filings.toolsItem 1. Financial Statements
119K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
(Unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars and shares in millions, except per-share data)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenue (Note 2) | $ | 8,768.0 | $ | 6,960.0 | |||||||||||||||||||
| Costs, expenses, and other: | |||||||||||||||||||||||
| Cost of sales | 1,673.5 | 1,626.7 | |||||||||||||||||||||
| Research and development | 2,522.8 | 1,985.1 | |||||||||||||||||||||
| Marketing, selling, and administrative | 1,952.2 | 1,749.2 | |||||||||||||||||||||
| Acquired in-process research and development (Note 3) | 110.5 | 105.0 | |||||||||||||||||||||
| Other–net, (income) expense (Note 11) | (27.1) | (35.7) | |||||||||||||||||||||
| 6,231.9 | 5,430.3 | ||||||||||||||||||||||
| Income before income taxes | 2,536.1 | 1,529.7 | |||||||||||||||||||||
| Income taxes (Note 7) | 293.2 | 184.8 | |||||||||||||||||||||
| Net income | $ | 2,242.9 | $ | 1,344.9 | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.49 | $ | 1.49 | |||||||||||||||||||
| Diluted | $ | 2.48 | $ | 1.49 | |||||||||||||||||||
| Shares used in calculation of earnings per share: | |||||||||||||||||||||||
| Basic | 900.8 | 901.0 | |||||||||||||||||||||
| Diluted | 903.8 | 903.3 |
See notes to consolidated condensed financial statements.
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income | $ | 2,242.9 | $ | 1,344.9 | |||||||||||||||||||
| Other comprehensive income, net of tax (Note 10) | 27.5 | 67.3 | |||||||||||||||||||||
| Comprehensive income | $ | 2,270.4 | $ | 1,412.2 |
See notes to consolidated condensed financial statements.
Consolidated Condensed Balance Sheets
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | (Unaudited) | ||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents (Note 6) | $ | 2,460.2 | $ | 2,818.6 | |||||||
| Short-term investments (Note 6) | 126.1 | 109.1 | |||||||||
| Accounts receivable, net of allowances of $14.3 (2024) and $14.8 (2023) | 7,885.6 | 9,090.5 | |||||||||
| Other receivables | 2,127.9 | 2,245.7 | |||||||||
| Inventories (Note 5) | 6,101.8 | 5,772.8 | |||||||||
| Prepaid expenses | 6,348.6 | 5,540.8 | |||||||||
| Other current assets | 138.6 | 149.5 | |||||||||
| Total current assets | 25,188.8 | 25,727.0 | |||||||||
| Investments (Note 6) | 3,086.9 | 3,052.2 | |||||||||
| Goodwill | 4,939.6 | 4,939.7 | |||||||||
| Other intangibles, net | 6,762.2 | 6,906.6 | |||||||||
| Deferred tax assets | 5,633.9 | 5,477.3 | |||||||||
| Property and equipment, net of accumulated depreciation of $11,235.0 (2024) and $11,099.3 (2023) | 13,624.0 | 12,913.6 | |||||||||
| Other noncurrent assets | 4,708.1 | 4,989.9 | |||||||||
| Total assets | $ | 63,943.5 | $ | 64,006.3 | |||||||
| Liabilities and Equity | |||||||||||
| Current Liabilities | |||||||||||
| Short-term borrowings and current maturities of long-term debt | $ | 1,651.5 | $ | 6,904.5 | |||||||
| Accounts payable | 2,473.7 | 2,598.8 | |||||||||
| Employee compensation | 844.2 | 1,650.4 | |||||||||
| Sales rebates and discounts | 9,429.6 | 11,689.0 | |||||||||
| Dividends payable | — | 1,169.2 | |||||||||
| Other current liabilities | 4,199.1 | 3,281.3 | |||||||||
| Total current liabilities | 18,598.1 | 27,293.2 | |||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term debt | 24,559.9 | 18,320.8 | |||||||||
| Accrued retirement benefits (Note 8) | 1,427.9 | 1,438.8 | |||||||||
| Long-term income taxes payable | 4,189.4 | 3,849.2 | |||||||||
| Other noncurrent liabilities | 2,270.8 | 2,240.6 | |||||||||
| Total noncurrent liabilities | 32,448.0 | 25,849.4 | |||||||||
| Commitments and Contingencies (Note 9) | |||||||||||
| Eli Lilly and Company Shareholders' Equity | |||||||||||
| Common stock | 594.2 | 593.6 | |||||||||
| Additional paid-in capital | 7,009.5 | 7,250.4 | |||||||||
| Retained earnings | 12,553.9 | 10,312.3 | |||||||||
| Employee benefit trust | (3,013.2) | (3,013.2) | |||||||||
| Accumulated other comprehensive loss (Note 10) | (4,299.5) | (4,327.0) | |||||||||
| Cost of common stock in treasury | (32.7) | (44.2) | |||||||||
| Total Eli Lilly and Company shareholders' equity | 12,812.2 | 10,771.9 | |||||||||
| Noncontrolling interests | 85.2 | 91.8 | |||||||||
| Total equity | 12,897.4 | 10,863.7 | |||||||||
| Total liabilities and equity | $ | 63,943.5 | $ | 64,006.3 |
See notes to consolidated condensed financial statements.
Consolidated Condensed Statements of Shareholders' Equity
(Unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
| Equity of Eli Lilly and Company Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per-share data, and shares in thousands) | Common Stock | Additional Paid-in Capital | Retained Earnings | Employee Benefit Trust | Accumulated Other Comprehensive Loss | Common Stock in Treasury**(1)** | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | 950,632 | $ | 594.1 | $ | 6,921.4 | $ | 10,042.6 | $ | (3,013.2) | $ | (3,844.6) | 450 | $ | (50.5) | $ | 125.6 | |||||||||||||||||||||||||||||||||||||
| Net income | 1,344.9 | 10.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | 67.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | (2,299) | (1.4) | (748.6) | (2,299) | 750.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | 2,299 | (750.0) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net | 1,336 | 0.8 | (259.5) | (48) | 8.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 131.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 0.4 | (3.3) | (31.1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 949,669 | $ | 593.5 | $ | 6,793.1 | $ | 10,639.3 | $ | (3,013.2) | $ | (3,777.3) | 402 | $ | (45.0) | $ | 104.5 | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | 949,781 | $ | 593.6 | $ | 7,250.4 | $ | 10,312.3 | $ | (3,013.2) | $ | (4,327.0) | 402 | $ | (44.2) | $ | 91.8 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | 2,242.9 | (5.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | 27.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net | 987 | 0.6 | (400.3) | (37) | 11.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 159.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (1.3) | (1.5) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | 950,768 | $ | 594.2 | $ | 7,009.5 | $ | 12,553.9 | $ | (3,013.2) | $ | (4,299.5) | 365 | $ | (32.7) | $ | 85.2 |
(1) As of March 31, 2024, there was $2.50 billion remaining under our $5.00 billion share repurchase program authorized in May 2021.
See notes to consolidated condensed financial statements.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 2,242.9 | $ | 1,344.9 | |||||||
| Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: | |||||||||||
| Depreciation and amortization | 400.6 | 362.3 | |||||||||
| Change in deferred income taxes | (279.0) | (559.4) | |||||||||
| Stock-based compensation expense | 159.4 | 131.2 | |||||||||
| Net investment (gains) losses | (15.8) | 14.2 | |||||||||
| Acquired in-process research and development | 110.5 | 105.0 | |||||||||
| Other changes in operating assets and liabilities, net of acquisitions and divestitures | (1,751.2) | 164.1 | |||||||||
| Other operating activities, net | 298.6 | 168.3 | |||||||||
| Net Cash Provided by Operating Activities | 1,166.0 | 1,730.6 | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of property and equipment | (986.3) | (668.5) | |||||||||
| Proceeds from sales and maturities of short-term investments | 41.4 | 61.5 | |||||||||
| Purchases of short-term investments | (24.4) | (23.0) | |||||||||
| Proceeds from sales of and distributions from noncurrent investments | 70.5 | 281.9 | |||||||||
| Purchases of noncurrent investments | (117.1) | (146.0) | |||||||||
| Purchases of in-process research and development | (96.5) | (235.0) | |||||||||
| Other investing activities, net | (65.2) | 40.3 | |||||||||
| Net Cash Used for Investing Activities | (1,177.6) | (688.8) | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Dividends paid | (1,169.2) | (1,017.2) | |||||||||
| Net change in short-term borrowings | (5,204.8) | (1,498.0) | |||||||||
| Proceeds from issuance of long-term debt | 6,452.5 | 3,958.5 | |||||||||
| Purchases of common stock | — | (750.0) | |||||||||
| Other financing activities, net | (389.8) | (281.0) | |||||||||
| Net Cash Provided by (Used for) Financing Activities | (311.3) | 412.3 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (35.5) | 24.8 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (358.4) | 1,478.9 | |||||||||
| Cash and cash equivalents at January 1 | 2,818.6 | 2,067.0 | |||||||||
| Cash and Cash Equivalents at March 31 | $ | 2,460.2 | $ | 3,545.9 |
See notes to consolidated condensed financial statements.
Notes to Consolidated Condensed Financial Statements
(Tables present dollars in millions)
Note 1: Basis of Presentation and Implementation of New Financial Accounting Standards
We have prepared the accompanying unaudited consolidated condensed financial statements in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (GAAP). In our opinion, the consolidated condensed financial statements reflect all adjustments (including those that are normal and recurring) that are necessary for a fair presentation of the results of operations for the periods shown. In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. We issued our financial statements by filing them with the Securities and Exchange Commission and have evaluated subsequent events up to the time of the filing of this Quarterly Report on Form 10-Q.
All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis; that is, based on the weighted-average number of common shares outstanding plus the effect of incremental shares from our stock-based compensation programs.
We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide. A global research and development organization and a supply chain organization are responsible for the discovery, development, manufacturing, and supply of our products. Regional commercial organizations market, distribute, and sell the products. The business is also supported by global corporate staff functions. Our determination that we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.
Implementation of New Financial Accounting Standards
Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. We intend to adopt this standard in our Annual Report on Form 10-K for the year ending December 31, 2025. We are currently evaluating the potential impact of adopting this standard on our disclosures.
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requires disclosures about significant segment expenses and additional interim disclosure requirements. This standard also requires a single reportable segment to provide all disclosures required by Accounting Standards Codification Topic 280. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively for all prior periods presented in the consolidated financial statements. We intend to adopt this standard in our Annual Report on Form 10-K for the year ending December 31, 2024. We are currently evaluating the potential impact of adopting this standard on our disclosures.
Note 2: Revenue
The following table summarizes our revenue recognized in our consolidated condensed statements of operations:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net product revenue | $ | 7,796.5 | $ | 6,238.2 | |||||||||||||||||||
| Collaboration and other revenue | 971.5 | 721.8 | |||||||||||||||||||||
| Revenue | $ | 8,768.0 | $ | 6,960.0 |
We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts. See Note 4 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue from the Jardiance® and Trajenta® families of products resulting from our collaboration with Boehringer Ingelheim discussed in Note 4, as well as the sale of product rights. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers. Collaboration and other revenue associated with intellectual property licensed in prior periods was not material during the three months ended March 31, 2024 and 2023.
Adjustments to Revenue
Adjustments to revenue recognized as a result of changes in estimates for our most significant United States (U.S.) sales returns, rebates, and discounts liability balances for products shipped in previous periods were 3 percent and less than 1 percent of U.S. revenue during the three months ended March 31, 2024 and 2023, respectively.
Contract Liabilities
Our contract liabilities result from arrangements where we have received payment in advance of performance under the contract and do not include sales returns, rebates, and discounts. Changes in contract liabilities are generally due to either receipt of additional advance payments or our performance under the contract.
The following table summarizes contract liability balances:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Contract liabilities | $ | 186.7 | $ | 193.6 |
During the three months ended March 31, 2024 and 2023, revenue recognized from contract liabilities as of the beginning of the respective year was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.
Disaggregation of Revenue
The following table summarizes revenue, including net product revenue and collaboration and other revenue, by product for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| U.S. | Outside U.S. | Total | U.S. | Outside U.S. | Total | ||||||||||||||||||
| Diabetes and obesity: | |||||||||||||||||||||||
| Mounjaro*®* | $ | 1,520.4 | $ | 286.2 | $ | 1,806.5 | $ | 536.4 | $ | 32.0 | $ | 568.5 | |||||||||||
| Trulicity® | 1,081.9 | 374.4 | 1,456.3 | 1,547.4 | 429.7 | 1,977.1 | |||||||||||||||||
| Jardiance(1) | 368.2 | 318.3 | 686.5 | 329.4 | 248.1 | 577.5 | |||||||||||||||||
| Humalog® (2) | 338.3 | 200.4 | 538.7 | 271.6 | 189.3 | 460.9 | |||||||||||||||||
| Zepbound*®* | 517.4 | — | 517.4 | — | — | — | |||||||||||||||||
| Humulin® | 153.1 | 53.1 | 206.2 | 198.8 | 53.2 | 252.0 | |||||||||||||||||
| Basaglar® (3) | 83.2 | 74.3 | 157.6 | 135.4 | 73.9 | 209.3 | |||||||||||||||||
| Other diabetes and obesity | 27.5 | 96.3 | 123.8 | 56.0 | 89.2 | 145.1 | |||||||||||||||||
| Total diabetes and obesity | 4,090.0 | 1,403.0 | 5,493.0 | 3,075.0 | 1,115.4 | 4,190.4 | |||||||||||||||||
| Oncology: | |||||||||||||||||||||||
| Verzenio® | 638.2 | 412.1 | 1,050.3 | 461.1 | 289.8 | 750.9 | |||||||||||||||||
| Cyramza® | 107.2 | 122.6 | 229.9 | 100.6 | 136.1 | 236.8 | |||||||||||||||||
| Erbitux*®* | 132.1 | 12.5 | 144.6 | 118.8 | 11.1 | 129.9 | |||||||||||||||||
| Tyvyt*®* | — | 116.7 | 116.7 | — | 61.0 | 61.0 | |||||||||||||||||
| Other oncology | 120.8 | 147.8 | 268.5 | 72.9 | 104.6 | 177.4 | |||||||||||||||||
| Total oncology | 998.3 | 811.7 | 1,810.0 | 753.4 | 602.6 | 1,356.0 | |||||||||||||||||
| Immunology: | |||||||||||||||||||||||
| Taltz® | 347.1 | 257.0 | 604.1 | 312.2 | 214.8 | 527.0 | |||||||||||||||||
| Olumiant® | 46.3 | 171.0 | 217.4 | 42.3 | 186.5 | 228.9 | |||||||||||||||||
| Other immunology | 3.8 | 8.8 | 12.5 | — | 22.0 | 22.0 | |||||||||||||||||
| Total immunology | 397.2 | 436.8 | 834.0 | 354.5 | 423.3 | 777.8 | |||||||||||||||||
| Neuroscience: | |||||||||||||||||||||||
| Emgality® | 125.0 | 100.7 | 225.7 | 108.7 | 45.6 | 154.3 | |||||||||||||||||
| Other neuroscience | 38.2 | 125.2 | 163.4 | 35.8 | 170.4 | 206.2 | |||||||||||||||||
| Total neuroscience | 163.2 | 225.9 | 389.1 | 144.5 | 216.0 | 360.5 | |||||||||||||||||
| Other: | |||||||||||||||||||||||
| Cialis*®* | 5.9 | 133.4 | 139.3 | 7.6 | 92.7 | 100.3 | |||||||||||||||||
| Forteo*®* | 21.7 | 39.5 | 61.3 | 70.7 | 51.7 | 122.3 | |||||||||||||||||
| Other | 18.1 | 23.3 | 41.3 | 30.5 | 22.2 | 52.8 | |||||||||||||||||
| Total other | 45.7 | 196.2 | 241.9 | 108.7 | 166.6 | 275.3 | |||||||||||||||||
| Revenue | $ | 5,694.4 | $ | 3,073.7 | $ | 8,768.0 | $ | 4,436.2 | $ | 2,523.9 | $ | 6,960.0 | |||||||||||
Numbers may not add due to rounding.
(1) Jardiance revenue includes Glyxambi®, Synjardy®, and Trijardy® XR.
(2) Humalog revenue includes insulin lispro.
(3) Basaglar revenue includes Rezvoglar®.
The following table summarizes revenue by geographical area:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenue(1): | |||||||||||||||||||||||
| U.S. | $ | 5,694.4 | $ | 4,436.2 | |||||||||||||||||||
| Europe | 1,440.7 | 1,090.9 | |||||||||||||||||||||
| China | 376.2 | 372.7 | |||||||||||||||||||||
| Japan | 363.9 | 387.2 | |||||||||||||||||||||
| Other foreign countries | 892.9 | 673.1 | |||||||||||||||||||||
| Revenue | $ | 8,768.0 | $ | 6,960.0 |
Numbers may not add due to rounding.
(1) Revenue is attributed to the countries based on the location of the customer or other party.
Note 3: Acquisitions
We engage in various forms of business development activities to enhance or refine our product pipeline, including acquisitions, collaborations, investments, and licensing arrangements. In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales should products be approved for commercialization and/or milestones based on the successful progress of compounds through the development process. We account for each arrangement as either a business combination or an asset acquisition in accordance with GAAP.
Business Combination
POINT Acquisition
Overview of Transaction
In December 2023, we acquired all shares of POINT Biopharma Global Inc. (POINT) for a purchase price of $12.50 per share in cash (or an aggregate of $1.04 billion, net of cash acquired). POINT has capabilities in radiopharmaceutical discovery, development, and manufacturing efforts, as well as clinical and pre-clinical radioligand therapies in development for the treatment of cancer.
Since this acquisition met the definition of a business under GAAP, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated condensed financial statements. The determination of estimated fair value required management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets was recorded as goodwill. The results of operations of this acquisition is included in our consolidated condensed financial statements from the date of acquisition.
Assets Acquired and Liabilities Assumed
Our access to POINT information was limited prior to the acquisition. As a consequence, we are in the process of determining fair values and tax bases of a significant portion of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets and tax exposures. The final determination of these amounts will be completed as soon as possible but no later than one year from the acquisition date. The final determination may result in asset and liability fair values and tax bases that differ from the preliminary estimates and require changes to the preliminary amounts recognized.
The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date:
| Estimated Fair Value at December 27, 2023 | |||||
| Cash | $ | 302.7 | |||
| Acquired in-process research and development (IPR&D) | 196.0 | ||||
| Goodwill (1) | 859.1 | ||||
| Other assets and liabilities, net | (19.3) | ||||
| Acquisition date fair value of consideration transferred | 1,338.5 | ||||
| Less: | |||||
| Cash acquired | (302.7) | ||||
| Cash paid, net of cash acquired | $ | 1,035.8 |
(1) The goodwill recognized from this acquisition is attributable primarily to the radiopharmaceutical discovery, development, and manufacturing capabilities and the assembled workforce for POINT, which is not deductible for tax purposes.
The results of operations attributable to POINT for the three months ended March 31, 2024 were not material.
Pro forma information has not been included as this acquisition did not have a material impact on our consolidated condensed statements of operations for the three months ended March 31, 2023.
Asset Acquisitions
Upon each asset acquisition, the cost allocated to acquired IPR&D was immediately expensed as acquired IPR&D if the compound had no alternative future use. Milestone payment obligations incurred prior to regulatory approval of the compound were expensed as acquired IPR&D when the event triggering an obligation to pay the milestone occurred. We recognized acquired IPR&D charges of $110.5 million and $105.0 million for the three months ended March 31, 2024 and 2023, respectively.
Note 4: Collaborations and Other Arrangements
We often enter into collaborative and other arrangements to develop and commercialize drug candidates. See Note 2 for a discussion of our recognition of revenue from our collaborations and other arrangements.
Collaborative activities may include research and development, marketing and selling, manufacturing, and distribution for which we may receive from or pay to the collaboration partner expense reimbursements. Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line item, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Each arrangement is unique in nature, and our more significant arrangements are discussed below.
Boehringer Ingelheim Diabetes Collaboration
We and Boehringer Ingelheim have a global agreement to jointly develop and commercialize a portfolio of diabetes compounds. Currently included in the collaboration are Boehringer Ingelheim's oral diabetes products: Jardiance, Glyxambi, Synjardy, Trijardy XR, Trajenta, and Jentadueto® as well as our basal insulins, Basaglar and Rezvoglar. Glyxambi, Synjardy, and Trijardy XR are included in the Jardiance product family. Jentadueto is included in the Trajenta product family. Rezvoglar is included in the Basaglar product family.
In connection with the regulatory approvals of Jardiance, Trajenta, and Basaglar in the U.S., Europe, and Japan, milestone payments made for Jardiance and Trajenta were capitalized as intangible assets and are being amortized to cost of sales, and milestone payments received for Basaglar were recorded as contract liabilities and are being amortized to collaboration and other revenue. Net milestones capitalized with respect to Jardiance and Trajenta and net milestones deferred with respect to Basaglar are not material.
For the Jardiance product family, we and Boehringer Ingelheim generally share equally the ongoing development and commercialization costs in the most significant markets, and we record our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively. We receive a royalty on net sales of Boehringer Ingelheim's products in the most significant markets and recognize the royalty as collaboration and other revenue. Boehringer Ingelheim is entitled to potential performance payments depending on the net sales of the Jardiance product family; therefore, our reported revenue for Jardiance may be reduced by any potential performance payments we make related to this product family. The royalty received by us related to the Jardiance product family may also be increased or decreased depending on whether net sales for this product family exceed or fall below certain thresholds. We pay to Boehringer Ingelheim a royalty on net sales for the Basaglar product family in the U.S. We record our sales of the Basaglar product family to third parties as net product revenue with the royalty payments made to Boehringer Ingelheim recorded as cost of sales. The following table summarizes our revenue recognized:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Jardiance | $ | 686.5 | $ | 577.5 | |||||||||||||||||||
| Basaglar | 157.6 | 209.3 | |||||||||||||||||||||
| Trajenta | 88.9 | 85.8 |
Olumiant
We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to baricitinib, which is branded and trademarked as Olumiant, and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases and COVID-19. Incyte has the right to receive tiered, double digit royalty payments on worldwide net sales with rates ranging up to 20 percent. Incyte has the right to receive an additional royalty ranging up to the low teens on worldwide net sales for the treatment of COVID-19 that exceed a specified aggregate worldwide net sales threshold. The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones.
In connection with the regulatory approvals of Olumiant in the U.S., Europe, and Japan, as well as achievement of a sales-based milestone, milestone payments were capitalized as intangible assets and are being amortized to cost of sales through the term of the collaboration. Net milestones capitalized are not material. As of March 31, 2024, Incyte is eligible to receive up to $100.0 million of additional payments from us in potential sales-based milestones.
We record our sales of Olumiant to third parties as net product revenue with the royalty payments made to Incyte recorded as cost of sales. The following table summarizes our net product revenue recognized:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Olumiant | $ | 217.4 | $ | 228.9 |
Tyvyt
We have a collaboration agreement with Innovent Biologics, Inc. (Innovent) to jointly develop and commercialize sintilimab injection in China, where it is branded and trademarked as Tyvyt. We record our sales of Tyvyt to third parties as net product revenue, with payments made to Innovent for its portion of the gross margin reported as cost of sales. We report as collaboration and other revenue our portion of the gross margin for Tyvyt sales made by Innovent to third parties. The following table summarizes our revenue recognized:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Tyvyt | $ | 116.7 | $ | 61.0 |
Ebglyss**®**
We have a license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab, which is branded and trademarked as Ebglyss. Roche receives tiered royalty payments on worldwide net sales ranging in percentages from high single digits to high teens, which we recognize as cost of sales. As of March 31, 2024, Roche is eligible to receive additional payments from us, including up to $115.0 million contingent upon the achievement of additional success-based regulatory milestones and up to $1.03 billion in potential sales-based milestones. During the three months ended March 31, 2024 and 2023, milestone payments to Roche were not material.
We have a license agreement with Almirall, S.A. (Almirall), under which Almirall licensed the rights to develop and commercialize lebrikizumab for the treatment or prevention of dermatology indications, including, but not limited to, atopic dermatitis in Europe. We receive tiered royalty payments on net sales in Europe ranging in percentages from low double digits to low twenties, which we recognize as collaboration and other revenue. During the three months ended March 31, 2024 and 2023, collaboration and other revenue recognized under this license agreement was not material. As of March 31, 2024, we are eligible to receive additional payments up to $1.25 billion in a series of sales-based milestones.
Orforglipron
We have a license agreement with Chugai Pharmaceutical Co., Ltd (Chugai), which provides us with the worldwide development and commercialization rights to orforglipron. Chugai has the right to receive tiered royalty payments on future worldwide net sales from mid single digits to low teens if the product is successfully commercialized. As of March 31, 2024, Chugai is eligible to receive up to $140.0 million contingent upon the achievement of success-based regulatory milestones and up to $250.0 million in a series of sales-based milestones, contingent upon the commercial success of orforglipron.
Note 5: Inventories
The following table summarizes components of inventories:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Finished products | $ | 699.6 | $ | 791.7 | |||||||
| Work in process | 3,611.9 | 3,248.6 | |||||||||
| Raw materials and supplies | 1,693.8 | 1,630.1 | |||||||||
| Total (approximates replacement cost) | 6,005.3 | 5,670.4 | |||||||||
| Increase to last-in, first-out (LIFO) cost | 96.5 | 102.4 | |||||||||
| Inventories | $ | 6,101.8 | $ | 5,772.8 |
Note 6: Financial Instruments
Investments in Equity and Debt Securities
Our equity investments are accounted for using three different methods depending on the type of equity investment:
-
Investments in companies over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other-net, (income) expense.
-
For equity investments that do not have readily determinable fair values, we measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any change in recorded value is recorded in other-net, (income) expense.
-
Our public equity investments are measured and carried at fair value. Any change in fair value is recognized in other-net, (income) expense.
We adjust our equity investments without readily determinable fair values based upon changes in the equity instruments' values resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Downward adjustments resulting from an impairment are recorded based upon impairment considerations, including the financial condition and near-term prospects of the issuer, general market conditions, and industry specific factors. Adjustments recorded for the three months ended March 31, 2024 and 2023 were not material.
The net gains (losses) recognized in our consolidated condensed statements of operations for equity securities were $16.0 million and $(13.7) million for the three months ended March 31, 2024 and 2023, respectively. The net gains (losses) recognized for the three months ended March 31, 2024 and 2023 on equity securities sold during the respective periods were not material.
As of March 31, 2024, we had approximately $880 million of unfunded commitments to invest in venture capital funds, which we anticipate will be paid over a period of up to 10 years.
We record our available-for-sale debt securities at fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss). We periodically assess our investment in available-for-sale securities for impairment losses and credit losses. The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost. Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration. Impairment and credit losses related to available-for-sale securities were not material for the three months ended March 31, 2024 and 2023.
The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of March 31, 2024:
| Maturities by Period | |||||||||||||||||||||||||||||
| Total | Less Than 1 Year | 1-5 Years | 6-10 Years | More Than 10 Years | |||||||||||||||||||||||||
| Fair value of debt securities | $ | 650.2 | $ | 83.7 | $ | 222.4 | $ | 98.3 | $ | 245.8 |
A summary of the amount of unrealized gains and losses in accumulated other comprehensive loss and the fair value of available-for-sale securities in an unrealized gain or loss position follows:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Unrealized gross gains | $ | 1.9 | $ | 3.4 | |||||||
| Unrealized gross losses | 42.5 | 37.9 | |||||||||
| Fair value of securities in an unrealized gain position | 111.8 | 159.2 | |||||||||
| Fair value of securities in an unrealized loss position | 477.9 | 452.0 |
As of March 31, 2024, the available-for-sale securities in an unrealized loss position include primarily fixed-rate debt securities of varying maturities, which are sensitive to changes in the yield curve and other market conditions. Substantially all of the fixed-rate debt securities in a loss position are investment-grade debt securities. As of March 31, 2024, we do not intend to sell, and it is not more likely than not that we will be required to sell, the securities in a loss position before the market values recover or the underlying cash flows have been received, and there is no indication of a material default on interest or principal payments for our debt securities.
Realized gains and losses on sales of available-for-sale investments are computed based upon specific identification of the initial cost adjusted for any other-than-temporary declines in fair value that were recorded in earnings and were not material for the three months ended March 31, 2024 and 2023. Proceeds from sales of available-for-sale investments were $24.4 million and $27.6 million for the three months ended March 31, 2024 and 2023, respectively.
Fair Value of Investments
The following table summarizes certain fair value information at March 31, 2024 and December 31, 2023 for investment assets measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments:
| Fair Value Measurements Using | |||||||||||||||||||||||||||||||||||
| Carrying Amount | Cost**(1)** | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | ||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Cash equivalents(2) | $ | 1,321.1 | $ | 1,321.1 | $ | 1,308.4 | $ | 12.7 | $ | — | $ | 1,321.1 | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | 30.6 | $ | 30.8 | $ | 30.6 | $ | — | $ | — | $ | 30.6 | |||||||||||||||||||||||
| Corporate debt securities | 51.0 | 51.1 | — | 51.0 | — | 51.0 | |||||||||||||||||||||||||||||
| Asset-backed securities | 2.1 | 2.2 | — | 2.1 | — | 2.1 | |||||||||||||||||||||||||||||
| Other securities | 42.4 | 42.4 | — | 9.2 | 33.2 | 42.4 | |||||||||||||||||||||||||||||
| Short-term investments | $ | 126.1 | |||||||||||||||||||||||||||||||||
| Noncurrent investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | 139.0 | $ | 154.0 | $ | 139.0 | $ | — | $ | — | $ | 139.0 | |||||||||||||||||||||||
| Corporate debt securities | 217.3 | 231.7 | — | 217.3 | — | 217.3 | |||||||||||||||||||||||||||||
| Mortgage-backed securities | 155.7 | 167.4 | — | 155.7 | — | 155.7 | |||||||||||||||||||||||||||||
| Asset-backed securities | 54.6 | 55.6 | — | 54.6 | — | 54.6 | |||||||||||||||||||||||||||||
| Other securities | 184.5 | 86.4 | — | 6.2 | 178.3 | 184.5 | |||||||||||||||||||||||||||||
| Marketable equity securities | 700.4 | 490.8 | 700.4 | — | — | 700.4 | |||||||||||||||||||||||||||||
| Equity investments without readily determinable fair values(3) | 619.6 | ||||||||||||||||||||||||||||||||||
| Equity method investments(3) | 1,015.8 | ||||||||||||||||||||||||||||||||||
| Noncurrent investments | $ | 3,086.9 | |||||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Cash equivalents(2) | $ | 1,088.4 | $ | 1,088.4 | $ | 1,079.3 | $ | 9.1 | $ | — | $ | 1,088.4 | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | 32.1 | $ | 32.3 | $ | 32.1 | $ | — | $ | — | $ | 32.1 | |||||||||||||||||||||||
| Corporate debt securities | 52.0 | 52.1 | — | 52.0 | — | 52.0 | |||||||||||||||||||||||||||||
| Other securities | 25.0 | 25.0 | — | 13.6 | 11.4 | 25.0 | |||||||||||||||||||||||||||||
| Short-term investments | $ | 109.1 | |||||||||||||||||||||||||||||||||
| Noncurrent investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | 148.1 | $ | 161.0 | $ | 148.1 | $ | — | $ | — | $ | 148.1 | |||||||||||||||||||||||
| Corporate debt securities | 214.3 | 226.6 | — | 214.3 | — | 214.3 | |||||||||||||||||||||||||||||
| Mortgage-backed securities | 157.3 | 167.1 | — | 157.3 | — | 157.3 | |||||||||||||||||||||||||||||
| Asset-backed securities | 53.5 | 54.4 | — | 53.5 | — | 53.5 | |||||||||||||||||||||||||||||
| Other securities | 197.4 | 100.2 | — | 23.5 | 173.9 | 197.4 | |||||||||||||||||||||||||||||
| Marketable equity securities | 711.3 | 493.2 | 711.3 | — | — | 711.3 | |||||||||||||||||||||||||||||
| Equity investments without readily determinable fair values(3) | 608.0 | ||||||||||||||||||||||||||||||||||
| Equity method investments(3) | 962.3 | ||||||||||||||||||||||||||||||||||
| Noncurrent investments | $ | 3,052.2 |
(1) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost.
(2) We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. The cost of these investments approximates fair value.
(3) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments.
We determine our Level 1 and Level 2 fair value measurements based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions. Fair values are not readily available for certain equity investments measured under the measurement alternative.
Debt
In February 2024, we issued $1.00 billion of 4.500 percent fixed-rate notes due in 2027, $1.00 billion of 4.500 percent fixed-rate notes due in 2029, $1.50 billion of 4.700 percent fixed-rate notes due in 2034, $1.50 billion of 5.000 percent fixed-rate notes due in 2054, and $1.50 billion of 5.100 percent fixed-rate notes due in 2064, all with interest to be paid semi-annually. We used, or will be using, the net cash proceeds from the offering of $6.45 billion for general business purposes, including the repayment of outstanding commercial paper, repayment of current maturities of long-term debt, and repayment of the $750.0 million of 5.000 percent fixed-rate notes due in 2026, which became callable at par beginning February 27, 2024.
In February 2023, we issued $750.0 million of 5.000 percent fixed-rate notes due in 2026, which are callable at par after one year, $1.00 billion of 4.700 percent fixed-rate notes due in 2033, $1.25 billion of 4.875 percent fixed-rate notes due in 2053, and $1.00 billion of 4.950 percent fixed-rate notes due in 2063, all with interest to be paid semi-annually. We used the net cash proceeds from the offering of $3.96 billion for general business purposes, including the repayment of outstanding commercial paper.
Fair Value of Debt
The following table summarizes certain fair value information at March 31, 2024 and December 31, 2023 for our short-term and long-term debt:
| Fair Value Measurements Using | |||||||||||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||||||||||||||
| Short-term commercial paper borrowings | |||||||||||||||||||||||||||||
| March 31, 2024 | $ | (984.6) | $ | — | $ | (982.8) | $ | — | $ | (982.8) | |||||||||||||||||||
| December 31, 2023 | (6,189.4) | — | (6,166.4) | — | (6,166.4) | ||||||||||||||||||||||||
| Long-term debt, including current portion | |||||||||||||||||||||||||||||
| March 31, 2024 | (25,226.8) | — | (22,961.3) | — | (22,961.3) | ||||||||||||||||||||||||
| December 31, 2023 | (19,035.9) | — | (17,221.7) | — | (17,221.7) |
Risk Management and Related Financial Instruments
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments. Wholesale distributors of life science products account for a substantial portion of our trade receivables; collateral is generally not required. We seek to mitigate the risk associated with this concentration through our ongoing credit-review procedures and insurance. The majority of our cash is held by a few major financial institutions that have been identified as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board. G-SIBs are subject to rigorous regulatory testing and oversight and must meet certain capital requirements. We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations. In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one financial institution or corporate issuer based on credit rating of our counterparty. We are exposed to credit-related losses in the event of nonperformance by counterparties to risk-management instruments but do not expect significant counterparties to fail to meet their obligations given their investment grade credit ratings.
We have entered into accounts receivable factoring agreements with financial institutions to sell certain of our non-U.S. accounts receivable. These transactions are accounted for as sales and result in a reduction in accounts receivable because the agreements transfer effective control over, and risk related to, the receivables to the buyers. We derecognized $399.0 million and $431.9 million of accounts receivable as of March 31, 2024 and December 31, 2023, respectively, under these factoring arrangements. The costs of factoring such accounts receivable as well as estimated credit losses were not material for the three months ended March 31, 2024 and 2023.
Our derivative activities are initiated within the guidelines of documented corporate risk-management policies and are intended to offset losses and gains on the assets, liabilities, and transactions being hedged. Management reviews the correlation and effectiveness of our derivatives on a quarterly basis.
For derivative instruments that are designated and qualify as fair value hedges, the derivative instrument is marked to market, with gains and losses recognized currently in income to offset the respective losses and gains recognized on the underlying exposure. For derivative instruments that are designated and qualify as cash flow hedges, gains and losses are reported as a component of accumulated other comprehensive income (loss) (see Note 10) and reclassified into earnings in the same period the hedged transaction affects earnings. For derivative and non-derivative instruments that are designated and qualify as net investment hedges, the foreign currency translation gains or losses due to spot rate fluctuations are reported as a component of accumulated other comprehensive income (loss) (see Note 10). Derivative contracts that are not designated as hedging instruments are recorded at fair value with the gain or loss recognized in earnings during the period of change.
We may enter into foreign currency forward or option contracts to reduce the effect of fluctuating currency exchange rates (primarily the euro, Chinese yuan, and Japanese yen). Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures. Forward and option contracts are principally used to manage exposures arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. These contracts are recorded at fair value with the gain or loss recognized in other–net, (income) expense. Forward contracts generally have maturities not exceeding 12 months. At March 31, 2024, we had outstanding foreign currency forward commitments as follows, all of which have settlement dates within 180 days:
| March 31, 2024 | ||||||||||||||
| Purchase | Sell | |||||||||||||
| Currency | Amount (in millions) | Currency | Amount (in millions) | |||||||||||
| Euro | 7,557.6 | U.S. dollars | 8,223.3 | |||||||||||
| U.S. dollars | 3,538.5 | Euro | 3,239.6 | |||||||||||
| British pounds | 193.9 | U.S. dollars | 248.7 | |||||||||||
| U.S. dollars | 167.1 | Japanese yen | 24,690.1 | |||||||||||
Foreign currency exchange risk is also managed through the use of foreign currency debt, cross-currency interest rate swaps, and foreign currency forward contracts. Our foreign currency-denominated notes had carrying amounts of $6.91 billion and $7.14 billion as of March 31, 2024 and December 31, 2023, respectively, of which $5.54 billion and $5.67 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, we had outstanding cross-currency swaps with notional amounts of $728.6 million swapping U.S. dollars to euro and $1.00 billion swapping Swiss francs to U.S. dollars which have settlement dates ranging through 2028. Our cross-currency interest rate swaps, for which a significant amount convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign-denominated fixed-rate debt, have also been designated as, and are effective as, economic hedges of net investments. At March 31, 2024, we had outstanding foreign currency forward contracts to sell 3.70 billion euro and to sell 2.70 billion Chinese yuan with settlement dates ranging through 2025, which have been designated as, and are effective as, economic hedges of net investments.
In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating. We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments. The objective of controlling these risks is to limit the impact of fluctuations in interest rates on earnings. Our primary interest-rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest-rate exposures, we strive to achieve an acceptable balance between fixed- and floating-rate debt and investment positions and may enter into interest rate swaps or collars to help maintain that balance.
Interest rate swaps or collars that convert our fixed-rate debt to a floating rate are designated as fair value hedges of the underlying instruments. Interest rate swaps or collars that convert floating-rate debt to a fixed rate are designated as cash flow hedges. Interest expense on the debt is adjusted to include the payments made or received under the swap agreements. Cash proceeds from or payments to counterparties resulting from the termination of interest rate swaps are classified as operating activities in our consolidated condensed statements of cash flows. At March 31, 2024, all of our total long-term debt is at a fixed rate. We have converted approximately 8 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps.
We also may enter into forward-starting interest rate swaps and treasury locks, which we designate as cash flow hedges, as part of any anticipated future debt issuances in order to reduce the risk of cash flow volatility from future changes in interest rates. The change in fair value of these instruments is recorded as part of other comprehensive income (loss) (see Note 10) and, upon completion of a debt issuance and termination of the instrument, is amortized to interest expense over the life of the underlying debt. Cash proceeds or payments from the termination of these instruments are classified as operating activities in our consolidated condensed statements of cash flows.
The Effect of Risk-Management Instruments on the Consolidated Condensed Statements of Operations
The following effects of risk-management instruments were recognized in other–net, (income) expense:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Fair value hedges: | |||||||||||||||||||||||
| Effect from hedged fixed-rate debt | $ | (16.7) | $ | 35.3 | |||||||||||||||||||
| Effect from interest rate contracts | 16.7 | (35.3) | |||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss | 2.4 | 3.8 | |||||||||||||||||||||
| Cross-currency interest rate swaps | 84.0 | (12.9) | |||||||||||||||||||||
| Net (gains) losses on foreign currency exchange contracts not designated as hedging instruments | 2.4 | (52.8) | |||||||||||||||||||||
| Total | $ | 88.8 | $ | (61.9) |
During the three months ended March 31, 2024 and 2023, the amortization of losses related to the portion of our risk management hedging instruments, fair value hedges, and cash flow hedges that was excluded from the assessment of effectiveness was not material.
The Effect of Risk-Management Instruments on Other Comprehensive Income (Loss)
The effective portion of risk-management instruments that was recognized in other comprehensive income (loss) is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Foreign currency-denominated notes | $ | 131.8 | $ | (131.8) | |||||||||||||||||||
| Cross-currency interest rate swaps | 17.0 | (11.8) | |||||||||||||||||||||
| Foreign currency forward contracts | 99.1 | (46.1) | |||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Forward-starting interest rate swaps | 77.4 | 23.8 | |||||||||||||||||||||
| Cross-currency interest rate swaps | 13.7 | (7.8) | |||||||||||||||||||||
During the next 12 months, we expect to reclassify $5.4 million of pretax net losses on cash flow hedges from accumulated other comprehensive loss to other–net, (income) expense. During the three months ended March 31, 2024 and 2023, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material.
Fair Value of Risk-Management Instruments
The following table summarizes certain fair value information at March 31, 2024 and December 31, 2023 for risk management assets and liabilities measured at fair value on a recurring basis:
| Fair Value Measurements Using | |||||||||||||||||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Risk-management instruments: | |||||||||||||||||||||||||||||||||||
| Interest rate contracts designated as fair value hedges: | |||||||||||||||||||||||||||||||||||
| Other noncurrent liabilities | $ | (119.5) | $ | — | $ | (119.5) | $ | — | $ | (119.5) | |||||||||||||||||||||||||
| Cross-currency interest rate contracts designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
| Other noncurrent assets | 1.5 | — | 1.5 | — | 1.5 | ||||||||||||||||||||||||||||||
| Other current liabilities | (15.6) | — | (15.6) | — | (15.6) | ||||||||||||||||||||||||||||||
| Cross-currency interest rate contracts designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Other receivables | 66.2 | — | 66.2 | — | 66.2 | ||||||||||||||||||||||||||||||
| Other noncurrent assets | 40.3 | — | 40.3 | — | 40.3 | ||||||||||||||||||||||||||||||
| Foreign exchange contracts designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
| Other receivables | 29.4 | — | 29.4 | — | 29.4 | ||||||||||||||||||||||||||||||
| Other current liabilities | (3.8) | — | (3.8) | — | (3.8) | ||||||||||||||||||||||||||||||
| Foreign exchange contracts not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Other receivables | 44.3 | — | 44.3 | — | 44.3 | ||||||||||||||||||||||||||||||
| Other current liabilities | (58.3) | — | (58.3) | — | (58.3) | ||||||||||||||||||||||||||||||
| Contingent consideration liabilities: | |||||||||||||||||||||||||||||||||||
| Other current liabilities | (40.0) | — | — | (40.0) | (40.0) | ||||||||||||||||||||||||||||||
| Other noncurrent liabilities | (42.1) | — | — | (42.1) | (42.1) | ||||||||||||||||||||||||||||||
| Fair Value Measurements Using | |||||||||||||||||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Risk-management instruments: | |||||||||||||||||||||||||||||||||||
| Interest rate contracts designated as fair value hedges: | |||||||||||||||||||||||||||||||||||
| Other current liabilities | $ | (2.4) | $ | — | $ | (2.4) | $ | — | $ | (2.4) | |||||||||||||||||||||||||
| Other noncurrent liabilities | (100.3) | — | (100.3) | — | (100.3) | ||||||||||||||||||||||||||||||
| Interest rate contracts designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Other noncurrent assets | 291.2 | — | 291.2 | — | 291.2 | ||||||||||||||||||||||||||||||
| Cross-currency interest rate contracts designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
| Other current liabilities | (28.4) | — | (28.4) | — | (28.4) | ||||||||||||||||||||||||||||||
| Other noncurrent liabilities | (3.5) | — | (3.5) | — | (3.5) | ||||||||||||||||||||||||||||||
| Cross-currency interest rate contracts designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Other receivables | 113.8 | — | 113.8 | — | 113.8 | ||||||||||||||||||||||||||||||
| Other noncurrent assets | 63.1 | — | 63.1 | — | 63.1 | ||||||||||||||||||||||||||||||
| Foreign exchange contracts designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Other current liabilities | (115.8) | — | (115.8) | — | (115.8) | ||||||||||||||||||||||||||||||
| Foreign exchange contracts not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Other receivables | 129.6 | — | 129.6 | — | 129.6 | ||||||||||||||||||||||||||||||
| Other current liabilities | (55.9) | — | (55.9) | — | (55.9) | ||||||||||||||||||||||||||||||
| Contingent consideration liabilities: | |||||||||||||||||||||||||||||||||||
| Other current liabilities | (39.5) | — | — | (39.5) | (39.5) | ||||||||||||||||||||||||||||||
| Other noncurrent liabilities | (64.4) | — | — | (64.4) | (64.4) | ||||||||||||||||||||||||||||||
Risk-management instruments above are disclosed on a gross basis. There are various rights of setoff associated with certain of the risk-management instruments above that are subject to enforceable master netting arrangements or similar agreements. Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties to the risk-management instruments above, individually, these financial rights are not material.
Contingent consideration liabilities relate to our liabilities arising in connection with the contingent value rights (CVRs) issued as a result of acquisitions of businesses. The fair values of the CVR liabilities were estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payments associated with the agreed upon regulatory milestones based on probabilities of technical success, timing of the potential milestone events for the compounds, and estimated discount rates.
Note 7: Income Taxes
The effective tax rate was 11.6 percent for the three months ended March 31, 2024 compared to 12.1 percent for the three months ended March 31, 2023, driven by a larger net discrete tax benefit reflected in the three months ended March 31, 2024 compared to the same period in 2023.
The U.S. examination of tax years 2016-2018 began in 2019 and remains ongoing. The Internal Revenue Service commenced its examination of tax years 2019-2021 during the third quarter of 2023. The resolution of both audit periods will likely extend beyond the next 12 months.
Note 8: Retirement Benefits
Net pension and retiree health (benefit) cost included the following components:
| Defined Benefit Pension Plans | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Components of net periodic (benefit) cost: | |||||||||||||||||||||||
| Service cost | $ | 83.8 | $ | 70.4 | |||||||||||||||||||
| Interest cost | 165.0 | 161.1 | |||||||||||||||||||||
| Expected return on plan assets | (277.6) | (263.3) | |||||||||||||||||||||
| Amortization of prior service cost | 0.5 | 0.6 | |||||||||||||||||||||
| Recognized actuarial loss | 30.6 | 30.0 | |||||||||||||||||||||
| Net periodic (benefit) cost | $ | 2.3 | $ | (1.2) |
| Retiree Health Benefit Plans | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Components of net periodic benefit: | |||||||||||||||||||||||
| Service cost | $ | 8.2 | $ | 7.7 | |||||||||||||||||||
| Interest cost | 15.5 | 15.4 | |||||||||||||||||||||
| Expected return on plan assets | (48.1) | (45.5) | |||||||||||||||||||||
| Amortization of prior service benefit | (1.4) | (13.2) | |||||||||||||||||||||
| Recognized actuarial gain | (0.6) | (0.9) | |||||||||||||||||||||
| Net periodic benefit | $ | (26.4) | $ | (36.5) |
Note 9: Contingencies
We are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. These claims or proceedings can involve various types of parties, including governments, regulatory agencies, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. These matters may involve patent infringement, antitrust, securities, pricing, access, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability, insurance coverage, and regulatory compliance, among others. The resolution of these matters often develops over a long period of time and expectations can change as a result of new findings, rulings, appeals or settlement arrangements. Legal proceedings that are significant or that we believe could become significant or material are described below.
We are defending against the legal proceedings in which we are named as defendants vigorously. It is not possible to determine the final outcome of these matters, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for any of these matters; however, we believe that the resolution of all such matters will not have a material adverse effect on our consolidated financial position or liquidity, but could possibly be material to our consolidated results of operations in any one accounting period.
Litigation accruals and environmental liabilities and the related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets. With respect to the product liability claims currently asserted against us, we have accrued for our estimated exposures to the extent they are both probable and reasonably estimable based on the information available to us. We accrue for certain product liability claims incurred but not filed to the extent we can formulate a reasonable estimate of their costs. We estimate these expenses based primarily on historical claims experience and data regarding product usage. Legal defense costs expected to be incurred in connection with significant product liability loss contingencies are accrued when both probable and reasonably estimable.
Because of the nature of pharmaceutical products, it is possible that we could become subject to large numbers of additional product liability and related claims in the future. Due to a very restrictive market for litigation liability insurance, we are self-insured for litigation liability losses for all our currently and previously marketed products.
Patent Litigation
Emgality Patent Litigation
We are a named defendant in litigation filed by Teva Pharmaceuticals International GMBH and Teva Pharmaceuticals USA, Inc. (collectively, Teva) in the U.S. District Court for the District of Massachusetts seeking a ruling that various claims in three different Teva patents are infringed by our launch and continued sales of Emgality for the prevention of migraine in adults.
Following a trial, in November 2022, a jury returned a verdict in favor of Teva. In September 2023, the court granted our motion to overrule the jury verdict and found all asserted claims of the three patents invalid. Teva has appealed the decision. This matter is ongoing.
Environmental Proceedings
Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as "Superfund," we have been designated as one of several potentially responsible parties with respect to the cleanup of fewer than 10 sites. Under Superfund, each responsible party may be jointly and severally liable for the entire amount of the cleanup.
Other Matters
Actos*®* Litigation
We are named along with Takeda Chemical Industries, Ltd. and Takeda affiliates (collectively, Takeda) in a third party payor class action in the U.S. District Court for the Central District of California. Plaintiffs claim that they and similarly situated class members are entitled to recover money paid for or to reimburse Actos prescriptions because of alleged concealment of bladder cancer risk. Our agreement with Takeda calls for Takeda to defend and indemnify us against our losses and expenses with respect to U.S. litigation arising out of the manufacture, use, or sale of Actos and other related expenses in accordance with the terms of the agreement. In August 2023, the Ninth Circuit granted our and Takeda's petition for permission to appeal the class certification order, and the appeal is being briefed. This matter is ongoing.
Mounjaro and Trulicity Product Liability Litigation
We, along with Novo Nordisk A/S (Novo) and other related Novo entities, are named in numerous lawsuits by plaintiffs alleging injuries following purported use of incretin medicines. Certain complaints name us and allege injuries that plaintiffs claim are associated with the use of Mounjaro and/or Trulicity. These lawsuits were filed beginning in August 2023 and are pending in various federal courts. In February 2024, the Judicial Panel on Multi-District Litigation established Multi-District Litigation for coordinated and consolidated pretrial proceedings in the Eastern District of Pennsylvania. This matter is ongoing.
340B Litigation and Investigations
We are the plaintiff in a lawsuit filed in January 2021 in the U.S. District Court for the Southern District of Indiana against the U.S. Department of Health and Human Services (HHS), the Secretary of HHS, the Health Resources and Services Administration (HRSA), and the Administrator of HRSA. The lawsuit challenges HHS's December 30, 2020 advisory opinion stating that drug manufacturers are required to deliver discounts under the 340B program to all contract pharmacies and HHS's Administrative Dispute Resolution regulations. We seek a declaratory judgment that the defendants violated the Administrative Procedure Act and the U.S. Constitution, a preliminary injunction enjoining implementation of the administrative dispute resolution process created by defendants and, with it, their application of the advisory opinion, and other related relief. In March 2021, the court entered an order preliminarily enjoining the government's enforcement of the administrative dispute resolution process against us. In May 2021, HRSA sent us an enforcement letter notifying us that it determined that our policy was contrary to the 340B statute. In response, in May 2021, we amended our complaint to bring claims related to HRSA's determination. In June 2021, the defendants withdrew the HHS December 30, 2020 advisory opinion. In July 2021, the court held oral argument on the parties' cross motions for summary judgment and the defendants' motion to dismiss. In October 2021, the court denied the defendants' motion to dismiss, and granted in part and denied in part the parties' cross motions for summary judgment. Both parties filed notices of appeal related to the court's summary judgment order. In October 2022, the U.S. Court of Appeals for the Seventh Circuit held oral argument. This matter is ongoing.
We, along with other pharmaceutical manufacturers, have been named as a defendant in petitions filed in 2021 and 2023 and currently pending before the HHS Administrative Dispute Resolution Panel. Petitioners seek declaratory, injunctive, and/or monetary relief related to the 340B program. As described above, the U.S. District Court for the Southern District of Indiana has entered a preliminary injunction enjoining the government's enforcement of the administrative dispute resolution process against us. HRSA has now promulgated a revised regulation governing Administrative Dispute Resolution (ADR) proceedings, which will take effect in June 2024 and may lead to the resumption of ADR proceedings against us.
In July 2021, we, along with Sanofi-Aventis U.S., LLC (Sanofi), Novo Nordisk Inc. (Novo Nordisk), and AstraZeneca Pharmaceuticals LP (AstraZeneca), were named as a defendant in a purported class action lawsuit filed in the U.S. District Court for the Western District of New York by Mosaic Health, Inc. alleging antitrust and unjust enrichment claims related to the defendants' 340B distribution programs. We, with Sanofi, Novo Nordisk, and AstraZeneca, filed a motion to dismiss the lawsuit, which was granted in September 2022. In January 2024, the court dismissed the case. In February 2024, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit. This matter is ongoing.
We received a civil investigative subpoena in February 2021 from the Office of the Attorney General for the State of Vermont relating to the sale of pharmaceutical products to Vermont covered entities under the 340B program. We are cooperating with this subpoena.
Branchburg Manufacturing Facility
In May 2021, we received a subpoena from the U.S. Department of Justice requesting the production of certain documents relating to our manufacturing site in Branchburg, New Jersey. We are cooperating with the subpoena.
Brazil Litigation – Cosmopolis Facility
Labor Attorney Litigation
First initiated in 2008, Eli Lilly do Brasil Limitada (Lilly Brasil) is named in a Public Civil Action brought by the Labor Public Attorney (LPA) alleging harm to employees and former employees caused by alleged exposure to soil and groundwater contaminants at a former manufacturing facility in Cosmopolis, operated by the company between 1977 and 2003. In May 2014, the trial Court ruled against Lilly Brasil, ordering it to undertake several remedial and compensatory actions, including health coverage for a class of individuals and certain of their children. In July 2018, the appeals court generally affirmed the trial Court's ruling, which included a liquidated award of 300 million Brazilian reais, which, when adjusted for inflation, is approximately 1.30 billion Brazilian reais (approximately $260 million as of March 31, 2024). In August 2019, Lilly Brasil appealed to the superior labor court (TST) and in June 2021, the majority of the elements of Lilly Brasil's appeal were admitted; elements not proceeding are subject to an interlocutory appeal to the TST that was filed in June 2021. Mediation hearings are ongoing.
In July 2019, at the LPA's request, the trial Court ordered a freeze of Lilly Brasil’s immovable property in the amount of 500 million Brazilian reais, which was reduced on Lilly Brasil's appeal and, when adjusted for inflation, is approximately 135 million Brazilian reais (approximately $27 million as of March 31, 2024). The parties appealed to the TST, which appeal is under review. The trial Court is currently assessing the status of Lilly Brasil’s compliance with the obligations as to the land and an inspection in the industrial plant occurred in October 2023. These matters are ongoing.
Individual Former Employee Litigation
Lilly Brasil is also named in various pending lawsuits filed in the trial Court by individual former employees making related claims. These individual lawsuits are at various stages in the litigation process.
Puerto Rico Tax Matter
In May 2013, the Municipality of Carolina in Puerto Rico (Municipality) filed a lawsuit against us alleging noncompliance with respect to a contract with the Municipality and seeking a declaratory judgment. In December 2020, the Puerto Rico Appellate Court (AP) reversed the summary judgment previously granted by the Court of First Instance (CFI) in our favor, dismissing the Municipality's complaint in its entirety. The AP remanded the case to the CFI for trial on the merits. The trial began in May 2022; however, the Municipality filed a new motion requesting the CFI to execute an alleged judgment. The request was denied by the CFI in our favor and the Municipality filed for revision at the AP, which we opposed, staying the case. The AP denied the Municipality's motion for revision. This matter is ongoing and trial has been scheduled for August 2024.
Average Manufacturer Price Litigation
In November 2014, we, along with another pharmaceutical manufacturer, were named as co-defendants in United States et al. ex rel. Streck v. Takeda Pharm. Am., Inc., et al., which was filed in November 2014 and unsealed in the U.S. District Court for the Northern District of Illinois. The complaint alleges that the defendants should have treated certain credits from distributors as retroactive price increases and included such increases in calculating average manufacturer prices. Following a trial in August 2022, the jury returned a verdict in favor of the plaintiff. Lilly appealed to the Seventh Circuit and the appeal is pending. This matter is ongoing.
Health Choice Alliance
We were named as a defendant in two lawsuits filed in Texas and New Jersey state courts in October 2019 seeking damages under the Texas Medicaid Fraud Prevention Act and New Jersey Medicaid False Claims Act, respectively, for certain patient support programs related to our products Humalog, Humulin, and Forteo. The Texas state court action has been stayed. The New Jersey state court action was dismissed with prejudice, and in March 2024 the Appellate Division of the New Jersey Superior Court affirmed the dismissal. The relator did not appeal the decision to the New Jersey Supreme Court. As a result, the dismissal is final and the New Jersey state matter is closed.
Pricing Litigation
We, along with Sanofi, Novo Nordisk, and, in some matters, certain pharmacy benefit managers, have been named in numerous lawsuits, including putative class actions, by states and state attorneys general, counties, municipalities, third-party payers, consumers, and other parties related to insulin pricing and rebates paid by manufacturers to pharmacy benefit managers. These lawsuits assert various theories, including consumer protection and deceptive trade practice, fraud, false advertising, unjust enrichment, civil conspiracy, federal and state RICO statutes, antitrust, and unfair competition claims. These lawsuits have been brought in various state and federal courts since 2017 and are at various stages in the litigation process. Starting in August 2023 after a ruling by the Judicial Panel for Multi-District Litigation, several of these cases were transferred to or filed in the District of New Jersey for coordinated or consolidated pre-trial proceedings. In May 2023, we reached a settlement in the In re Insulin Pricing Litigation consumer class action, and the plaintiffs filed a motion for preliminary approval of our settlement. In January 2024, the Multi-District Litigation court denied the consumer class plaintiffs’ motion for class certification, and in April 2024, the settlement agreement was terminated. In February 2024, we entered into a non-monetary settlement with the Minnesota Attorney General's Office that resolved all matters related to Minnesota's insulin pricing lawsuit.
Pricing Investigations and Similar Matters
We have been subject to various investigations and received subpoenas, civil investigative demand requests, information requests, interrogatories, and other inquiries from various governmental entities related to pricing issues, including the pricing and sale of insulins and other products and calculations of AMP and best price. These include subpoenas from the Vermont Attorney General Office, civil investigative demands from the Washington, New Mexico, Colorado, Louisiana, Texas and Indiana Attorney General Offices, the U.S. Department of Justice, and the U.S. Federal Trade Commission, as well as information requests from the Mississippi, Washington D.C., California, Florida, Hawaii, and Nevada Attorney General Offices.
In January 2022, the Michigan Attorney General filed a petition in Michigan state court seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), and a complaint seeking a declaratory judgment that the Attorney General has authority to investigate Lilly's sale of insulin under the MCPA. The court authorized the proposed investigation and the issuance of civil investigative subpoenas. In April 2022, the parties entered into a stipulation providing that the State of Michigan will not issue any civil investigative subpoena to us under the MCPA until the declaratory judgment action is resolved. In July 2022, the court dismissed the case in its entirety. In June 2023, the Michigan Court of Appeals affirmed the judgment in our favor. In August 2023, the Michigan Attorney General filed an application for leave to appeal to the Michigan Supreme Court, which is being set for argument.
We are cooperating with all of the aforementioned investigations, subpoenas, and inquiries.
Research Corporation Technologies, Inc.
In April 2016, we were named as a defendant in litigation filed by Research Corporation Technologies, Inc. (RCT) in the U.S. District Court for the District of Arizona. RCT is seeking damages for breach of contract, unjust enrichment, and conversion related to processes used to manufacture certain products, including Humalog and Humulin. In October 2021, the court issued a summary judgment decision in favor of RCT on certain issues, including with respect to a disputed royalty. Trial is scheduled for August 2024. Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable. This matter is ongoing.
Note 10: Other Comprehensive Income (Loss)
The following tables summarize the activity related to each component of other comprehensive income (loss) during the three months ended March 31, 2024 and 2023:
| (Amounts presented net of taxes) | Foreign Currency Translation Gains (Losses) | Net Unrealized Gains (Losses) on Available-For-Sale Securities | Defined Benefit Pension and Retiree Health Benefit Plans | Net Unrealized Gains (Losses) on Cash Flow Hedges | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | (1,819.0) | $ | (26.2) | $ | (2,697.3) | $ | 215.5 | $ | (4,327.0) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (88.2) | (4.8) | 15.6 | 72.0 | (5.4) | ||||||||||||||||||||||||||||||
| Net amount reclassified from accumulated other comprehensive loss | 10.2 | 0.1 | 23.0 | (0.4) | 32.9 | ||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | (78.0) | (4.7) | 38.6 | 71.6 | 27.5 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | (1,897.0) | $ | (30.9) | $ | (2,658.7) | $ | 287.1 | $ | (4,299.5) |
| (Amounts presented net of taxes) | Foreign Currency Translation Gains (Losses) | Net Unrealized Gains (Losses) on Available-For-Sale Securities | Defined Benefit Pension and Retiree Health Benefit Plans | Net Unrealized Gains (Losses) on Cash Flow Hedges | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | (1,874.2) | $ | (37.1) | $ | (2,062.3) | $ | 129.0 | $ | (3,844.6) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 72.8 | 8.1 | (16.8) | 12.7 | 76.8 | ||||||||||||||||||||||||||||||
| Net amount reclassified from accumulated other comprehensive loss | (25.2) | 0.7 | 13.0 | 2.0 | (9.5) | ||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | 47.6 | 8.8 | (3.8) | 14.7 | 67.3 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | (1,826.6) | $ | (28.3) | $ | (2,066.1) | $ | 143.7 | $ | (3,777.3) |
The tax effects on the net activity related to each component of other comprehensive income (loss) were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| Tax benefit (expense) | 2024 | 2023 | |||||||||||||||||||||
| Foreign currency translation gains/losses | $ | (52.0) | $ | 46.5 | |||||||||||||||||||
| Net unrealized gains/losses on available-for-sale securities | 1.4 | (2.6) | |||||||||||||||||||||
| Defined benefit pension and retiree health benefit plans | 4.8 | (4.0) | |||||||||||||||||||||
| Net unrealized gains/losses on cash flow hedges | (19.0) | (3.9) | |||||||||||||||||||||
| Benefit (expense) for income taxes allocated to other comprehensive income (loss) items | $ | (64.8) | $ | 36.0 |
Except for the tax effects of foreign currency translation gains and losses related to our foreign currency-denominated notes, cross-currency interest rate swaps, and other foreign currency exchange contracts designated as net investment hedges (see Note 6), income taxes were not provided for foreign currency translation. Generally, the assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. For those operations, changes in exchange rates generally do not affect cash flows; therefore, resulting translation adjustments are made in shareholders' equity rather than in the consolidated condensed statements of operations.
Reclassifications out of accumulated other comprehensive loss were as follows:
| Details about Accumulated Other Comprehensive Loss Components | Three Months Ended March 31, | Affected Line Item in the Consolidated Condensed Statements of Operations | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Amortization of retirement benefit items: | ||||||||||||||||||||||||||
| Prior service benefits, net | $ | (0.9) | $ | (12.6) | Other–net, (income) expense | |||||||||||||||||||||
| Actuarial losses, net | 30.0 | 29.1 | Other–net, (income) expense | |||||||||||||||||||||||
| Total before tax | 29.1 | 16.5 | ||||||||||||||||||||||||
| Tax benefit | (6.1) | (3.5) | Income taxes | |||||||||||||||||||||||
| Net of tax | 23.0 | 13.0 | ||||||||||||||||||||||||
| Other, net of tax | 9.9 | (22.5) | Other–net, (income) expense | |||||||||||||||||||||||
| Total reclassifications, net of tax | $ | 32.9 | $ | (9.5) |
Note 11: Other–Net, (Income) Expense
Other–net, (income) expense consisted of the following:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Interest expense | $ | 179.6 | $ | 102.8 | |||||||||||||||||||
| Interest income | (45.8) | (34.2) | |||||||||||||||||||||
| Net investment (gains) losses on equity securities (Note 6) | (16.0) | 13.7 | |||||||||||||||||||||
| Retirement benefit plans | (116.1) | (115.8) | |||||||||||||||||||||
| Other (income) expense | (28.8) | (2.2) | |||||||||||||||||||||
| Other–net, (income) expense | $ | (27.1) | $ | (35.7) |
Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition