the impact that both standards will have on our condensed consolidated financial statements.
2. Acquisitions
On April 16, 2021, Amgen completed its acquisition of Five Prime Therapeutics, Inc. (Five Prime) for total consideration of $1.6 billion, net of cash acquired. The purchase price was funded with cash on hand. This transaction was accounted for as an asset acquisition because substantially all the value of the assets acquired was concentrated in the intellectual property rights of bemarituzumab, a phase 3 trial-ready, first-in-class program for gastric cancer. Five Prime’s operations have been included in our condensed consolidated financial statements commencing after the acquisition date.
We allocated the consideration to acquire Five Prime to: the bemarituzumab in-process research and development (IPR&D) program of $1.5 billion, which was expensed immediately in Acquired IPR&D expense in the Condensed Consolidated Statements of Income; deferred tax assets of $177 million; and other net liabilities of $47 million. The acquired IPR&D expense was not tax deductible.
3. Revenues
We operate in one business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues by product and by geographic area, based on customers’ locations, are presented below. The majority of rest-of-world (ROW) revenues relates to products sold in Europe.
Revenues were as follows (in millions):
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|
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|
|
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|
|
|
|
|
Three months ended June 30,
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2021
|
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2020
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|
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U.S.
|
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ROW
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Total
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U.S.
|
|
ROW
|
|
Total
|
Enbrel® (etanercept)
|
|
$
|
1,113
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|
|
$
|
31
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|
|
$
|
1,144
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|
|
$
|
1,213
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|
|
$
|
33
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|
|
$
|
1,246
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|
Prolia® (denosumab)
|
|
538
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|
|
276
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|
|
814
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|
|
441
|
|
|
218
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|
|
659
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|
Otezla® (apremilast)
|
|
423
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|
|
111
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|
|
534
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|
|
464
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|
|
97
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|
|
561
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|
Neulasta® (pegfilgrastim)
|
|
434
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|
|
52
|
|
|
486
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|
|
520
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|
|
73
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|
|
593
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|
XGEVA® (denosumab)
|
|
355
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|
|
133
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|
|
488
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|
|
318
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|
|
117
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|
|
435
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|
Aranesp® (darbepoetin alfa)
|
|
135
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|
|
232
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|
|
367
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|
|
156
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|
|
231
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|
|
387
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|
Repatha® (evolocumab)
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|
143
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|
|
143
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|
|
286
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|
|
115
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|
|
85
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|
|
200
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|
KYPROLIS® (carfilzomib)
|
|
190
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|
|
90
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|
|
280
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|
|
167
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|
|
86
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|
|
253
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|
Other products
|
|
1,043
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|
|
672
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|
|
1,715
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|
|
1,034
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|
|
540
|
|
|
1,574
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Total product sales(1)
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|
$
|
4,374
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|
|
$
|
1,740
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|
|
6,114
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|
|
$
|
4,428
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|
|
$
|
1,480
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|
|
5,908
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Other revenues
|
|
|
|
|
|
412
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|
|
|
|
|
|
298
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Total revenues
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|
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$
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6,526
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|
|
$
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6,206
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|
|
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|
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|
|
|
|
|
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Six months ended June 30,
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2021
|
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2020
|
|
|
U.S.
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ROW
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Total
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U.S.
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ROW
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Total
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ENBREL
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$
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2,007
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|
$
|
61
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|
|
$
|
2,068
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|
|
$
|
2,330
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|
|
$
|
69
|
|
|
$
|
2,399
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Prolia®
|
|
1,039
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|
|
533
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|
|
1,572
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|
|
863
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|
|
450
|
|
|
1,313
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|
Otezla®
|
|
789
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|
|
221
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|
|
1,010
|
|
|
841
|
|
|
199
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|
|
1,040
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Neulasta®
|
|
855
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|
|
113
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|
|
968
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|
|
1,054
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|
|
148
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|
|
1,202
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XGEVA®
|
|
689
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|
|
267
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|
|
956
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|
|
673
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|
|
243
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|
|
916
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Aranesp®
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|
260
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|
|
462
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|
|
722
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|
|
331
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|
|
478
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|
|
809
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Repatha®
|
|
282
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|
|
290
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|
|
572
|
|
|
239
|
|
|
190
|
|
|
429
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KYPROLIS®
|
|
349
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|
|
182
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|
|
531
|
|
|
354
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|
|
179
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|
|
533
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Other products
|
|
2,007
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|
|
1,300
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|
|
3,307
|
|
|
2,022
|
|
|
1,139
|
|
|
3,161
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Total product sales(1)
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$
|
8,277
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|
|
$
|
3,429
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|
|
11,706
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|
|
$
|
8,707
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|
|
$
|
3,095
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|
|
11,802
|
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Other revenues
|
|
|
|
|
|
721
|
|
|
|
|
|
|
565
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Total revenues
|
|
|
|
|
|
$
|
12,427
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|
|
|
|
|
|
$
|
12,367
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____________
(1) Hedging gains and losses, which are included in product sales, were not material for the three and six months ended June 30, 2021 and 2020.
4. Income taxes
The effective tax rates for the three and six months ended June 30, 2021, were 16.8% and 12.6%, respectively, compared with 11.2% and 10.4%, respectively, for the corresponding periods of the prior year.
The increase in our effective tax rate for the three and six months ended June 30, 2021, was primarily due to the non-deductible IPR&D expense arising from the acquisition of Five Prime. The effective tax rates differ from the federal statutory rate primarily as a result of foreign earnings from the Company’s operations conducted in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes, that are subject to a tax incentive grant through 2035. In addition, the Company’s operations conducted in Singapore are subject to a tax incentive grant through 2034. These earnings are also subject to U.S. tax at a reduced rate of 10.5%.
The U.S. territory of Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. The rate of 4% is effective through December 31, 2027. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes may arise with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. In 2017, we received a Revenue Agent Report (RAR) and a modified RAR from the Internal Revenue Service (IRS) for the years 2010, 2011 and 2012 proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued a resolution with the IRS administrative appeals office. As previously reported, we were unable to reach resolution with the IRS appeals office. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for 2010, 2011 and 2012 that we received in May and July 2021. The duplicate Notices seek to increase our U.S. taxable income by an amount that would result in additional federal tax of approximately $3.6 billion, plus interest. Any additional tax that could be imposed would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings. In any event, we firmly believe that the IRS’s positions in the Notices are without merit and we will vigorously contest the Notices through the judicial process.
In addition, in 2020, we received an RAR and a modified RAR from the IRS for the years 2013, 2014 and 2015 also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico, similar to those proposed for the years 2010, 2011 and 2012. We disagree with the proposed adjustments and calculations and are pursuing resolution with the IRS administrative appeals office. We are currently under examination by the IRS for the years 2016, 2017 and 2018. We are also currently under examination by a number of other state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our condensed consolidated financial statements. We are no longer subject to U.S. federal income tax examinations for the years ended on or before December 31, 2009.
During the three and six months ended June 30, 2021, the gross amounts of our unrecognized tax benefits (UTBs) increased $50 million and $110 million, respectively, as a result of tax positions taken during the current year. Substantially all of the UTBs as of June 30, 2021, if recognized, would affect our effective tax rate.
5. Earnings per share
The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which primarily include shares that may be issued under our stock option, restricted stock and performance unit award programs (collectively, dilutive securities), as determined by using the treasury stock method.
The computations for basic and diluted EPS were as follows (in millions, except per-share data):
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Three months ended
June 30,
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Six months ended
June 30,
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2021
|
|
2020
|
|
2021
|
|
2020
|
Income (Numerator):
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|
|
|
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|
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Net income for basic and diluted EPS
|
$
|
464
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|
|
$
|
1,803
|
|
|
$
|
2,110
|
|
|
$
|
3,628
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|
|
|
|
|
|
|
|
|
Shares (Denominator):
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|
|
|
|
|
|
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Weighted-average shares for basic EPS
|
573
|
|
|
588
|
|
|
575
|
|
|
589
|
|
Effect of dilutive securities
|
3
|
|
|
4
|
|
|
3
|
|
|
4
|
|
Weighted-average shares for diluted EPS
|
576
|
|
|
592
|
|
|
578
|
|
|
593
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
$
|
0.81
|
|
|
$
|
3.07
|
|
|
$
|
3.67
|
|
|
$
|
6.16
|
|
Diluted EPS
|
$
|
0.81
|
|
|
$
|
3.05
|
|
|
$
|
3.65
|
|
|
$
|
6.12
|
|
For the three and six months ended June 30, 2021 and 2020, the number of antidilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.
6. Investments
Available-for-sale investments
The amortized cost, gross unrealized gains, gross unrealized losses and fair values of interest-bearing securities, which are considered available-for-sale, by type of security were as follows (in millions):
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Types of securities as of June 30, 2021
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
values
|
U.S. Treasury notes
|
|
$
|
51
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
52
|
|
U.S. Treasury bills
|
|
1,400
|
|
|
—
|
|
|
—
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
5,707
|
|
|
—
|
|
|
—
|
|
|
5,707
|
|
Other short-term interest-bearing securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing securities
|
|
$
|
7,158
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Types of securities as of December 31, 2020
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
values
|
U.S. Treasury notes
|
|
$
|
129
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
130
|
|
U.S. Treasury bills
|
|
4,948
|
|
|
—
|
|
|
—
|
|
|
4,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
4,765
|
|
|
—
|
|
|
—
|
|
|
4,765
|
|
Other short-term interest-bearing securities
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Total interest-bearing securities
|
|
$
|
9,844
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
9,845
|
|
The fair values of interest-bearing securities by location in the Condensed Consolidated Balance Sheets were as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets locations
|
|
June 30, 2021
|
|
December 31, 2020
|
Cash and cash equivalents
|
|
$
|
5,707
|
|
|
$
|
5,464
|
|
Marketable securities
|
|
1,452
|
|
|
4,381
|
|
Total interest-bearing securities
|
|
$
|
7,159
|
|
|
$
|
9,845
|
|
Cash and cash equivalents in the above table excludes bank account cash of $923 million and $802 million as of June 30, 2021 and December 31, 2020, respectively.
The fair values of available-for-sale investments by contractual maturity were as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities
|
|
June 30, 2021
|
|
December 31, 2020
|
Maturing in one year or less
|
|
$
|
7,159
|
|
|
$
|
9,795
|
|
Maturing after one year through three years
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
7,159
|
|
|
$
|
9,845
|
|
For the three and six months ended June 30, 2021 and 2020, realized gains and losses on interest-bearing securities were not material. Realized gains and losses on interest-bearing securities are recorded in Other income, net, in the Condensed Consolidated Statements of Income. The cost of securities sold is based on the specific-identification method.
The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.
Equity securities
We held investments in equity securities with readily determinable fair values (publicly traded securities) of $403 million and $477 million as of June 30, 2021 and December 31, 2020, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. For the three months ended June 30, 2021 and 2020, net unrealized gains on publicly traded securities were $25 million and $80 million, respectively. For the six months ended June 30, 2021 and 2020, net unrealized gains and losses on publicly traded securities were a $31 million net loss and a $5 million net gain, respectively. Realized gains and losses on publicly traded securities for the three and six months ended June 30, 2021 and 2020, were not material.
We held investments of $245 million and $203 million in equity securities without readily determinable fair values as of June 30, 2021 and December 31, 2020, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. Gains and losses recognized on these securities, including adjustments to the carrying values of these securities, were not material for the three and six months ended June 30, 2021.
Equity method investments
Limited partnerships
We held limited partnership investments of $616 million and $496 million as of June 30, 2021 and December 31, 2020, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. These investments, primarily investment funds of early-stage biotechnology companies, are accounted for by using the equity method of accounting and are measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. As of June 30, 2021, unfunded additional commitments to be made for these investments during the next several years were not material. For the three months ended June 30, 2021 and 2020, net unrealized losses from our limited partnership investments were $43 million and $10 million, respectively. For the six months ended June 30, 2021 and 2020, net unrealized gains from our limited partnership investments were $165 million and $10 million, respectively.
BeiGene, Ltd.
As of June 30, 2021, we had an ownership interest of approximately 20.3% in BeiGene, Ltd. (BeiGene), which is included in Other assets in the Condensed Consolidated Balance Sheets and accounted for under the equity method of accounting. We amortize the difference between the fair value of equity securities acquired and our proportionate share of the carrying value of the underlying net assets of BeiGene over the useful lives of the assets that gave rise to this basis difference. This amortization and our share of the results of operations of BeiGene are included in Other income, net, in the Condensed Consolidated Statements of Income one quarter in arrears, which began in the second quarter of 2020.
During the three and six months ended June 30, 2021, the carrying value of our equity investment was adjusted by our share of BeiGene’s net income of $14 million and net loss of $83 million, respectively, and amortization of the basis difference of $42 million and $84 million, respectively. In addition, during the three and six months ended June 30, 2021, the carrying value increased by $21 million and $38 million, respectively, from the impact of BeiGene ownership transactions. As of June 30, 2021, the carrying value and fair value of our investment in BeiGene totaled $2.8 billion and $6.4 billion, respectively. As of June 30, 2021, we believe the carrying value of our equity investment in BeiGene is fully recoverable.
7. Inventories
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Raw materials
|
$
|
641
|
|
|
$
|
486
|
|
Work in process
|
2,443
|
|
|
2,437
|
|
Finished goods
|
1,031
|
|
|
970
|
|
Total inventories
|
$
|
4,115
|
|
|
$
|
3,893
|
|
8. Goodwill and other intangible assets
Goodwill
The change in the carrying amount of goodwill was as follows (in millions):
|
|
|
|
|
|
|
Six months ended
June 30, 2021
|
Beginning balance
|
$
|
14,689
|
|
Currency translation adjustment
|
(13)
|
|
Ending balance
|
$
|
14,676
|
|
Other intangible assets
Other intangible assets consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Gross
carrying
amounts
|
|
Accumulated
amortization
|
|
Other intangible
assets, net
|
|
Gross
carrying
amounts
|
|
Accumulated
amortization
|
|
Other intangible
assets, net
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Developed-product-technology rights
|
$
|
25,584
|
|
|
$
|
(11,673)
|
|
|
$
|
13,911
|
|
|
$
|
25,591
|
|
|
$
|
(10,564)
|
|
|
$
|
15,027
|
|
Licensing rights
|
3,766
|
|
|
(2,886)
|
|
|
880
|
|
|
3,743
|
|
|
(2,791)
|
|
|
952
|
|
Marketing-related rights
|
1,363
|
|
|
(1,079)
|
|
|
284
|
|
|
1,367
|
|
|
(1,041)
|
|
|
326
|
|
Research and development technology rights
|
1,308
|
|
|
(1,105)
|
|
|
203
|
|
|
1,317
|
|
|
(1,065)
|
|
|
252
|
|
Total finite-lived intangible assets
|
32,021
|
|
|
(16,743)
|
|
|
15,278
|
|
|
32,018
|
|
|
(15,461)
|
|
|
16,557
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
30
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Total other intangible assets
|
$
|
32,051
|
|
|
$
|
(16,743)
|
|
|
$
|
15,308
|
|
|
$
|
32,048
|
|
|
$
|
(15,461)
|
|
|
$
|
16,587
|
|
Developed-product-technology rights consists of rights related to marketed products. Licensing rights primarily consists of contractual rights to receive future milestone, royalty and profit-sharing payments; capitalized payments to third parties for milestones related to regulatory approvals to commercialize products; and upfront payments associated with royalty obligations for marketed products. Marketing-related rights primarily consists of rights related to the sale and distribution of marketed products. Research and development (R&D) technology rights pertains to technologies used in R&D that have alternative future uses.
IPR&D consists of R&D projects acquired in a business combination that are not complete at the time of acquisition due to remaining technological risks and/or lack of receipt of required regulatory approvals. We review IPR&D projects for impairment annually, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable and upon the establishment of technological feasibility or regulatory approval.
During the three months ended June 30, 2021 and 2020, we recognized amortization associated with our finite-lived intangible assets of $652 million and $713 million, respectively. During the six months ended June 30, 2021 and 2020, we recognized amortization associated with our finite-lived intangible assets of $1.3 billion and $1.4 billion, respectively. Amortization of intangible assets is primarily included in Cost of sales in the Condensed Consolidated Statements of Income. The total estimated amortization for our finite-lived intangible assets for the remaining six months ending December 31, 2021, and the years ending December 31, 2022, 2023, 2024, 2025 and 2026, are $1.2 billion, $2.5 billion, $2.4 billion, $2.4 billion, $2.2 billion and $1.8 billion, respectively.
9. Financing arrangements
Our borrowings consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
1.25% €1,250 million notes due 2022 (1.25% 2022 euro Notes)
|
$
|
1,482
|
|
|
$
|
1,527
|
|
2.70% notes due 2022 (2.70% 2022 Notes)
|
500
|
|
|
500
|
|
2.65% notes due 2022 (2.65% 2022 Notes)
|
1,500
|
|
|
1,500
|
|
3.625% notes due 2022 (3.625% 2022 Notes)
|
750
|
|
|
750
|
|
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds)
|
757
|
|
|
791
|
|
2.25% notes due 2023 (2.25% 2023 Notes)
|
750
|
|
|
750
|
|
3.625% notes due 2024 (3.625% 2024 Notes)
|
1,400
|
|
|
1,400
|
|
1.90% notes due 2025 (1.90% 2025 Notes)
|
500
|
|
|
500
|
|
3.125% notes due 2025 (3.125% 2025 Notes)
|
1,000
|
|
|
1,000
|
|
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes)
|
889
|
|
|
916
|
|
2.60% notes due 2026 (2.60% 2026 Notes)
|
1,250
|
|
|
1,250
|
|
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes)
|
657
|
|
|
649
|
|
2.20% notes due 2027 (2.20% 2027 Notes)
|
1,750
|
|
|
1,750
|
|
3.20% notes due 2027 (3.20% 2027 Notes)
|
1,000
|
|
|
1,000
|
|
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes)
|
968
|
|
|
957
|
|
2.45% notes due 2030 (2.45% 2030 Notes)
|
1,250
|
|
|
1,250
|
|
2.30% notes due 2031 (2.30% 2031 Notes)
|
1,250
|
|
|
1,250
|
|
6.375% notes due 2037 (6.375% 2037 Notes)
|
478
|
|
|
478
|
|
6.90% notes due 2038 (6.90% 2038 Notes)
|
254
|
|
|
254
|
|
6.40% notes due 2039 (6.40% 2039 Notes)
|
333
|
|
|
333
|
|
3.15% notes due 2040 (3.15% 2040 Notes)
|
2,000
|
|
|
2,000
|
|
5.75% notes due 2040 (5.75% 2040 Notes)
|
373
|
|
|
373
|
|
4.95% notes due 2041 (4.95% 2041 Notes)
|
600
|
|
|
600
|
|
5.15% notes due 2041 (5.15% 2041 Notes)
|
729
|
|
|
729
|
|
5.65% notes due 2042 (5.65% 2042 Notes)
|
415
|
|
|
415
|
|
5.375% notes due 2043 (5.375% 2043 Notes)
|
185
|
|
|
185
|
|
4.40% notes due 2045 (4.40% 2045 Notes)
|
2,250
|
|
|
2,250
|
|
4.563% notes due 2048 (4.563% 2048 Notes)
|
1,415
|
|
|
1,415
|
|
3.375% notes due 2050 (3.375% 2050 Notes)
|
2,250
|
|
|
2,250
|
|
4.663% notes due 2051 (4.663% 2051 Notes)
|
3,541
|
|
|
3,541
|
|
2.77% notes due 2053 (2.77% 2053 Notes)
|
940
|
|
|
940
|
|
Other notes due 2097
|
100
|
|
|
100
|
|
Unamortized bond discounts, premiums and issuance costs, net
|
(1,174)
|
|
|
(1,188)
|
|
Fair value adjustments
|
424
|
|
|
566
|
|
Other
|
16
|
|
|
5
|
|
Total carrying value of debt
|
32,782
|
|
|
32,986
|
|
Less current portion
|
(4,324)
|
|
|
(91)
|
|
Total long-term debt
|
$
|
28,458
|
|
|
$
|
32,895
|
|
There are no material differences between the effective interest rates and coupon rates of any of our borrowings, except for the 4.563% 2048 Notes, the 4.663% 2051 Notes and the 2.77% 2053 Notes, which have effective interest rates of 6.3%, 5.6% and 5.2%, respectively.
During the three months ended June 30, 2021, we entered into the following interest rate swap contracts: (i) $1.0 billion notional amount with respect to the 2.45% 2030 Notes, resulting in an effective interest rate of three-month LIBOR plus 1.0% for that portion of the notes, and (ii) $500 million notional amount with respect to the 2.30% 2031 Notes, resulting in an effective interest rate of three-month LIBOR plus 0.8% for that portion of the notes.
10. Stockholders’ equity
Stock repurchase program
Activity under our stock repurchase program, on a trade date basis, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
First quarter
|
3.7
|
|
|
$
|
865
|
|
|
4.3
|
|
|
$
|
933
|
|
Second quarter
|
6.5
|
|
|
1,592
|
|
|
2.6
|
|
|
591
|
|
|
|
|
|
|
|
|
|
Total stock repurchases
|
10.2
|
|
|
$
|
2,457
|
|
|
6.9
|
|
|
$
|
1,524
|
|
In March 2021, our Board of Directors increased the amount authorized under our stock repurchase program by an additional $3.4 billion. As of June 30, 2021, $3.9 billion of authorization remained available under our stock repurchase program.
Dividends
In March 2021 and December 2020, the Board of Directors declared a quarterly cash dividend of $1.76 per share, which were paid in June 2021 and March 2021, respectively. In July 2021, the Board of Directors declared a quarterly cash dividend of $1.76 per share, which will be paid on September 8, 2021.
Accumulated other comprehensive income (loss)
The components of Accumulated other comprehensive income (loss) (AOCI) were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
translation
|
|
Cash flow
hedges
|
|
Available-for-sale
securities
|
|
Other
|
|
AOCI
|
Balance as of December 31, 2020
|
$
|
(709)
|
|
|
$
|
(263)
|
|
|
$
|
1
|
|
|
$
|
(14)
|
|
|
$
|
(985)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(39)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39)
|
|
Unrealized gains
|
—
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
108
|
|
Reclassification adjustments to income
|
—
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
133
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Income taxes
|
—
|
|
|
(51)
|
|
|
—
|
|
|
—
|
|
|
(51)
|
|
Balance as of March 31, 2021
|
(748)
|
|
|
(73)
|
|
|
1
|
|
|
(13)
|
|
|
(833)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Unrealized losses
|
—
|
|
|
(31)
|
|
|
—
|
|
|
—
|
|
|
(31)
|
|
Reclassification adjustments to income
|
—
|
|
|
(28)
|
|
|
—
|
|
|
—
|
|
|
(28)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Income taxes
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Balance as of June 30, 2021
|
$
|
(734)
|
|
|
$
|
(121)
|
|
|
$
|
1
|
|
|
$
|
(14)
|
|
|
$
|
(868)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications out of AOCI and into earnings, including related income tax expenses, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Components of AOCI
|
|
2021
|
|
2020
|
|
Condensed Consolidated
Statements of Income locations
|
Cash flow hedges:
|
|
|
|
|
|
|
Foreign currency contract (losses) gains
|
|
$
|
(18)
|
|
|
$
|
68
|
|
|
Product sales
|
Cross-currency swap contract gains
|
|
46
|
|
|
51
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
28
|
|
|
119
|
|
|
Income before income taxes
|
|
|
(6)
|
|
|
(26)
|
|
|
Provision for income taxes
|
|
|
$
|
22
|
|
|
$
|
93
|
|
|
Net income
|
Available-for-sale securities:
|
|
|
|
|
|
|
Net realized gains
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other income, net
|
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
Components of AOCI
|
|
2021
|
|
2020
|
|
Condensed Consolidated
Statements of Income locations
|
Cash flow hedges:
|
|
|
|
|
|
|
Foreign currency contract (losses) gains
|
|
$
|
(19)
|
|
|
$
|
117
|
|
|
Product sales
|
Cross-currency swap contract losses
|
|
(86)
|
|
|
(82)
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
(105)
|
|
|
35
|
|
|
Income before income taxes
|
|
|
22
|
|
|
(8)
|
|
|
Provision for income taxes
|
|
|
$
|
(83)
|
|
|
$
|
27
|
|
|
Net income
|
Available-for-sale securities:
|
|
|
|
|
|
|
Net realized gains
|
|
$
|
—
|
|
|
$
|
33
|
|
|
Other income, net
|
|
|
—
|
|
|
(7)
|
|
|
Provision for income taxes
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
Net income
|
11. 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 different 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
Fair value measurement as of June 30, 2021, using:
|
|
|
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52
|
|
U.S. Treasury bills
|
|
1,400
|
|
|
—
|
|
|
—
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
5,707
|
|
|
—
|
|
|
—
|
|
|
5,707
|
|
Other short-term interest-bearing securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity securities
|
|
403
|
|
|
—
|
|
|
—
|
|
|
403
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
—
|
|
|
62
|
|
|
—
|
|
|
62
|
|
Cross-currency swap contracts
|
|
—
|
|
|
182
|
|
|
—
|
|
|
182
|
|
Interest rate swap contracts
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,562
|
|
|
$
|
289
|
|
|
$
|
—
|
|
|
$
|
7,851
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
—
|
|
|
$
|
119
|
|
|
$
|
—
|
|
|
$
|
119
|
|
Cross-currency swap contracts
|
|
—
|
|
|
305
|
|
|
—
|
|
|
305
|
|
Interest rate swap contracts
|
|
—
|
|
|
90
|
|
|
—
|
|
|
90
|
|
Contingent consideration obligations
|
|
—
|
|
|
—
|
|
|
48
|
|
|
48
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
514
|
|
|
$
|
48
|
|
|
$
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
Fair value measurement as of December 31, 2020, using:
|
|
|
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
130
|
|
U.S. Treasury bills
|
|
4,948
|
|
|
—
|
|
|
—
|
|
|
4,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
4,765
|
|
|
—
|
|
|
—
|
|
|
4,765
|
|
Other short-term interest-bearing securities
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Equity securities
|
|
477
|
|
|
—
|
|
|
—
|
|
|
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
|
|
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.
Derivatives
All of our foreign currency forward 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 LLC (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 12, 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 12, 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 12, Derivative instruments.
During the three and six months ended June 30, 2021 and 2020, there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis.
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 June 30, 2021 and December 31, 2020, the aggregate fair values of our borrowings were $37.9 billion and $39.4 billion, respectively, and the carrying values were $32.8 billion and $33.0 billion, respectively.
12. Derivative instruments
The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to such exposures, we use or have used certain derivative instruments, including foreign currency forward, cross-currency swap, forward interest rate and interest rate swap contracts. We do not use derivatives for speculative trading purposes.
Cash flow hedges
We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates primarily associated with our euro-denominated international product sales. Increases and decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are partially offset by corresponding increases and decreases in the cash flows from our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations with regard to our international product sales, we enter into foreign currency forward contracts to hedge a portion of our projected international product sales up to a maximum of three years into the future, and at any given point in time, a higher percentage of nearer-term projected product sales are being hedged than in successive periods.
As of June 30, 2021 and December 31, 2020, we had outstanding foreign currency forward contracts with aggregate notional amounts of $5.2 billion and $5.1 billion, respectively. We have designated these foreign currency forward contracts, which are primarily euro based, as cash flow hedges. Accordingly, we report the unrealized gains and losses on these contracts in AOCI in the Condensed Consolidated Balance Sheets, and we reclassify them to Product sales in the Condensed Consolidated Statements of Income in the same periods during which the hedged transactions affect earnings.
To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term debt denominated in foreign currencies, we enter into cross-currency swap contracts. Under the terms of such contracts, we paid euros, pounds sterling and Swiss francs and received U.S. dollars for the notional amounts at the inception of the contracts; and based on these notional amounts, we exchange interest payments at fixed rates over the lives of the contracts by paying U.S. dollars and receiving euros, pounds sterling and Swiss francs. In addition, we will pay U.S. dollars to and receive euros, pounds sterling and Swiss francs from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged debt, thereby effectively converting the interest payments and principal repayment on the debt from euros, pounds sterling and Swiss francs to U.S. dollars. We have designated these cross-currency swap contracts as cash flow hedges. Accordingly, the unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and reclassified to Other income, net, in the Condensed Consolidated Statements of Income in the same periods during which the hedged debt affects earnings.
The notional amounts and interest rates of our cross-currency swaps as of June 30, 2021, were as follows (notional amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
U.S. dollars
|
Hedged notes
|
|
Notional amounts
|
|
Interest rates
|
|
Notional amounts
|
|
Interest rates
|
|
|
|
|
|
|
|
|
|
1.25% 2022 euro Notes
|
|
€
|
1,250
|
|
|
1.3
|
%
|
|
$
|
1,388
|
|
|
3.2
|
%
|
0.41% 2023 Swiss franc Bonds
|
|
CHF
|
700
|
|
|
0.4
|
%
|
|
$
|
704
|
|
|
3.4
|
%
|
2.00% 2026 euro Notes
|
|
€
|
750
|
|
|
2.0
|
%
|
|
$
|
833
|
|
|
3.9
|
%
|
5.50% 2026 pound sterling Notes
|
|
£
|
475
|
|
|
5.5
|
%
|
|
$
|
747
|
|
|
6.0
|
%
|
4.00% 2029 pound sterling Notes
|
|
£
|
700
|
|
|
4.0
|
%
|
|
$
|
1,111
|
|
|
4.5
|
%
|
In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable U.S. Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on forward interest rate contracts, which are designated as cash flow hedges, are recognized in AOCI in the Condensed Consolidated Balance Sheets and are amortized into Interest expense, net, in the Condensed Consolidated Statements of Income over the lives of the associated debt issuances. Amounts recognized in connection with forward interest rate swaps during the six months ended June 30, 2021, and amounts expected to be recognized during the subsequent 12 months are not material.
The unrealized gains and losses recognized in AOCI for our derivative instruments designated as cash flow hedges were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
Derivatives in cash flow hedging relationships
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign currency contracts
|
|
$
|
(46)
|
|
|
$
|
(101)
|
|
|
$
|
137
|
|
|
$
|
138
|
|
Cross-currency swap contracts
|
|
15
|
|
|
71
|
|
|
(60)
|
|
|
(330)
|
|
|
|
|
|
|
|
|
|
|
Total unrealized (losses) gains
|
|
$
|
(31)
|
|
|
$
|
(30)
|
|
|
$
|
77
|
|
|
$
|
(192)
|
|
Fair value hedges
To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that qualified for and were designated as fair value hedges. These interest rate swap contracts effectively convert fixed-rate coupons to floating-rate LIBOR-based coupons over the terms of the related hedge contracts. As of June 30, 2021 and December 31, 2020, we had interest rate swap contracts with aggregate notional amounts of $7.4 billion and $5.9 billion, respectively, that hedge certain portions of our long-term debt issuances. During the three months ended June 30, 2021, we entered into $1.5 billion of interest rate swap contracts to hedge portions of our 2.45% 2030 Notes and 2.30% 2031 Notes (see Note 9, Financing arrangements).
For interest rate swap contracts that qualify for and are designated as fair value hedges, we recognize in Interest expense, net, in the Condensed Consolidated Statements of Income the unrealized gain or loss on the derivative resulting from the change in fair value during the period, as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk. If a hedging relationship involving an interest rate swap contract is terminated, the gain or loss realized on contract termination is recorded as an adjustment to the carrying value of the debt and amortized into Interest expense, net, over the remaining life of the previously hedged debt.
The hedged liabilities and related cumulative-basis adjustments for fair value hedges of those liabilities were recorded in the Condensed Consolidated Balance Sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of hedged liabilities(1)
|
|
Cumulative amounts of fair value hedging adjustments related to the carrying amounts of the hedged liabilities(2)
|
Condensed Consolidated Balance Sheets locations
|
|
June 30, 2021
|
|
December 31, 2020
|
|
June 30, 2021
|
|
December 31, 2020
|
Current portion of long-term debt
|
|
$
|
844
|
|
|
$
|
89
|
|
|
$
|
94
|
|
|
$
|
89
|
|
Long-term debt
|
|
$
|
6,857
|
|
|
$
|
6,258
|
|
|
$
|
330
|
|
|
$
|
477
|
|
____________
(1) Current portion of long-term debt includes $89 million of carrying value with discontinued hedging relationships as of both June 30, 2021 and December 31, 2020. Long-term debt includes $481 million and $525 million of carrying value with discontinued hedging relationships as of June 30, 2021 and December 31, 2020, respectively.
(2) Current portion of long-term debt includes $89 million of hedging adjustments on discontinued hedging relationships as of both June 30, 2021 and December 31, 2020. Long-term debt includes $381 million and $425 million of hedging adjustments on discontinued hedging relationships as of June 30, 2021 and December 31, 2020, respectively.
Impact of hedging transactions
The following tables summarize the amounts recorded in income and expense line items and the effects thereon from fair value and cash flow hedging, including discontinued hedging relationships (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
Six months ended June 30, 2021
|
|
|
Product sales
|
|
Other income, net
|
|
Interest expense, net
|
|
Product sales
|
|
Other income, net
|
|
Interest expense, net
|
Total amounts recorded in income and (expense) line items presented in the Condensed Consolidated Statements of Income
|
|
$
|
6,114
|
|
|
$
|
11
|
|
|
$
|
(281)
|
|
|
$
|
11,706
|
|
|
$
|
24
|
|
|
$
|
(566)
|
|
The effects of cash flow and fair value hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) gains on cash flow hedging relationships reclassified out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(18)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(19)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cross-currency swap contracts
|
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(86)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) gains on fair value hedging relationships—interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(34)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141
|
|
Derivatives designated as hedging instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(97)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
Six months ended June 30, 2020
|
|
|
Product sales
|
|
Other income, net
|
|
Interest expense, net
|
|
Product sales
|
|
Other income, net
|
|
Interest expense, net
|
Total amounts recorded in income and (expense) line items presented in the Condensed Consolidated Statements of Income
|
|
$
|
5,908
|
|
|
$
|
3
|
|
|
$
|
(296)
|
|
|
$
|
11,802
|
|
|
$
|
14
|
|
|
$
|
(642)
|
|
The effects of cash flow and fair value hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedging relationships reclassified out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cross-currency swap contracts
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(82)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) gains on fair value hedging relationships—interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(30)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
180
|
|
Derivatives designated as hedging instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(137)
|
|
__________
(1) Gains on hedged items do not exactly offset losses on the related designated hedging instruments due to amortization of the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedged debt for discontinued hedging relationships and the recognition of gains on terminated hedges when the corresponding hedged item was paid down in the period.
No portions of our cash flow hedge contracts were excluded from the assessment of hedge effectiveness. As of June 30, 2021, the net gains expected to be reclassified on our foreign currency and cross-currency swap contracts out of AOCI and into earnings during the next 12 months are not material.
Derivatives not designated as hedges
To reduce our exposure to foreign currency fluctuations in certain assets and liabilities denominated in foreign currencies, we enter into foreign currency forward contracts that are not designated as hedging transactions. Most of these exposures are hedged on a month-to-month basis. As of June 30, 2021 and December 31, 2020, the total notional amounts of these foreign currency forward contracts were $0.8 billion and $1.0 billion, respectively. Gains and losses recognized in earnings for our derivative instruments not designated as hedging instruments were not material for the three and six months ended June 30, 2021 and 2020.
The fair values of derivatives included in the Condensed Consolidated Balance Sheets were as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
Derivative liabilities
|
June 30, 2021
|
|
Condensed Consolidated
Balance Sheets locations
|
|
Fair values
|
|
Condensed Consolidated
Balance Sheets locations
|
|
Fair values
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other current assets/ Other assets
|
|
$
|
62
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
$
|
119
|
|
Cross-currency swap contracts
|
|
Other current assets/ Other assets
|
|
182
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
305
|
|
Interest rate swap contracts
|
|
Other current assets/ Other assets
|
|
45
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
289
|
|
|
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
Derivative liabilities
|
December 31, 2020
|
|
Condensed Consolidated
Balance Sheets locations
|
|
Fair values
|
|
Condensed Consolidated
Balance Sheets locations
|
|
Fair values
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other current assets/ Other assets
|
|
$
|
28
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
$
|
237
|
|
Cross-currency swap contracts
|
|
Other current assets/ Other assets
|
|
255
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
318
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
Other current assets/ Other assets
|
|
66
|
|
|
Accrued liabilities/ Other noncurrent liabilities
|
|
15
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
349
|
|
|
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Our derivative contracts that were in liability positions as of June 30, 2021, contain certain credit-risk-related contingent provisions that would be triggered if (i) we were to undergo a change in control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then-current fair values of the contracts. In addition, our derivative contracts are not subject to any type of master netting arrangement, and amounts due either to or from a counterparty under the contracts may be offset against other amounts due either to or from the same counterparty only if an event of default or termination, as defined, were to occur.
The cash flow effects of our derivative contracts in the Condensed Consolidated Statements of Cash Flows are included in Net cash provided by operating activities, except for the settlement of notional amounts of cross-currency swaps, which are included in Net cash used in financing activities.
13. Contingencies and commitments
Contingencies
In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. See our Annual Report on Form 10-K for the year ended December 31, 2020, Part I, Item 1A. Risk Factors—Our business may be affected by litigation and government investigations. We describe our legal proceedings and other matters that are significant or that we believe could become significant in this footnote; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; and in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021.
We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Our legal proceedings involve various aspects of our business and a variety of claims, some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; or in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, in which we could incur a liability, our opponents seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process, which in complex proceedings of the sort we face often extend for several years. As a result, none of the matters described in this filing; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; or in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, in which we could incur a liability, have progressed sufficiently through discovery and/or the development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Certain recent developments concerning our legal proceedings and other matters are discussed below:
Abbreviated New Drug Application (ANDA) Patent Litigation
Otezla® ANDA Patent Litigation
Amgen Inc. v. Sandoz Inc., et al.
On May 5, 2021, based on a joint request by Amgen and Cipla Limited (Cipla Ltd), the U.S. District Court for the District of New Jersey (the New Jersey District Court) entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Cipla Ltd’s apremilast product during the term of U.S. Patent Nos. 6,962,940 (the ’940 Patent); 7,427,638 (the ’638 Patent), 7,659,302 (the ’302 Patent), 8,455,536 (the ’536 Patent), 9,724,330 (the ’330 Patent) and 10,092,541 (the ’541 Patent), unless authorized pursuant to a confidential settlement agreement. On May 14, 2021, based on a joint request by Amgen and Torrent Pharmaceuticals Ltd. (Torrent), the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Torrent’s apremilast product during the term of the U.S. Patent Nos. 7,893,101 (the ’101 Patent), 9,872,854 (the ’854 Patent) and the ’638 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 19, 2021, based on a joint request by Amgen and Alkem Laboratories Ltd. (Alkem), the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Alkem’s apremilast product during the term of the ’940, ’638, ’302, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 25, 2021, based on a joint request by Amgen and MSN Laboratories Private Limited (MSN), the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of MSN’s apremilast product during the term of the ’940, ’638, ’302, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On June 11, 2021, based on a joint request by Amgen and Pharmascience Inc. (Pharmascience), the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Pharmascience’s apremilast product during the term of U.S. Patent No. 9,018,243 (the ’243 Patent) and the ’940, ’638, ’302, ’101, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On June 17, 2021, based on a joint request by Amgen and Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. (collectively, DRL) , the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of DRL’s
apremilast product during the term of the ’638, ’101, ’536 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement.
Trial on the consolidated patent infringement action was held at the New Jersey District Court from June 14 to 25, 2021 with closing arguments on July 28, 2021. The remaining defendants are Sandoz Inc. and Zydus Pharmaceuticals (USA) Inc.
ENBREL Patent Litigation
Immunex Corporation, et al. v. Sandoz Inc., et al.
On May 17, 2021, the U.S. Supreme Court denied the petition of Sandoz Inc., Sandoz International GmbH and Sandoz GmbH for certiorari seeking review of the Federal Circuit Court’s affirmance of the validity of U.S. Patent Nos. 8,063,182 and 8,163,522.
Repatha® Patent Litigation
Amgen Inc., et al. v. Sanofi, et al.
On June 21, 2021, the Federal Circuit Court denied our petition for rehearing en banc of the Federal Circuit Court’s ruling that claims 19 and 29 of our U.S. Patent No. 8,829,165 and claim 7 of our U.S. Patent No. 8,859,741 are invalid for failing to meet the enablement requirement.
NEUPOGEN® (filgrastim)/Neulasta® Patent Litigation
Amgen Inc., et al. v. Hospira Inc. et al.
On June 11, 2021, after having held a claim construction hearing, the U.S. District Court for the District of Delaware (Delaware District Court) determined that the term at issue required no construction, and on July 14, the Delaware District Court set a briefing schedule for summary judgment motions.
Patent Trial and Appeal Board (PTAB) Challenge
Lupin PTAB Challenge
On July 12, 2021, the PTAB of the U.S. Patent and Trademark Office issued a decision denying institution of Lupin Limited’s petition for inter partes review of U.S. Patent No. 9,856,287.
Apotex PTAB Challenge
On June 21, 2021, the U.S. Supreme Court decided United States v. Arthrex, Inc. On June 28, 2021, the Supreme Court granted the government’s pending certiorari petition and vacated and remanded the Federal Circuit Court’s judgment for further consideration under Arthrex.
Breach of Contract Action
Novartis Pharma AG v. Amgen Inc.
On June 2, 2021, the parties executed agreements to settle two claims in the litigation, relating to the 2018 budget overrun dispute and certain counterclaims alleging breaches by Novartis Pharma AG (Novartis) of the 2015 and 2017 collaboration agreements related to the development and commercialization of Aimovig® (erenumab-aooe), and to amend and restate the 2017 collaboration agreement. As part of the agreement, Amgen paid $48 million to Novartis to resolve the 2018 budget dispute, and Novartis is in the process of transitioning U.S. commercial operations to Amgen.
Antitrust Class Action
Sensipar® (cinacalcet) Antitrust Class Actions
On April 27, 2021, plaintiffs filed their oppositions to defendants’ (including Amgen’s) motion to dismiss, and defendants’ reply was filed on May 25, 2021. A hearing on defendants’ motion to dismiss was held in the Delaware District Court on July 13, 2021.
U.S. Tax Litigation
Amgen Inc. & Subsidiaries v. Commissioner of Internal Revenue
See Note 4, Income taxes, for discussion of the IRS tax dispute and the Company’s petition in the U.S. Tax Court.
14. Subsequent events
On June 1, 2021, Amgen and Kyowa Kirin Co., Ltd. (KKC) announced a collaboration and licensing agreement to jointly develop and commercialize KHK4083, an anti-OX40 fully human monoclonal antibody, worldwide, except in Japan. The transaction closed on July 30, 2021, upon expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Amgen will make an upfront payment of $400 million to KKC, to be recognized as R&D expense in the third quarter of 2021.