ELI LILLY & Co 10-K

Item 8. Financial Statements and Supplementary Data Consolidated Statements of Operations ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions and shares in thousands, except per-share data) Year Ended December 31 2021 2020 2019 Revenue (Note 2) $ 28,318.4 $ 24,539.8 $ 22,319.5 Costs, expenses, and other: Cost of sales 7,312.8 5,483.3 4,721.2 Research and development 7,025.9 6,085.7 5,595.0 Marketing, selling, and administrative 6,431.6 6,121.2 6,213.8 Acquired in-process research and development (Note 3) 874.9 660.4 239.6 Asset impairment, restructuring, and other special charges (Note 5) 316.1 131.2 575.6 Other—net, (income) expense (Note 18) 201.6 ( 1,171.9 ) ( 291.6 ) 22,162.9 17,309.9 17,053.6 Income before income taxes 6,155.5 7,229.9 5,265.9 Income taxes (Note 14) 573.8 1,036.2 628.0 Net income from continuing operations 5,581.7 6,193.7 4,637.9 Net income from discontinued operations (Note 19) — — 3,680.5 Net income $ 5,581.7 $ 6,193.7 $ 8,318.4 Earnings per share: Earnings from continuing operations - basic $ 6.15 $ 6.82 $ 4.98 Earnings from discontinued operations - basic — — 3.95 Earnings per share - basic $ 6.15 $ 6.82 $ 8.93 Earnings from continuing operations - diluted $ 6.12 $ 6.79 $ 4.96 Earnings from discontinued operations - diluted — — 3.93 Earnings per share - diluted $ 6.12 $ 6.79 $ 8.89 Shares used in calculation of earnings per share: Basic 906,963 907,634 931,059 Diluted 911,681 912,505 935,684 See notes to consolidated financial statements. 55 Consolidated Statements of Comprehensive Income (Loss) ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions) Year Ended December 31 2021 2020 2019 Net income $ 5,581.7 $ 6,193.7 $ 8,318.4 Other comprehensive income (loss) from continuing operations: Change in foreign currency translation gains (losses) 13.5 122.1 ( 89.9 ) Change in net unrealized gains (losses) on securities ( 15.9 ) 14.2 34.4 Change in defined benefit pension and retiree health benefit plans (Note 15) 2,699.4 ( 157.1 ) ( 970.0 ) Change in effective portion of cash flow hedges 151.6 ( 152.9 ) 34.3 Other comprehensive income (loss) from continuing operations before income taxes 2,848.6 ( 173.7 ) ( 991.2 ) Benefit (provision) for income taxes related to other comprehensive income (loss) from continuing operations ( 695.3 ) 200.9 151.0 Other comprehensive income (loss) from continuing operations, net of tax (Note 17) 2,153.3 27.2 ( 840.2 ) Other comprehensive income from discontinued operations, net of tax (Note 17) — — 56.8 Other comprehensive income (loss), net of tax (Note 17) 2,153.3 27.2 ( 783.4 ) Comprehensive income $ 7,735.0 $ 6,220.9 $ 7,535.0 See notes to consolidated financial statements. 56 Consolidated Balance Sheets ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions, shares in thousands) December 31 2021 2020 Assets Current Assets Cash and cash equivalents (Note 7) $ 3,818.5 $ 3,657.1 Short-term investments (Note 7) 90.1 24.2 Accounts receivable, net of allowances of $ 22.5 (2021) and $ 25.9 (2020) 6,672.8 5,875.3 Other receivables 1,454.4 1,053.7 Inventories (Note 6) 3,886.0 3,980.3 Prepaid expenses and other 2,530.6 2,871.5 Total current assets 18,452.4 17,462.1 Investments (Note 7) 3,212.6 2,966.8 Goodwill (Note 8) 3,892.0 3,766.5 Other intangibles, net (Note 8) 7,691.9 7,450.0 Deferred tax assets (Note 14) 2,489.3 2,830.4 Property and equipment, net (Note 9) 8,985.1 8,681.9 Other noncurrent assets 4,082.7 3,475.4 Total assets $ 48,806.0 $ 46,633.1 Liabilities and Equity Current Liabilities Short-term borrowings and current maturities of long-term debt (Note 11) $ 1,538.3 $ 8.7 Accounts payable 1,670.6 1,606.7 Employee compensation 958.1 997.2 Sales rebates and discounts 6,845.8 5,853.0 Dividends payable 885.5 770.6 Income taxes payable (Note 14) 126.9 495.1 Other current liabilities 3,027.5 2,750.3 Total current liabilities 15,052.7 12,481.6 Other Liabilities Long-term debt (Note 11) 15,346.4 16,586.6 Accrued retirement benefits (Note 15) 1,954.1 4,094.5 Long-term income taxes payable (Note 14) 3,920.0 3,837.8 Deferred tax liabilities (Note 14) 1,733.7 2,099.9 Other noncurrent liabilities 1,644.3 1,707.5 Total other liabilities 24,598.5 28,326.3 Commitments and Contingencies (Note 16) Eli Lilly and Company Shareholders' Equity (Notes 12 and 13) Common stock—no par value Authorized shares: 3,200,000 Issued shares: 954,116 (2021) and 957,077 (2020) 596.3 598.2 Additional paid-in capital 6,833.4 6,778.5 Retained earnings 8,958.5 7,830.2 Employee benefit trust ( 3,013.2 ) ( 3,013.2 ) Accumulated other comprehensive loss (Note 17) ( 4,343.1 ) ( 6,496.4 ) Cost of common stock in treasury ( 52.7 ) ( 55.7 ) Total Eli Lilly and Company shareholders' equity 8,979.2 5,641.6 Noncontrolling interests 175.6 183.6 Total equity 9,154.8 5,825.2 Total liabilities and equity $ 48,806.0 $ 46,633.1 See notes to consolidated financial statements. 57 Consolidated Statements of Shareholders' Equity Equity of Eli Lilly and Company Shareholders ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions, shares in thousands) Common Stock Additional Paid-in Capital Retained Earnings Employee Benefit Trust Accumulated Other Comprehensive Loss Common Stock in Treasury Noncontrolling Interest Shares Amount Shares Amount Balance at January 1, 2019 1,057,639 $ 661.0 $ 6,583.6 $ 11,395.9 $ ( 3,013.2 ) $ ( 5,729.2 ) 604 $ ( 69.4 ) $ 1,080.4 Net income 8,318.4 37.7 Other comprehensive income (loss), net of tax ( 794.4 ) 11.0 Cash dividends declared per share: $ 2.68 ( 2,430.5 ) Retirement of treasury shares ( 102,640 ) ( 64.1 ) ( 12,363.4 ) ( 102,640 ) 12,427.5 Purchase of treasury shares 37,639 ( 4,400.0 ) Issuance of stock under employee stock plans, net 3,057 1.9 ( 210.7 ) ( 74 ) 8.6 Stock-based compensation 312.4 Acquisition of common stock in exchange offer 65,001 ( 8,027.5 ) Deconsolidation of Elanco ( 1,028.9 ) Other ( 8.0 ) Balance at December 31, 2019 958,056 598.8 6,685.3 4,920.4 ( 3,013.2 ) ( 6,523.6 ) 530 ( 60.8 ) 92.2 Net income 6,193.7 126.6 Other comprehensive income, net of tax 27.2 Cash dividends declared per share: $ 3.07 ( 2,786.2 ) Retirement of treasury shares ( 3,627 ) ( 2.3 ) ( 497.7 ) ( 3,627 ) 500.0 Purchase of treasury shares 3,627 ( 500.0 ) Issuance of stock under employee stock plans, net 2,648 1.7 ( 212.7 ) ( 43 ) 5.1 Stock-based compensation 308.1 Other ( 2.2 ) ( 35.2 ) Balance at December 31, 2020 957,077 598.2 6,778.5 7,830.2 ( 3,013.2 ) ( 6,496.4 ) 487 ( 55.7 ) 183.6 Net income 5,581.7 3.4 Other comprehensive income, net of tax 2,153.3 Cash dividends declared per share: $ 3.53 ( 3,201.7 ) Retirement of treasury shares ( 5,412 ) ( 3.4 ) ( 1,246.6 ) ( 5,412 ) 1,250.0 Purchase of treasury shares 5,412 ( 1,250.0 ) Issuance of stock under employee stock plans, net 2,451 1.5 ( 287.9 ) ( 24 ) 3.0 Stock-based compensation 342.8 Other ( 5.1 ) ( 11.4 ) Balance at December 31, 2021 954,116 $ 596.3 $ 6,833.4 $ 8,958.5 $ ( 3,013.2 ) $ ( 4,343.1 ) 463 $ ( 52.7 ) $ 175.6 See notes to consolidated financial statements. 58 Consolidated Statements of Cash Flows ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions) Year Ended December 31 2021 2020 2019 Cash Flows from Operating Activities Net income $ 5,581.7 $ 6,193.7 $ 8,318.4 Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: Gain related to disposition of Elanco (Note 19) — — ( 3,680.5 ) Gain on sale of antibiotic business in China (Note 3) — — ( 309.8 ) Depreciation and amortization 1,547.6 1,323.9 1,232.6 Debt extinguishment loss (Note 11) 405.2 — 252.5 Change in deferred income taxes ( 802.3 ) ( 134.5 ) 62.4 Stock-based compensation expense 342.8 308.1 312.4 Net investment gains ( 178.0 ) ( 1,438.5 ) ( 403.1 ) Acquired in-process research and development (Note 3) 874.9 660.4 239.6 Other non-cash operating activities, net 511.4 333.9 499.3 Other changes in operating assets and liabilities, net of acquisitions and divestitures: Receivables—(increase) decrease ( 1,278.3 ) ( 1,350.2 ) ( 127.2 ) Inventories—(increase) decrease ( 235.9 ) ( 533.4 ) ( 258.7 ) Other assets—(increase) decrease 1,515.4 ( 457.1 ) ( 602.3 ) Income taxes payable—increase (decrease) ( 359.7 ) 322.0 ( 221.3 ) Accounts payable and other liabilities—increase (decrease) ( 664.1 ) 1,271.3 ( 477.7 ) Net Cash Provided by Operating Activities 7,260.7 6,499.6 4,836.6 Cash Flows from Investing Activities Purchases of property and equipment ( 1,309.8 ) ( 1,387.9 ) ( 1,033.9 ) Proceeds from sales and maturities of short-term investments 47.4 129.7 136.6 Purchases of short-term investments ( 83.5 ) ( 11.4 ) ( 42.7 ) Proceeds from sales of noncurrent investments 800.0 757.1 609.8 Purchases of noncurrent investments ( 929.9 ) ( 358.7 ) ( 247.5 ) Purchases of in-process research and development ( 563.4 ) ( 641.2 ) ( 319.6 ) Cash paid for acquisitions, net of cash acquired (Note 3) ( 747.4 ) ( 849.3 ) ( 6,917.7 ) Cash distributed to Elanco upon disposition — — ( 374.0 ) Cash received for sale of antibiotic business in China — — 354.8 Other investing activities, net 24.3 102.8 ( 248.7 ) Net Cash Used for Investing Activities ( 2,762.3 ) ( 2,258.9 ) ( 8,082.9 ) Cash Flows from Financing Activities Dividends paid ( 3,086.8 ) ( 2,687.1 ) ( 2,409.8 ) Net change in short-term borrowings ( 4.0 ) ( 1,494.2 ) 995.4 Proceeds from issuance of long-term debt 2,410.8 2,062.3 6,556.4 Repayments of long-term debt ( 1,905.4 ) ( 276.5 ) ( 2,866.4 ) Purchases of common stock ( 1,250.0 ) ( 500.0 ) ( 4,400.0 ) Other financing activities, net ( 295.9 ) ( 241.6 ) ( 200.1 ) Net Cash Used for Financing Activities ( 4,131.3 ) ( 3,137.1 ) ( 2,324.5 ) Effect of exchange rate changes on cash and cash equivalents ( 205.7 ) 216.0 ( 89.9 ) Net increase (decrease) in cash and cash equivalents 161.4 1,319.6 ( 5,660.7 ) Cash and cash equivalents at beginning of year (2019 includes $ 677.5 of discontinued operations) 3,657.1 2,337.5 7,998.2 Cash and Cash Equivalents at End of Year $ 3,818.5 $ 3,657.1 $ 2,337.5 See notes to consolidated financial statements. 59 Notes to Consolidated Financial Statements ELI LILLY AND COMPANY AND SUBSIDIARIES (Tables present dollars in millions, except per-share data) Note 1: Summary of Significant Accounting Policies and Implementation of New Financial Accounting Standard Basis of Presentation The accompanying consolidated financial statements include Eli Lilly and Company and all subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). We consider majority voting interests, as well as effective economic or other control over an entity when deciding whether or not to consolidate an entity. We generally do not have control by means other than voting interests. Where our ownership of consolidated subsidiaries is less than 100 percent, the noncontrolling shareholders' interests are reflected as a separate component of equity. All intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. We issued our financial statements by filing with the Securities and Exchange Commission (SEC) and have evaluated subsequent events up to the time of the filing of this Annual Report on Form 10-K. Certain reclassifications have been made to prior periods in the consolidated financial statements and accompanying notes to conform with the current presentation. All per-share amounts, unless otherwise noted in the footnotes, are presented on a diluted basis. On March 11, 2019, we completed the disposition of our remaining 80.2 percent ownership of Elanco Animal Health Incorporated (Elanco) common stock through a tax-free exchange offer. As a result, Elanco has been presented as discontinued operations in our consolidated financial statements for all periods presented. 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. Research and Development Expenses and Acquired In-Process Research and Development (IPR&D) Research and development expenses include the following: • Research and development costs, which are expensed as incurred. • Milestone payment obligations incurred prior to regulatory approval of the product, which are accrued when the event requiring payment of the milestone occurs. Acquired IPR&D expense includes the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use. Earnings Per Share (EPS) We calculate basic EPS based on the weighted-average number of common shares outstanding plus the effect of incremental shares from potential participating securities. We calculate diluted EPS based on the weighted-average number of common shares outstanding plus the effect of incremental shares from our stock-based compensation programs. 60 Foreign Currency Translation Operations in our subsidiaries outside the United States (U.S.) are recorded in the functional currency of each subsidiary which is determined by a review of the environment where each subsidiary primarily generates and expends cash. The results of operations for our subsidiaries outside the U.S. are translated from functional currencies into U.S. dollars using the weighted average currency rate for the period. Assets and liabilities are translated using the period end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries are recorded in other comprehensive income (loss). Advertising Expenses Costs associated with advertising are expensed as incurred and are included in marketing, selling, and administrative expenses. Advertising expenses, comprised primarily of television, radio, print media, and Internet advertising, totaled approximately $ 1.2 billion, $ 1.1 billion, and $ 1.1 billion in 2021, 2020, and 2019, respectively, which was less than 5 percent of revenue each year. Other Significant Accounting Policies Our other significant accounting policies are described in the remaining appropriate notes to the consolidated financial statements. Implementation of New Financial Accounting Standard Accounting Standards Update 2021-01, Reference Rate Reform, provides for temporary optional expedients and exceptions in applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of the London Interbank Offered Rate (LIBOR) to an alternative reference rate. The standard can be adopted immediately and is applicable to contracts entered into before January 1, 2023. We do not expect the transition from the use of LIBOR to an alternative reference rate to have a material impact to our consolidated statements of operations or balance sheets at the initial transition. Note 2: Revenue The following table summarizes our revenue recognized in our consolidated statements of operations: 2021 2020 2019 Net product revenue $ 25,957.9 $ 22,694.8 $ 20,377.3 Collaboration and other revenue (1) 2,360.5 1,845.0 1,942.2 Revenue $ 28,318.4 $ 24,539.8 $ 22,319.5 (1) Collaboration and other revenue associated with prior period transfers of intellectual property was $ 175.0 million, $ 135.6 million, and $ 301.5 million during the years ended December 31, 2021, 2020, and 2019, respectively. 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 will include our share of profits from the collaboration, 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. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers. 61 Net Product Revenue Revenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which generally is at the time we ship the product to the customer. Payment terms differ by jurisdiction and customer, but payment terms in most of our major jurisdictions typically range from 30 to 70 days from date of shipment. Revenue for our product sales has not been adjusted for the effects of a financing component as we expect, at contract inception, that the period between when we transfer control of the product and when we receive payment will be one year or less. Any exceptions are either not material or we collect interest for payments made after the due date. Provisions for rebates, discounts, and returns are established in the same period the related sales are recognized. We generally ship product shortly after orders are received; therefore, we generally only have a few days of orders received but not yet shipped at the end of any reporting period. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of product and collected from a customer. Most of our products are sold to wholesalers that serve pharmacies, physicians and other health care professionals, and hospitals. For the years ended December 31, 2021, 2020, and 2019, our three largest wholesalers each accounted for between 15 percent and 20 percent of consolidated revenue. Further, they each accounted for between 18 percent and 28 percent of accounts receivable as of December 31, 2021 and 2020. Significant judgments must be made in determining the transaction price for our sales of products related to anticipated rebates, discounts and returns. The following describe the most significant of these judgments: Sales Rebates and Discounts - Background and Uncertainties • We initially invoice our customers at contractual list prices. Contracts with direct and indirect customers may provide for various rebates and discounts that may differ in each contract. As a consequence, to determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we must estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates. • The rebate and discount amounts are recorded as a deduction to arrive at our net product revenue. Sales rebates and discounts that require the use of judgment in the establishment of the accrual include managed care, Medicare, Medicaid, chargebacks, long-term care, hospital, patient assistance programs, and various other programs. We estimate these accruals using an expected value approach. • The largest of our sales rebate and discount amounts are rebates associated with sales covered by managed care, Medicare, Medicaid, chargeback, and patient assistance programs in the U.S. In determining the appropriate accrual amount, we consider our historical rebate payments for these programs by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. Although we accrue a liability for rebates related to these programs at the time we record the sale, the rebate related to that sale is typically paid up to six months later. Because of this time lag, in any particular period our rebate adjustments may incorporate revisions of accruals for several periods. • Most of our rebates outside the U.S. are contractual or legislatively mandated and are estimated and recognized in the same period as the related sales. In some large European countries, government rebates are based on the anticipated budget for pharmaceutical payments in the country. An estimate of these rebates, updated as governmental authorities revise budgeted deficits, is recognized in the same period as the related sale. 62 Sales Returns - Background and Uncertainties • When product sales occur, to determine the appropriate transaction price for our sales, we estimate a reserve for future product returns related to those sales using an expected value approach. This estimate is based on several factors, including: historical return rates, expiration date by product (on average, approximately 24 months after the initial sale of a product to our customer), and estimated levels of inventory in the wholesale and retail channels, as well as any other specifically-identified anticipated returns due to known factors such as the loss of patent exclusivity, product recalls and discontinuances, or a changing competitive environment. We maintain a returns policy that allows most U.S. customers to return product for dating issues within a specified period prior to and subsequent to the product's expiration date. Following the loss of exclusivity for a patent-dependent product, we expect to experience an elevated level of product returns as product inventory remaining in the wholesale and retail channels expires. Adjustments to the returns reserve have been and may in the future be required based on revised estimates to our assumptions. We record the return amounts as a deduction to arrive at our net product revenue. Once the product is returned, it is destroyed; we do not record a right of return asset. Our returns policies outside the U.S. are generally more restrictive than in the U.S. as returns are not allowed for reasons other than failure to meet product specifications in many countries. Our reserve for future product returns for product sales outside the U.S. is not material. • As a part of our process to estimate a reserve for product returns, we regularly review the supply levels of our significant products at the major wholesalers in the U.S. and in major markets outside the U.S., primarily by reviewing periodic inventory reports supplied by our major wholesalers and available prescription volume information for our products, or alternative approaches. We attempt to maintain U.S. wholesaler inventory levels at an average of approximately one month or less on a consistent basis across our product portfolio. Causes of unusual wholesaler buying patterns include actual or anticipated product-supply issues, weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in wholesaler business operations. In the U.S., the current structure of our arrangements provides us with data on inventory levels at our wholesalers; however, our data on inventory levels in the retail channel is more limited. Wholesaler stocking and destocking activity historically has not caused any material changes in the rate of actual product returns. • Actual U.S. product returns have been less than 2 percent of our U.S. revenue during each of the past three years and have not fluctuated significantly as a percentage of revenue, although fluctuations are more likely in periods following loss of patent exclusivity for major products in the U.S. market. Adjustments to Revenue We record adjustments to revenue as a result of changes in estimates, for the judgments described above, for our most significant U.S. sales returns, rebates and discounts liability balances. Such adjustments for products shipped in previous periods resulted in approximately 2 percent or less increase to U.S revenue during each of the years ended December 31, 2021, 2020, and 2019. Collaboration and Other Arrangements We recognize several types of revenue from our collaborations and other arrangements, which we discuss in general terms immediately below and more specifically in Note 4 for each of our material collaborations and other arrangements. Our collaborations and other arrangements are not contracts with customers but are evaluated to determine whether any aspects of the arrangements are contracts with customers. • Revenue related to products we sell pursuant to these arrangements is included in net product revenue, while other sources of revenue (e.g., royalties and profit sharing from our partner) are included in collaboration and other revenue. • Initial fees and developmental milestones we receive in collaborative and other similar arrangements from the partnering of our compounds under development are generally deferred and amortized into income through the expected product approval date. • Profit-sharing due from our collaboration partners, which is based upon gross margins reported to us by our partners, is recognized as collaboration and other revenue as earned. 63 • Royalty revenue from licensees and certain of our collaboration partners, which is based on sales to third-parties of licensed products and technology, is recorded when the third-party sale occurs and the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). This royalty revenue is included in collaboration and other revenue. • For arrangements involving multiple goods or services (e.g., research and development, marketing and selling, manufacturing, and distribution), each required good or service is evaluated to determine whether it is distinct. If a good or service does not qualify as distinct, it is combined with the other non-distinct goods or services within the arrangement and these combined goods or services are treated as a single performance obligation for accounting purposes. The arrangement's transaction price is then allocated to each performance obligation based on the relative standalone selling price of each performance obligation. For arrangements that involve variable consideration where we have sold intellectual property, we recognize revenue based on estimates of the amount of consideration we believe we will be entitled to receive from the other party, subject to a constraint. These estimates are adjusted to reflect the actual amounts to be collected when those facts and circumstances become known. • Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development will not receive regulatory approval, we generally do not recognize any contingent payments that would be due to us upon or after regulatory approval. 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: 2021 2020 Contract liabilities $ 262.6 $ 276.8 The contract liabilities balances disclosed above as of December 31, 2021 and 2020 were primarily related to the remaining license period of symbolic intellectual property and obligations to perform research and development activities or supply product for a defined period of time. During the years ended December 31, 2021, 2020, and 2019, 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. 64 Disaggregation of Revenue The following table summarizes revenue by product: U.S. Outside U.S. 2021 2020 2019 2021 2020 2019 Revenue—to unaffiliated customers: Diabetes: Trulicity ® $ 4,914.4 $ 3,835.9 $ 3,155.2 $ 1,557.6 $ 1,232.2 $ 972.7 Humalog ® (1) 1,320.7 1,485.6 1,669.7 1,132.3 1,140.3 1,151.0 Jardiance (2) 807.3 620.8 565.9 683.5 533.0 378.3 Humulin ® 832.9 866.4 879.7 389.6 393.2 410.4 Basaglar ® 588.3 842.3 876.2 304.2 282.1 236.3 Trajenta (3) 82.1 95.6 224.8 290.4 263.0 365.8 Other Diabetes 173.6 162.5 158.0 111.2 81.5 88.1 Total Diabetes 8,719.3 7,909.1 7,529.5 4,468.8 3,925.3 3,602.6 Oncology: Alimta ® 1,233.9 1,265.3 1,219.5 827.5 1,064.7 896.4 Verzenio ® 834.9 618.2 454.8 515.0 294.4 124.9 Cyramza ® 358.1 381.9 335.3 674.8 650.8 589.9 Erbitux ® 481.8 480.1 487.9 66.4 56.3 55.4 Tyvyt ® — — — 418.1 308.7 134.0 Other Oncology 120.1 46.6 111.0 210.7 152.3 205.3 Total Oncology 3,028.8 2,792.1 2,608.5 2,712.5 2,527.2 2,005.9 Immunology: Taltz ® 1,542.4 1,288.5 1,016.8 670.4 500.0 349.6 Olumiant ® (4) 324.1 63.8 42.2 791.0 575.0 384.7 Other Immunology 15.3 20.0 — 17.6 14.6 — Total Immunology 1,881.8 1,372.3 1,059.0 1,479.0 1,089.6 734.3 Neuroscience: Cymbalta ® 38.7 42.1 49.6 542.8 725.6 675.8 Emgality ® 434.5 325.9 154.9 142.7 37.0 7.7 Zyprexa ® 39.6 46.1 41.0 390.7 360.5 377.6 Other Neuroscience 102.0 73.2 111.0 207.5 220.9 305.3 Total Neuroscience 614.8 487.3 356.5 1,283.7 1,344.0 1,366.4 Other: COVID-19 Antibodies (5) 1,978.0 850.0 — 261.4 21.2 — Forteo ® 441.6 510.3 645.5 360.3 536.0 759.1 Cialis ® 10.6 61.8 231.7 707.9 545.4 658.8 Other 136.1 246.4 291.9 233.9 321.8 469.7 Total Other 2,566.4 1,668.4 1,169.1 1,563.5 1,424.4 1,887.7 Revenue $ 16,811.0 $ 14,229.3 $ 12,722.6 $ 11,507.4 $ 10,310.5 $ 9,596.8 Numbers may not add due to rounding. (1) Humalog revenue includes insulin lispro. (2) Jardiance revenue includes Glyxambi ® , Synjardy ® , and Trijardy ® XR. (3) Trajenta revenue includes Jentadueto ® . (4) Olumiant revenue includes sales for baricitinib, for treatment in hospitalized COVID-19 patients, that were made pursuant to Emergency Use Authorization (EUA) or similar regulatory authorizations. (5) COVID-19 antibodies include sales for bamlanivimab administered alone as well as sales for bamlanivimab and etesevimab administered together and were made pursuant to EUAs or similar regulatory authorizations. 65 The following table summarizes revenue by geographical area: 2021 2020 2019 Revenue—to unaffiliated customers (1) : U.S. $ 16,811.0 $ 14,229.3 $ 12,722.6 Europe 4,776.8 4,187.7 3,765.0 Japan 2,367.0 2,583.1 2,547.6 China 1,661.4 1,116.9 939.4 Other foreign countries 2,702.2 2,422.7 2,344.9 Revenue $ 28,318.4 $ 24,539.8 $ 22,319.5 Numbers may not add due to rounding. (1) Revenue is attributed to the countries based on the location of the customer. Note 3: Acquisitions and Divestiture In January 2021, February 2020 and 2019, we completed the acquisitions of Prevail Therapeutics Inc. (Prevail), Dermira, Inc. (Dermira) and Loxo Oncology, Inc. (Loxo), respectively. These transactions, as further discussed in this note below in Acquisitions of Businesses, were accounted for as business combinations under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated 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, where applicable, has been recorded as goodwill. The results of operations of these acquisitions have been included in our consolidated financial statements from the date of acquisition. We also acquired assets in development in 2021, 2020, and 2019, which are further discussed in this note below in Asset Acquisitions. Upon each acquisition, the cost allocated to acquired IPR&D was immediately expensed because the compound acquired had no alternative future use. For the years ended December 31, 2021, 2020, and 2019, we recorded acquired IPR&D charges of $ 874.9 million, $ 660.4 million, and $ 239.6 million, respectively. Acquisitions of Businesses Prevail Acquisition Overview of Transaction In January 2021, we acquired all shares of Prevail for a purchase price that included $ 22.50 per share in cash (or an aggregate of $ 747.4 million, net of cash acquired) plus one non-tradable contingent value right (CVR) per share. The CVR entitles Prevail stockholders up to an additional $ 4.00 per share in cash (or an aggregate of approximately $ 160 million) payable, subject to certain terms and conditions, upon the first regulatory approval of a Prevail product in one of the following countries: U.S., Japan, United Kingdom, Germany, France, Italy or Spain. To achieve the full value of the CVR, such regulatory approval must occur by December 31, 2024. If such regulatory approval occurs after December 31, 2024, the value of the CVR will be reduced by approximately 8.3 cents per month until December 1, 2028, at which point the CVR will expire without payment. Under the terms of the agreement, we acquired potentially disease-modifying AAV9-based gene therapies for patients with neurodegenerative diseases. The acquisition establishes a new modality for drug discovery and development, extending our research efforts through the creation of a gene therapy program that is being anchored by Prevail's portfolio of assets. The lead gene therapies in clinical development that we acquired were PR001 for patients with Parkinson's disease with GBA1 mutations and neuronopathic Gaucher disease and PR006 for patients with frontotemporal dementia with GRN mutations. Both PR001 and PR006 were granted Fast Track designation from the U.S. Food and Drug Administration (FDA). 66 Assets Acquired and Liabilities Assumed The following table summarizes the amounts recognized for assets acquired and liabilities assumed in the acquisition of Prevail as of the acquisition date: Estimated Fair Value at January 22, 2021 Cash $ 90.5 Acquired IPR&D (1) 824.0 Goodwill (2) 126.8 Deferred tax liabilities ( 106.0 ) Other assets and liabilities, net ( 31.5 ) Acquisition date fair value of consideration transferred 903.8 Less: Cash acquired ( 90.5 ) Fair value of CVR liability (3) ( 65.9 ) Cash paid, net of cash acquired $ 747.4 (1) Acquired IPR&D intangibles primarily relate to PR001. (2) The goodwill recognized from this acquisition is not deductible for tax purposes. (3) See Note 7 for a discussion on the estimation of the CVR liability. We are unable to provide the results of operations for the year ended December 31, 2021 attributable to Prevail as those operations were substantially integrated into our legacy business. Pro forma information has not been included as this acquisition did not have a material impact on our consolidated statements of operations for the years ended December 31, 2021 and 2020. Dermira Acquisition Overview of Transaction In February 2020, we acquired all shares of Dermira for a purchase price of approximately $ 849.3 million, net of cash acquired. Under terms of the agreement, we acquired lebrikizumab, a novel, investigational, monoclonal antibody being evaluated for the treatment of moderate-to-severe atopic dermatitis. Lebrikizumab was granted Fast Track designation from the FDA. We also acquired Qbrexza ® (glycopyrronium) cloth, a medicated cloth approved by the FDA for the topical treatment of primary axillary hyperhidrosis (uncontrolled excessive underarm sweating). During the year ended December 31, 2021, we sold the rights to Qbrexza. See Note 5 for additional information. Assets Acquired and Liabilities Assumed The fair values recognized related to the assets acquired and liabilities assumed in this acquisition included goodwill of $ 86.8 million, other intangibles of $ 1.20 billion primarily related to lebrikizumab, deferred income tax liabilities of $ 49.5 million, and long-term debt of $ 375.5 million. After the acquisition, we repaid $ 276.2 million of long-term debt assumed as part of our acquisition of Dermira. Revenue attributable to assets acquired in the Dermira acquisition did not have a material impact on our consolidated statement of operations for the year ended December 31, 2020. We are unable to provide the results of operations for the year ended December 31, 2020 attributable to Dermira as those operations were substantially integrated into our legacy business. Pro forma information has not been included because this acquisition did not have a material impact on our consolidated statements of operations for the years ended December 31, 2020 and 2019. Loxo Acquisition Overview of Transaction In February 2019, we acquired all shares of Loxo for a purchase price of $ 6.92 billion, net of cash acquired. The accelerated vesting of Loxo employee equity awards was recognized as transaction expense included in asset impairment, restructuring, and other special charges during the year ended December 31, 2019 (see Note 5). 67 Under the terms of the agreement, we acquired a pipeline of investigational medicines, including selpercatinib (LOXO-292), an oral RET inhibitor, and LOXO-305, an oral BTK inhibitor. In the second quarter of 2020, the FDA approved selpercatinib (Retevmo ® ) under its Accelerated Approval regulations and continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials. At the time of approval, we reclassified our $ 4.60 billion intangible asset for selpercatinib (Retevmo) from indefinite-lived intangible assets to finite-lived intangible assets and began amortizing straight line over its estimated useful life. Assets Acquired and Liabilities Assumed The following table summarizes the amounts recognized for assets acquired and liabilities assumed in the acquisition of Loxo as of the acquisition date: Estimated Fair Value at February 15, 2019 Acquired IPR&D (1) $ 4,670.0 Finite-lived intangibles (2) 980.0 Deferred income taxes ( 1,032.8 ) Other assets and liabilities - net ( 26.4 ) Total identifiable net assets 4,590.8 Goodwill (3) 2,326.9 Total consideration transferred - net of cash acquired $ 6,917.7 (1) $ 4.60 billion of the acquired IPR&D relates to selpercatinib (LOXO-292). (2) Contract-based intangibles for Vitrakvi and a Phase I molecule which were amortized to cost of sales on a straight-line basis over their estimated useful lives and were expected to have a weighted average useful life of approximately 12 years from the acquisition date. In the fourth quarter of 2021 we impaired the intangible for the Phase I molecule. See Note 5 for additional information. (3) The goodwill recognized from this acquisition is attributable primarily to future unidentified projects and products and the assembled workforce for Loxo and is not deductible for tax purposes. Asset Acquisitions The following table and narrative summarize our asset acquisitions during 2021, 2020, and 2019. Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1) Acquired IPR&D Expense Precision Biosciences, Inc. Potential in vivo therapies for genetic disorders January 2021 Pre-clinical $ 107.8 Merus N.V. CD3-engaging T-cell re-directing bispecific antibodies for the potential treatment of cancer January 2021 Pre-clinical 46.5 Asahi Kasei Pharma Corporation AK1780, an orally bioavailable P2X7 receptor antagonist for the potential treatment of chronic pain conditions January 2021 Phase I 20.0 Rigel Pharmaceuticals, Inc. R552, a receptor-interacting serine/threonine-protein kinase 1 (RIPK1) inhibitor, for the potential treatment of autoimmune and inflammatory diseases March 2021 Phase I 125.0 MiNA Therapeutics Limited Pre-clinical targets that could lead to potential new medicines May 2021 Pre-clinical 25.0 Protomer Technologies Inc. Glucose-sensing insulin program July 2021 Pre-clinical 57.3 68 Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1) Acquired IPR&D Expense Kumquat Biosciences Inc. Pre-clinical small molecules that stimulate tumor-specific immune responses July 2021 Pre-clinical 55.0 Lycia Therapeutics, Inc. Several potential modalities across a spectrum of therapeutic areas and diseases August 2021 Pre-clinical 35.0 ProQR Therapeutics N.V. Pre-clinical targets that could lead to potential new medicines for genetic disorders in the liver and nervous system September 2021 Pre-clinical 26.7 QILU Regor Therapeutics Inc. Pre-clinical targets that could lead to potential new medicines for metabolic disorders December 2021 Pre-clinical 30.0 Foghorn Therapeutics Inc. Pre-clinical targets that could lead to potential new oncology medicines December 2021 Pre-clinical 316.6 Entos Pharmaceuticals Inc. Pre-clinical targets that could lead to potential new nucleic acid-based therapies targeting the central and peripheral nervous system December 2021 Pre-clinical 30.0 Sitryx Therapeutics Limited Pre-clinical targets that could lead to potential new medicines for autoimmune diseases March 2020 Pre-clinical 52.3 AbCellera Biologics Inc. (AbCellera) Neutralizing antibodies for the treatment and prevention of COVID-19 March 2020 (2) Pre-clinical 25.0 Shanghai Junshi Biosciences Co., Ltd. (Junshi Biosciences) Neutralizing antibodies for the treatment and prevention of COVID-19 May 2020 Pre-clinical 20.0 Petra Pharma Corporation (Petra) Mutant-selective PI3K α inhibitor that could lead to potential new medicine May 2020 Pre-clinical 174.8 Evox Therapeutics Limited Pre-clinical targets for the potential treatment of neurological disorders June 2020 Pre-clinical 22.0 Innovent Biologics, Inc. (Innovent) Sintilimab injection, an anti-PD-1 monoclonal antibody immuno-oncology medicine, for geographies outside of China October 2020 Phase III 200.0 Disarm Therapeutics, Inc. Disease-modifying therapeutics program for patients with axonal degeneration October 2020 Pre-clinical 126.3 Fochon Pharmaceuticals, Ltd. Pre-clinical molecule targeting hematological malignancies November 2020 Pre-clinical 40.0 69 Counterparty Compound(s),Therapy, or Asset Acquisition Month Phase of Development (1) Acquired IPR&D Expense AC Immune SA Tau aggregation inhibitor small molecules for the potential treatment of Alzheimer's disease and other neurodegenerative diseases January 2019 & September 2019 (3) Pre-clinical 127.1 ImmuNext, Inc. Novel immunometabolism target March 2019 Pre-clinical 40.0 Avidity Biosciences, Inc. Potential new medicines in immunology and other select indications April 2019 Pre-clinical 25.0 Centrexion Therapeutics Corporation CNTX-0290, a novel, small molecule somatostatin receptor type 4 agonist July 2019 Phase I 47.5 (1) The phase of development presented is as of the date of the arrangement and represents the phase of development of the most advanced asset acquired, where applicable. (2) We recognized acquired IPR&D expense of $ 25.0 million in May 2020 upon closing of the transaction. (3) We recognized acquired IPR&D expenses of $ 96.9 million in January 2019 upon entering into a license agreement and $ 30.2 million in September 2019 upon entering into an amendment to the license agreement. 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. Divestiture In October 2019, we completed a transaction in which we sold the rights in China for two legacy antibiotic medicines, as well as a manufacturing facility in Suzhou, China to Eddingpharm, a China-based specialty pharmaceutical company. In connection with the sale, we received net cash proceeds of $ 354.8 million and $ 40.3 million from Eddingpharm in 2019 and 2020, respectively. We accounted for the transaction as the sale of a business. We recognized a gain of $ 309.8 million in other—net, (income) expense in our consolidated statement of operations during the year ended December 31, 2019. Note 4: Collaborations and Other Arrangements We often enter into collaborative and other similar arrangements to develop and commercialize drug candidates. Collaborative activities may include research and development, marketing and selling (including promotional activities and physician detailing), manufacturing, and distribution. These arrangements often require milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from or payments to the collaboration partner. See Note 2 for amounts of collaboration and other revenue recognized from these types of arrangements. 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 collaboration 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 insulin, Basaglar. Glyxambi, Synjardy, and Trijardy XR are included in the Jardiance product family. Jentadueto is included in the Trajenta product family. 70 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. These milestones are being amortized through their respective term under the collaboration which, depending on country or region, is determined based on the latest to occur of (a) a defined number of years following launch date, (b) the expiration of the compound patent, or (c) any supplementary protection certificates or extensions thereto. The table below summarizes the net milestones capitalized (deferred) at December 31 for the compounds included in this collaboration: Net Milestones Capitalized (Deferred) (1) 2021 2020 Jardiance $ 136.1 $ 156.2 Trajenta 88.5 114.6 Basaglar ( 149.3 ) ( 168.0 ) (1) This represents the amounts that have been capitalized (deferred) from the start of this collaboration through the end of the reporting period, net of amount amortized. Through December 31, 2019, in the most significant markets, we and Boehringer Ingelheim shared equally the ongoing development costs, commercialization costs, and agreed upon gross margin for any product resulting from the collaboration. We recorded our portion of the gross margin associated with Boehringer Ingelheim's products as collaboration and other revenue. We recorded our sales of Basaglar to third parties as net product revenue with the payments made to Boehringer Ingelheim for their portion of the gross margin recorded as cost of sales. For all compounds under this collaboration, we recorded our portion of the development and commercialization costs as research and development expense and marketing, selling, and administrative expense, respectively. Each company was entitled to potential performance payments depending on the sales of the molecules it contributes to the collaboration. These performance payments may have resulted in the owner of the molecule retaining a greater share of the agreed upon gross margin of that product. Subject to achieving these thresholds, in a given period, our reported revenue for Trajenta and Jardiance may have been reduced by any performance payments we made related to these products. Similarly, performance payments we may have received related to Basaglar effectively reduced Boehringer Ingelheim's share of the gross margin, which reduced our cost of sales. Effective January 1, 2020, we and Boehringer Ingelheim modernized the alliance. For the Jardiance product family, we and Boehringer Ingelheim 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. Beginning January 1, 2021, 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 Basaglar in the U.S. We record our sales of Basaglar 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 collaboration and other revenue recognized with respect to the Jardiance and Trajenta families of products and net product revenue recognized with respect to Basaglar: 2021 2020 2019 Jardiance $ 1,490.8 $ 1,153.8 $ 944.2 Basaglar 892.5 1,124.4 1,112.6 Trajenta 372.5 358.5 590.6 71 Olumiant We have a worldwide license and collaboration agreement with Incyte Corporation (Incyte), which provides us the development and commercialization rights to its Janus tyrosine kinase (JAK) inhibitor compound, now known as Olumiant (baricitinib), and certain follow-on compounds, for the treatment of inflammatory and autoimmune diseases. Incyte has the right to receive tiered, double digit royalty payments on worldwide net sales with rates ranging up to 20 percent. The agreement calls for payments by us to Incyte associated with certain development, success-based regulatory, and sales-based milestones. In 2020, the agreement was amended to include the treatment of COVID-19, with Incyte obtaining 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. 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 of $ 260.0 million and $ 210.0 million were capitalized as intangible assets as of December 31, 2021 and 2020, respectively, and are being amortized to cost of sales through the term of the collaboration. This represents the cumulative amounts that have been capitalized from the start of this collaboration through the end of each reporting period. As of December 31, 2021, Incyte is eligible to receive up to $ 100.0 million of additional payments from us contingent upon certain success-based regulatory milestones. Incyte is also eligible to receive up to $ 100.0 million of potential sales-based milestones. We record our sales of Olumiant, including sales of baricitinib that were made pursuant to an EUA or similar regulatory authorizations, 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 with respect to Olumiant: 2021 2020 2019 Olumiant $ 1,115.1 $ 638.9 $ 426.9 COVID-19 antibodies In 2020, we entered into a worldwide license and collaboration agreement with AbCellera to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including bamlanivimab and bebtelovimab, for which we hold development and commercialization rights. AbCellera has the right to receive tiered royalty payments on worldwide net sales of bamlanivimab and bebtelovimab with percentages ranging in the mid-teens to mid-twenties. Royalty payments made to AbCellera are recorded as cost of sales. In 2020, we entered into a license and collaboration agreement with Junshi Biosciences to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19, including etesevimab, for which we hold development and commercialization rights outside of mainland China and the Special Administrative Regions of Hong Kong and Macau, and for which Junshi Biosciences currently maintains all rights in mainland China and the Special Administrative Regions of Hong Kong and Macau. Junshi Biosciences has the right to receive royalty payments in the mid-teens on our net sales of etesevimab. Junshi Biosciences also had the right to receive certain development, success-based regulatory and sales-based milestones. In connection with the regulatory authorizations of etesevimab (for administration with bamlanivimab) as well as achievement of sales-based milestones in 2021, milestone payments of $ 195.0 million were capitalized as intangible assets and are being amortized to cost of sales over the estimated useful life of etesevimab. During the year ended December 31, 2020, we recognized $ 50.0 million of research and development expenses related to development milestones. Pursuant to EUAs or similar regulatory authorizations, we recognized $ 2.24 billion and $ 871.2 million of net product revenue associated with our sales of our COVID-19 antibodies during the years ended December 31, 2021 and 2020, respectively. 72 Sintilimab Injection We have a collaboration agreement with Innovent to jointly develop and commercialize sintilimab injection in China, where it is branded and trademarked as Tyvyt. In 2019, we and Innovent began co-commercializing Tyvyt in China. In 2020, we obtained an exclusive license for sintilimab injection from Innovent for geographies outside of China. Innovent, with collaboration from us, has filed the initial registration of sintilimab injection in the U.S., and we plan to pursue initial registration of sintilimab injection in other markets and all other subsequent registrations of sintilimab injection. We have exclusive commercialization rights outside of China. In connection with a regulatory approval for Tyvyt in China in 2021, we capitalized a milestone payment of $ 40.0 million as an intangible asset which is being amortized to cost of sales through the term of the collaboration. As of December 31, 2021, Innovent is eligible to receive up to $ 825.0 million for geographies outside of China and up to $ 195.0 million in China in success-based regulatory and sales-based milestones. Innovent is also eligible to receive tiered double digit royalties on net sales for geographies outside of China. 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 in China with respect to Tyvyt: 2021 2020 2019 Tyvyt $ 418.1 $ 308.7 $ 134.0 Lebrikizumab As a result of our acquisition of Dermira, we have a worldwide license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively Roche), which provides us the worldwide development and commercialization rights to lebrikizumab. Roche has the right to receive tiered royalty payments on future worldwide net sales ranging in percentages from high single digits to high teens if the product is successfully commercialized. As of December 31, 2021, Roche is eligible to receive up to $ 180.0 million of payments from us contingent upon the achievement of success-based regulatory milestones, and up to $ 1.03 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab. As a result of our acquisition of Dermira, 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 have the right to receive tiered royalty payments on future net sales in Europe ranging in percentages from low double digits to low twenties if the product is successfully commercialized. As of December 31, 2021, we are eligible to receive additional payments of $ 85.0 million from Almirall contingent upon the achievement of success-based regulatory milestones and up to $ 1.25 billion in a series of sales-based milestones, contingent upon the commercial success of lebrikizumab. As of December 31, 2021 and 2020, contract liabilities were not material. During the twelve months ended December 31, 2021 and 2020, milestones received and collaboration and other revenue recognized were not material. Petra As a result of our acquisition of Petra, we are required to make milestone payments to Petra shareholders contingent upon the occurrence of certain future events linked to the success of the mutant-selective PI3K α inhibitor. Our more significant, near term milestones include a development milestone of approximately $ 205 million in 2022 contingent upon initiation of its Phase I trial and a further development milestone of approximately $ 164 million in 2023 contingent upon achieving clinical proof of concept. 73 Note 5: Asset Impairment, Restructuring, and Other Special Charges The components of the charges included in asset impairment, restructuring, and other special charges in our consolidated statements of operations are described below: 2021 2020 2019 Severance $ 13.0 $ 151.2 $ 77.8 Asset impairment (gain) and other special charges 303.1 ( 20.0 ) 497.8 Total asset impairment, restructuring, and other special charges $ 316.1 $ 131.2 $ 575.6 Severance costs recognized during the years ended December 31, 2020 and 2019 were incurred as a result of actions taken worldwide to reduce our cost structure. During the year ended December 31, 2021, we recognized $ 128.0 million of intangible asset impairment as a result of the decision by Bayer AG to discontinue the development of a Phase I molecule related to a contract-based intangible asset from our acquisition of Loxo. Additionally, we recognized $ 108.1 million of intangible asset impairment from the sale of the rights to Qbrexza, as well as acquisition and integration costs associated with the acquisition of Prevail. Asset impairment and other special charges recognized during the year ended December 31, 2019 resulted primarily from $ 400.7 million of other special charges related to the acquisition of Loxo, substantially all of which is associated with the accelerated vesting of Loxo employee equity awards. Note 6: Inventories We use the last-in, first-out (LIFO) method for the majority of our inventories located in the continental U.S. Other inventories are valued by the first-in, first-out (FIFO) method. FIFO cost approximates current replacement cost. Inventories measured using LIFO must be valued at the lower of cost or market. Inventories measured using FIFO must be valued at the lower of cost or net realizable value. Inventories at December 31 consisted of the following: 2021 2020 Finished products $ 761.9 $ 758.9 Work in process 2,372.7 2,535.4 Raw materials and supplies 717.2 651.2 Total (approximates replacement cost) 3,851.8 3,945.5 Increase to LIFO cost 34.2 34.8 Inventories $ 3,886.0 $ 3,980.3 Inventories valued under the LIFO method comprised $ 1.36 billion and $ 1.21 billion of total inventories at December 31, 2021 and 2020, respectively. We recognized a net inventory impairment charge related to our COVID-19 antibodies of $ 339.7 million during the year ended December 31, 2021 in cost of sales in our consolidated statements of operations. As part of our response to the COVID-19 pandemic, and at the request of the U.S. and international governments, we invested in large-scale manufacturing of COVID-19 antibodies at risk, in order to ensure rapid access to patients around the world. As the COVID-19 pandemic evolved during 2021, we incurred a net inventory impairment charge primarily due to the combination of changes to current and forecasted demand from U.S. and international governments, including changes to our agreement with the U.S. government, and near-term expiry dates of COVID-19 antibodies. 74 Note 7: 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. A large portion of our cash is held by a few major financial institutions. 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. We are exposed to credit-related losses in the event of nonperformance by counterparties to risk-management instruments but do not expect any counterparties to fail to meet their obligations given their high credit ratings. 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. 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 review equity investments other than public equity investments for indications of impairment and observable price changes on a regular basis. 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 loss 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 loss. 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 (principally the euro, British pound, 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. We may enter into foreign currency forward and option contracts and currency swaps as fair value hedges of firm commitments. Forward contracts generally have maturities not exceeding 12 months. At December 31, 2021, we had outstanding foreign currency forward commitments to purchase 4.43 billion U.S. dollars and sell 3.92 billion euro; commitments to purchase 3.84 billion euro and sell 4.37 billion U.S. dollars; commitments to purchase 159.2 million U.S. dollars and sell 18.26 billion Japanese yen, and commitments to purchase 223.0 million British pounds and sell 296.0 million U.S. dollars, which all have settlement dates within 180 days. 75 Foreign currency exchange risk is also managed through the use of foreign currency debt and cross-currency interest rate swaps. Our foreign currency-denominated notes had carrying amounts of $ 7.90 billion and $ 6.02 billion as of December 31, 2021 and 2020, respectively, of which $ 5.79 billion and $ 4.50 billion have been designated as, and are effective as, economic hedges of net investments in certain of our foreign operations as of December 31, 2021 and 2020, respectively. At December 31, 2021, we had outstanding cross currency swaps with notional amounts of $ 1.02 billion 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 majority 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. 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 statements of cash flows. At December 31, 2021, substantially all of our total long-term debt is at a fixed rate. We have converted approximately 13 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, 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) and, upon completion of a debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt. As of December 31, 2021, the total notional amounts of forward-starting interest rate contracts in designated cash flow hedging instruments were $ 1.75 billion, which have settlement dates ranging between 2023 and 2025. The Effect of Risk Management Instruments on the Consolidated Statements of Operations The following effects of risk-management instruments were recognized in other–net, (income) expense: 2021 2020 2019 Fair value hedges: Effect from hedged fixed-rate debt $ ( 78.5 ) $ 86.9 $ 112.1 Effect from interest rate contracts 78.5 ( 86.9 ) ( 112.1 ) Cash flow hedges: Effective portion of losses on interest rate contracts reclassified from accumulated other comprehensive loss 16.6 16.4 15.9 Cross-currency interest rate swaps 41.8 ( 102.4 ) ( 17.1 ) Net (gains) losses on foreign currency exchange contracts not designated as hedging instruments 204.6 ( 123.7 ) 61.9 Total $ 263.0 $ ( 209.7 ) $ 60.7 During the years ended December 31, 2021, 2020, and 2019, 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. 76 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: 2021 2020 2019 Net investment hedges: Foreign currency-denominated notes $ 435.0 $ ( 404.0 ) $ 40.1 Cross-currency interest rate swaps 213.7 ( 207.9 ) 47.4 Cash flow hedges: Forward-starting interest rate swaps 97.6 ( 110.9 ) 31.6 Cross-currency interest rate swaps 42.3 ( 53.7 ) ( 8.3 ) During the next 12 months, we expect to reclassify $ 16.5 million of pretax net losses on cash flow hedges from accumulated other comprehensive loss to other–net, (income) expense. During the years ended December 31, 2021, 2020, and 2019, the amounts excluded from the assessment of hedge effectiveness recognized in other comprehensive income (loss) were not material. 77 Fair Value of Financial Instruments The following tables summarize certain fair value information at December 31 for assets and liabilities 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 Description 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 December 31, 2021 Cash equivalents $ 2,379.5 $ 2,379.5 $ 2,361.0 $ 18.5 $ — $ 2,379.5 Short-term investments: U.S. government and agency securities $ 25.7 $ 25.6 $ 25.7 $ — $ — $ 25.7 Corporate debt securities 43.7 43.7 — 43.7 — 43.7 Mortgage-backed securities 0.2 0.2 — 0.2 — 0.2 Asset-backed securities 6.2 6.2 — 6.2 — 6.2 Other securities 14.3 14.3 — — 14.3 14.3 Short-term investments $ 90.1 Noncurrent investments: U.S. government and agency securities $ 137.0 $ 136.8 $ 137.0 $ — $ — $ 137.0 Corporate debt securities 235.3 232.7 — 235.3 — 235.3 Mortgage-backed securities 109.8 108.1 — 109.8 — 109.8 Asset-backed securities 23.1 23.1 — 23.1 — 23.1 Other securities 108.1 22.2 — — 108.1 108.1 Marketable equity securities 1,279.7 487.0 1,279.7 — — 1,279.7 Equity investments without readily determinable fair values (2) 548.1 Equity method investments (2) 771.5 Noncurrent investments $ 3,212.6 December 31, 2020 Cash equivalents $ 2,097.9 $ 2,097.9 $ 2,097.9 $ — $ — $ 2,097.9 Short-term investments: U.S. government and agency securities $ 9.9 $ 9.9 $ 9.9 $ — $ — $ 9.9 Corporate debt securities 2.8 2.8 — 2.8 — 2.8 Asset-backed securities 1.2 1.2 — 1.2 — 1.2 Other securities 10.3 10.3 — — 10.3 10.3 Short-term investments $ 24.2 Noncurrent investments: U.S. government and agency securities $ 78.7 $ 74.3 $ 78.7 $ — $ — $ 78.7 Corporate debt securities 137.0 126.8 — 137.0 — 137.0 Mortgage-backed securities 106.4 101.4 — 106.4 — 106.4 Asset-backed securities 24.3 23.7 — 24.3 — 24.3 Other securities 110.5 31.8 — — 110.5 110.5 Marketable equity securities 1,664.2 311.6 1,664.2 — — 1,664.2 Equity investments without readily determinable fair values (2) 373.9 Equity method investments (2) 471.8 Noncurrent investments $ 2,966.8 (1) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost. (2) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments. 78 Fair Value Measurements Using Description 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 Long-term debt, including current portion December 31, 2021 $ ( 16,884.7 ) $ — $ ( 18,157.7 ) $ — $ ( 18,157.7 ) December 31, 2020 ( 16,595.3 ) — ( 19,038.9 ) — ( 19,038.9 ) 79 Fair Value Measurements Using Description 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, 2021 Risk-management instruments Interest rate contracts designated as fair value hedges: Other receivables $ 4.8 $ — $ 4.8 $ — $ 4.8 Other noncurrent assets 78.3 — 78.3 — 78.3 Other noncurrent liabilities ( 7.6 ) — ( 7.6 ) — ( 7.6 ) Interest rate contracts designated as cash flow hedges: Other noncurrent assets 49.2 — 49.2 — 49.2 Other noncurrent liabilities ( 31.7 ) — ( 31.7 ) — ( 31.7 ) Cross-currency interest rate contracts designated as net investment hedges: Other noncurrent assets 31.3 — 31.3 — 31.3 Other current liabilities ( 1.2 ) — ( 1.2 ) — ( 1.2 ) Cross-currency interest rate contracts designated as cash flow hedges: Other noncurrent assets 33.2 — 33.2 — 33.2 Other noncurrent liabilities ( 1.3 ) — ( 1.3 ) — ( 1.3 ) Foreign exchange contracts not designated as hedging instruments: Other receivables 9.9 — 9.9 — 9.9 Other current liabilities ( 35.3 ) — ( 35.3 ) — ( 35.3 ) Contingent consideration liabilities: Other noncurrent liabilities ( 70.5 ) — — ( 70.5 ) ( 70.5 ) December 31, 2020 Risk-management instruments Interest rate contracts designated as fair value hedges: Other noncurrent assets 158.9 — 158.9 — 158.9 Interest rate contracts designated as cash flow hedges: Other noncurrent assets 38.1 — 38.1 — 38.1 Other noncurrent liabilities ( 97.8 ) — ( 97.8 ) — ( 97.8 ) Cross-currency interest rate contracts designated as net investment hedges: Other current liabilities ( 92.6 ) — ( 92.6 ) — ( 92.6 ) Other noncurrent liabilities ( 97.2 ) — ( 97.2 ) — ( 97.2 ) Cross-currency interest rate contracts designated as cash flow hedges: Other noncurrent assets 34.4 — 34.4 — 34.4 Other noncurrent liabilities ( 2.9 ) — ( 2.9 ) — ( 2.9 ) Foreign exchange contracts not designated as hedging instruments: Other receivables 41.1 — 41.1 — 41.1 Other current liabilities ( 15.2 ) — ( 15.2 ) — ( 15.2 ) 80 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. 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. As of December 31, 2021, we had approximately $ 828 million of unfunded commitments to invest in venture capital funds, which we anticipate will be invested over a period of up to 10 years. Contingent consideration liability relates to our liability arising in connection with the CVR issued as a result of the Prevail acquisition. The fair value of the CVR liability was estimated using a discounted cash flow analysis and Level 3 inputs, including projections representative of a market participant's view of the expected cash payment associated with the first potential regulatory approval of a Prevail compound in the applicable countries based on probabilities of technical success, timing of the potential approval events for the compounds, and an estimated discount rate. See Note 3 for additional information related to the CVR arrangement. The table below summarizes the contractual maturities of our investments in debt securities measured at fair value as of December 31, 2021: Maturities by Period Total Less Than 1 Year 1-5 Years 6-10 Years More Than 10 Years Fair value of debt securities $ 581.0 $ 75.9 $ 216.5 $ 126.4 $ 162.2 The net gains recognized in our consolidated statements of operations for equity securities were $ 176.9 million, $ 1.44 billion, and $ 401.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. The net gains/losses recognized for the years ended December 31, 2021, 2020, and 2019 on equity securities sold during the respective periods were not material. 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 years ended December 31, 2021, 2020, and 2019 were not material. 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: 2021 2020 Unrealized gross gains $ 9.7 $ 20.9 Unrealized gross losses 5.2 0.5 Fair value of securities in an unrealized gain position 250.7 348.9 Fair value of securities in an unrealized loss position 290.2 11.4 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 years ended December 31, 2021, 2020, and 2019. 81 As of December 31, 2021, 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. Approximately 97 percent of the fixed-rate debt securities in a loss position are investment-grade debt securities. As of December 31, 2021, 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 default on interest or principal payments for any of our debt securities. Activity related to our available-for-sale securities was as follows: 2021 2020 2019 Proceeds from sales $ 174.7 $ 264.8 $ 431.6 Realized gross gains on sales 2.8 4.5 4.9 Realized gross losses on sales 1.7 8.2 3.0 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. Accounts Receivable Factoring Arrangements 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. Our factoring agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. We derecognized $ 550.5 million and $ 754.9 million of accounts receivable as of December 31, 2021 and 2020, respectively, under these factoring arrangements. The costs of factoring such accounts receivable on our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019 were not material. Note 8: Goodwill and Other Intangibles Goodwill Goodwill results from excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized but is reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value to its carrying value is performed to determine the amount of any impairment. The changes in goodwill during 2021 and 2020 were primarily related to our acquisitions of Prevail and Dermira, respectively. See Note 3 for additional information. No impairments occurred with respect to the carrying value of goodwill for the years ended December 31, 2021, 2020, and 2019. 82 Other Intangibles The components of intangible assets other than goodwill at December 31 were as follows: 2021 2020 Description Carrying Amount, Gross Accumulated Amortization Carrying Amount, Net Carrying Amount, Gross Accumulated Amortization Carrying Amount, Net Finite-lived intangible assets: Marketed products $ 7,987.2 $ ( 2,229.2 ) $ 5,758.0 $ 7,984.0 $ ( 1,659.5 ) $ 6,324.5 Other 69.4 ( 60.5 ) 8.9 92.8 ( 68.3 ) 24.5 Total finite-lived intangible assets 8,056.6 ( 2,289.7 ) 5,766.9 8,076.8 ( 1,727.8 ) 6,349.0 Indefinite-lived intangible assets: Acquired IPR&D 1,925.0 — 1,925.0 1,101.0 — 1,101.0 Other intangibles $ 9,981.6 $ ( 2,289.7 ) $ 7,691.9 $ 9,177.8 $ ( 1,727.8 ) $ 7,450.0 Marketed products consist of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction (U.S., Europe, and Japan) and capitalized milestone payments. For transactions other than a business combination, we capitalize milestone payments incurred at or after the product has obtained regulatory approval for marketing. Other finite-lived intangible assets consist primarily of the amortized cost of licensed platform technologies that have alternative future uses in research and development, manufacturing technologies, and customer relationships from business combinations. Acquired IPR&D consists of the fair values of acquired IPR&D projects acquired in business combination, adjusted for subsequent impairments, if any. The costs of acquired IPR&D projects acquired directly in a transaction other than a business combination are capitalized as other intangible assets if the projects have an alternative future use; otherwise, they are expensed immediately. See Note 3 for acquired IPR&D projects that had no alternative future use. Several methods may be used to determine the estimated fair value of other intangibles acquired in a business combination. We utilize the "income method," which is a Level 3 fair value measurement and applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products, analyst expectations, and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each asset independently. The acquired IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are tested for impairment and amortized over the remaining useful life or written off, as appropriate. The change in marketed products in 2021 primarily related to the sale of rights to Qbrexza in 2021 as well as the impairment of a Phase I molecule related to a contract-based intangible. See Note 5 for additional information. These decreases were more than offset by the recognition of several milestones related to the COVID-19 therapies that occurred in 2021. The increase in the acquired IPR&D in 2021 is due to the acquisition of Prevail. See Note 3 for additional information regarding intangible assets acquired in a recent business combination and Note 4 for additional information regarding capitalized milestone payments. I ndefinite-lived intangible assets are reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the intangible asset to its carrying value is performed to determine the amount of any impairment. Finite-lived intangible assets are reviewed for impairment when an indicator of impairment is present. When required, a comparison of fair value to the carrying amount of assets is performed to determine the amount of any impairment. When determining the fair value of indefinite-lived acquired IPR&D as well as the fair value of finite-lived intangible assets for impairment testing purposes, we utilize the "income method" discussed above. 83 Intangible assets with finite lives are capitalized and are amortized primarily to cost of sales over their estimated useful lives, ranging from one to 20 years. As of December 31, 2021, the remaining weighted-average amortization period for finite-lived intangible assets was approximately 14 years. Amortization expense related to finite-lived intangible assets was as follows: 2021 2020 2019 Amortization expense $ 628.8 $ 428.2 $ 225.8 The estimated amortization expense for each of the next five years associated with our finite-lived intangible assets as of December 31, 2021 is as follows: 2022 2023 2024 2025 2026 Estimated amortization expense $ 570.9 $ 483.5 $ 433.7 $ 417.1 $ 408.8 Note 9: Property and Equipment Property and equipment is stated on the basis of cost. Provisions for depreciation of buildings and equipment are computed generally by the straight-line method at rates based on their estimated useful lives ( 12 to 50 years for buildings and three to 25 years for equipment). We review the carrying value of long-lived assets for potential impairment on a periodic basis and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment is determined by comparing projected undiscounted cash flows to be generated by the asset to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. At December 31, property and equipment consisted of the following: 2021 2020 Land $ 258.7 $ 226.8 Buildings 7,588.1 7,326.1 Equipment 8,937.2 8,560.9 Construction in progress 2,177.8 2,138.8 18,961.8 18,252.6 Less accumulated depreciation ( 9,976.7 ) ( 9,570.7 ) Property and equipment, net $ 8,985.1 $ 8,681.9 84 Depreciation expense related to property and equipment was as follows: 2021 2020 2019 Depreciation expense $ 787.0 $ 765.2 $ 814.7 Capitalized interest costs were not material for the years ended December 31, 2021, 2020, and 2019. The following table summarizes long-lived assets by geographical area: 2021 2020 Long-lived assets (1) : U.S. and Puerto Rico $ 6,620.0 $ 6,113.6 Ireland 1,702.3 1,786.9 Other foreign countries 1,691.0 1,747.7 Long-lived assets $ 10,013.3 $ 9,648.2 (1) Long-lived assets consist of property and equipment, net, operating lease assets, and certain other noncurrent assets. Note 10: Leases We determine if an arrangement is a lease at inception. We have leases with terms up to 14 years primarily for corporate offices, research and development facilities, vehicles, and equipment, including some of which have options to extend and/or early-terminate the leases. We determine the lease term by assuming the exercise of any renewal and/or early-termination options that are reasonably assured. Operating lease right-of-use assets are presented as other noncurrent assets in our consolidated balance sheets, and the current and long-term portions of operating lease liabilities are included in other current liabilities and other noncurrent liabilities, respectively, in our consolidated balance sheets. Short-term leases, which are deemed at inception to have a lease term of 12 months or less, are not recorded on the consolidated balance sheets. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for operating lease assets, which is recognized on a straight-line basis over the lease term, was $ 159.4 million, $ 154.6 million, and $ 172.8 million during the years ended December 31, 2021, 2020, and 2019, respectively. Variable lease payments, which represent non-lease components such as maintenance, insurance and taxes, and which vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the payment obligation is incurred and were not material during the years ended December 31, 2021, 2020, and 2019. Short-term lease expense was not material during the years ended December 31, 2021, 2020, and 2019. 85 Supplemental balance sheet information related to operating leases as of December 31, 2021 and 2020 was as follows: 2021 2020 Weighted-average remaining lease term 7 years 7 years Weighted-average discount rate 3.0 % 3.3 % Supplemental cash flow information related to operating leases during the years ended December 31, 2021, 2020, and 2019 was as follows: 2021 2020 2019 Operating cash flows from operating leases $ 156.7 $ 160.9 $ 153.6 Right-of-use assets obtained in exchange for new operating lease liabilities 163.5 136.7 81.2 The annual minimum lease payments of our operating lease liabilities as of December 31, 2021 were as follows: 2022 $ 148.4 2023 117.6 2024 95.4 2025 79.7 2026 64.5 After 2026 270.2 Total lease payments 775.8 Less imputed interest 90.1 Total $ 685.7 Finance leases are included in property and equipment, short-term borrowings and current maturities of long-term debt, and long-term debt in our consolidated balance sheets. Finance leases are not material to our consolidated financial statements. Note 11: Borrowings Debt at December 31 consisted of the following: 2021 2020 Long-term notes $ 16,741.2 $ 16,348.7 Other long-term debt 10.8 14.8 Unamortized debt issuance costs ( 84.2 ) ( 89.1 ) Fair value adjustment on hedged long-term notes 216.9 320.9 Total debt 16,884.7 16,595.3 Less current portion ( 1,538.3 ) ( 8.7 ) Long-term debt $ 15,346.4 $ 16,586.6 86 The following table summarizes long-term notes at December 31: 2021 2020 2.35 % notes due 2022 $ 750.0 $ 750.0 3.00 % notes due 2022 99.2 99.2 1.00 % euro denominated notes due 2022 678.2 737.9 0.15 % Swiss franc denominated notes due 2024 654.7 679.7 7.125 % notes due 2025 217.5 229.7 2.75 % notes due 2025 560.6 560.6 1.625 % euro denominated notes due 2026 847.7 922.4 5.5 % notes due 2027 364.3 377.5 3.1 % notes due 2027 401.5 401.5 0.45 % Swiss franc denominated notes due 2028 436.4 453.2 3.375 % notes due 2029 930.6 1,150.0 0.42 % Japanese yen denominated notes due 2029 199.0 222.4 2.125 % euro denominated notes due 2030 847.7 922.4 0.625 % euro denominated notes due 2031 678.2 737.9 0.50 % euro denominated notes due 2033 678.2 — 0.56 % Japanese yen denominated notes due 2034 80.5 90.0 6.77 % notes due 2036 158.6 174.4 5.55 % notes due 2037 444.7 476.2 5.95 % notes due 2037 266.8 284.1 3.875 % notes due 2039 240.3 360.7 1.625 % British pound denominated notes due 2043 337.1 — 4.65 % notes due 2044 38.3 43.0 3.7 % notes due 2045 386.8 412.5 3.95 % notes due 2047 347.0 436.1 3.95 % notes due 2049 958.2 1,500.0 1.70 % euro denominated notes due 2049 1,130.3 1,229.9 0.97 % Japanese yen denominated notes due 2049 66.3 74.1 2.25 % notes due 2050 1,250.0 1,250.0 1.125 % euro denominated notes due 2051 565.2 — 4.15 % notes due 2059 591.3 1,000.0 2.50 % notes due 2060 850.0 850.0 1.375 % euro denominated notes due 2061 791.2 — Unamortized note discounts ( 105.2 ) ( 76.7 ) Total long-term notes $ 16,741.2 $ 16,348.7 The weighted-average effective borrowing rate for each issuance of the long term-notes approximates the stated interest rate. At December 31, 2021, we had a total of $ 5.26 billion of unused committed bank credit facilities, which consisted primarily of a $ 3.00 billion credit facility that expires in December 2026 and a $ 2.00 billion 364 -day facility that expires in November 2022, both of which are available to support our commercial paper program. We have not drawn against the $ 3.00 billion and $ 2.00 billion facilities as of December 31, 2021. Of the remaining committed bank credit facilities, the outstanding balances as of December 31, 2021 and 2020 were not material. Compensating balances and commitment fees are not material, and there are no conditions that are probable of occurring under which the lines may be withdrawn. 87 In September 2021, we issued euro-denominated notes consisting of € 600.0 million of 0.50 percent fixed-rate notes due in September 2033, with interest to be paid annually. The net proceeds from the offering have been, and will continue to be, used to fund, in whole or in part, eligible projects designed to advance one or more of our environmental, social, and governance objectives. In September 2021, we issued euro-denominated notes consisting of € 500.0 million of 1.125 percent fixed-rate notes due in September 2051 and € 700.0 million of 1.375 percent fixed-rate notes due in September 2061, with interest to be paid annually, and British pound-denominated notes consisting of £ 250.0 million of 1.625 percent fixed-rate notes due in September 2043, with interest to be paid annually. We paid $ 1.91 billion of the net cash proceeds from the offering to purchase and redeem certain higher interest rate U.S. dollar-denominated notes with an aggregate principal amount of $ 1.50 billion, resulting in a debt extinguishment loss of $ 405.2 million. This loss was included in other-net, (income) expense in our consolidated statement of operations for the year ended December 31, 2021. The $ 1.50 billion principal amount of higher interest rate U.S. dollar-denominated notes that were redeemed primarily included $ 541.8 million of 3.95 percent notes due 2049, $ 408.7 million of 4.15 percent notes due 2059, and $ 219.4 million of 3.375 percent notes due 2029. We used the remaining net proceeds from the offering to prefund certain 2022 debt maturities and for general corporate purposes. In May 2020, we issued $ 1.00 billion of 2.25 percent fixed-rate notes due in May 2050, with interest to be paid semi-annually. We used the net cash proceeds from the offering of $ 988.6 million for general corporate purposes, including the repayment of outstanding commercial paper. In August 2020, we issued $ 850.0 million of 2.50 percent fixed-rate notes due in September 2060 and an additional $ 250.0 million of our 2.25 percent fixed-rate notes due in May 2050, with interest to be paid semi-annually. We used the net cash proceeds from the offering of $ 1.07 billion for general corporate purposes, including the repayment of outstanding commercial paper. In February 2019, we issued $ 1.15 billion of 3.375 percent fixed-rate notes due in March 2029, $ 850.0 million of 3.875 percent fixed-rate notes due in March 2039, $ 1.50 billion of 3.95 percent fixed-rate notes due in March 2049, and $ 1.00 billion of 4.15 percent fixed-rate notes due in March 2059, with interest to be paid semi-annually. We used the net cash proceeds of $ 4.45 billion from the offering to repay commercial paper that was issued in connection with the acquisition of Loxo and for general corporate purposes. In November 2019, we issued euro-denominated notes consisting of € 600.0 million of 0.625 percent fixed-notes due November 2031 and € 1.00 billion of 1.70 percent fixed-rate notes due in November 2049 with interest to be paid annually. We paid $ 2.27 billion, comprised of $ 1.75 billion of net cash proceeds from the offering and proceeds from commercial paper, to purchase and redeem certain higher interest rate U.S. dollar denominated notes with an aggregate principal amount of $ 2.00 billion and a net carrying value of $ 2.01 billion, resulting in a debt extinguishment loss of $ 252.5 million. This loss was included in other-net, (income) expense in our consolidated statement of operations during the year ended December 31, 2019. In November 2019, we issued Japanese Yen-denominated notes consisting of ¥ 22.92 billion of 0.42 percent fixed-rate notes due in November 2029, ¥ 9.28 billion of 0.56 percent fixed-rate notes due in November 2034, and ¥ 7.64 billion of 0.97 percent fixed-rate notes due in November 2049, with interest to be paid semi-annually. We used the net cash proceeds from the offering of $ 356.6 million for general corporate purposes, including the repayment of outstanding commercial paper. The aggregate amounts of maturities on long-term debt for the next five years are as follows: 2022 2023 2024 2025 2026 Maturities on long-term debt $ 1,531.5 $ 3.3 $ 657.1 $ 778.9 $ 847.9 We have converted approximately 13 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps. The weighted-average effective borrowing rates based on long-term debt obligations and interest rates at December 31, 2021 and 2020, including the effects of interest rate swaps for hedged debt obligations, were 2.27 percent and 2.61 percent, respectively. 88 The aggregate amount of cash payments for interest on borrowings, net of capitalized interest, are as follows: 2021 2020 2019 Cash payments for interest on borrowings $ 338.0 $ 345.8 $ 305.5 In accordance with the requirements of derivatives and hedging guidance, the portion of our fixed-rate debt obligations that is hedged as a fair value hedge is reflected in the consolidated balance sheets as an amount equal to the sum of the debt's carrying value plus the fair value adjustment representing changes in fair value of the hedged debt attributable to movements in market interest rates subsequent to the inception of the hedge. Note 12: Stock-Based Compensation Our stock-based compensation expense consists of performance awards (PAs), shareholder value awards (SVAs), relative value awards (RVAs), and restricted stock units (RSUs). We recognize the fair value of stock-based compensation as expense over the requisite service period of the individual grantees, which generally equals the vesting period. We provide newly issued shares of our common stock and treasury stock to satisfy the issuance of PA, SVA, RVA, and RSU shares. Stock-based compensation expense and the related tax benefits were as follows: 2021 2020 2019 Stock-based compensation expense $ 342.8 $ 308.1 $ 306.8 Tax benefit 72.0 64.7 64.4 At December 31, 2021, stock-based compensation awards may be granted under the 2002 Lilly Stock Plan for not more than 50.6 million additional shares. Performance Award Program PAs are granted to officers and management and are payable in shares of our common stock. The number of PA shares actually issued, if any, varies depending on the achievement of certain pre-established earnings-per-share targets over a two-year period. PA shares are accounted for at fair value based upon the closing stock price on the date of grant and fully vest at the end of the measurement period. The fair values of PAs granted for the years ended December 31, 2021, 2020, and 2019 were $ 198.57 , $ 137.33 , and $ 112.09 , respectively. The number of shares ultimately issued for the PA program is dependent upon the EPS achieved during the vesting period. Pursuant to this program, approximately 0.7 million shares, 1.1 million shares, and 1.2 million shares were issued during the years ended December 31, 2021, 2020, and 2019, respectively. Approximately 0.7 million shares are expected to be issued in 2022. As of December 31, 2021, the total remaining unrecognized compensation cost related to nonvested PAs was $ 66.1 million, which will be amortized over the weighted-average remaining requisite service period of 12 months. 89 Shareholder Value Award Program SVAs are granted to officers and management and are payable in shares of our common stock. The number of shares actually issued, if any, varies depending on our stock price at the end of the three-year vesting period compared to pre-established target stock prices. We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility of our stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The weighted-average fair values of the SVA units granted during the years ended December 31, 2021, 2020, and 2019 were $ 230.19 , $ 139.14 , and $ 95.01 , respectively, determined using the following assumptions: (Percents) 2021 2020 2019 Expected dividend yield 2.50 % 2.50 % 2.50 % Risk-free interest rate 0.19 1.38 2.46 Volatility 31.42 20.90 21.00 Pursuant to this program, approximately 1.0 million shares, 0.8 million shares, and 1.0 million shares were issued during the years ended December 31, 2021, 2020, and 2019, respectively. Approximately 0.5 million shares are expected to be issued in 2022. As of December 31, 2021, the total remaining unrecognized compensation cost related to nonvested SVAs was $ 47.0 million, which will be amortized over the weighted-average remaining requisite service period of 21 months. Relative Value Award Program Beginning in 2020, we granted RVAs to officers and management that are payable in shares of our common stock. The number of shares actually issued, if any, varies depending on the growth of our stock price at the end of the three-year vesting period compared to our peers. We measure the fair value of the RVA unit on the grant date using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility of our stock price and our peers' stock price, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The weighted-average fair value of the RVA units granted during the years ended December 31, 2021 and 2020 were $ 286.71 and $ 179.90 , respectively, determined using the following assumptions: (Percents) 2021 2020 Expected dividend yield 2.50 % 2.50 % Risk-free interest rate 0.19 1.38 Volatility 30.95 19.89 As of December 31, 2021, the total remaining unrecognized compensation cost related to nonvested RVAs was $ 18.6 million, which will be amortized over the weighted-average remaining requisite service period of 21 months. 90 Restricted Stock Units RSUs are granted to certain employees and are payable in shares of our common stock. RSU shares are accounted for at fair value based upon the closing stock price on the date of grant. The corresponding expense is amortized over the vesting period, typically three years . The fair values of RSU awards granted during the years ended December 31, 2021, 2020, and 2019 were $ 196.30 , $ 135.42 , and $ 108.43 , respectively. The number of shares ultimately issued for the RSU program remains constant with the exception of forfeitures. Pursuant to this program, 0.7 million, 1.1 million, and 1.5 million shares were granted and approximately 0.6 million, 0.6 million, and 0.8 million shares were issued during the years ended December 31, 2021, 2020, and 2019, respectively. Approximately 0.9 million shares are expected to be issued in 2022. As of December 31, 2021, the total remaining unrecognized compensation cost related to nonvested RSUs was $ 161.4 million, which will be amortized over the weighted-average remaining requisite service period of 25 months. Note 13: Shareholders' Equity In 2021, 2020, and 2019, we repurchased $ 1.25 billion, $ 500.0 million, and $ 4.40 billion, respectively, of shares associated with our share repurchase programs. In 2021, we repurchased $ 1.00 billion of shares, which completed our $ 8.00 billion share repurchase program authorized in June 2018. Additionally, our board authorized a $ 5.00 billion share repurchase program in May 2021. In 2021, we repurchased $ 250.0 million of shares under the $ 5.00 billion share repurchase program. As of December 31, 2021, we had $ 4.75 billion remaining under the $ 5.00 billion share repurchase program. We have 5.0 million authorized shares of preferred stock. As of December 31, 2021 and 2020, no preferred stock was issued. We have an employee benefit trust that held 50.0 million shares of our common stock at both December 31, 2021 and 2020, to provide a source of funds to assist us in meeting our obligations under various employee benefit plans. The cost basis of the shares held in the trust was $ 3.01 billion at both December 31, 2021 and 2020, and is shown as a reduction of shareholders' equity. Any dividend transactions between us and the trust are eliminated. Stock held by the trust is not considered outstanding in the computation of EPS. The assets of the trust were not used to fund any of our obligations under these employee benefit plans during the years ended December 31, 2021, 2020, and 2019. Note 14: Income Taxes Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to global intangible low-taxed income (GILTI) are also recognized for the future tax effects of temporary differences. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. 91 Following is the composition of income tax expense: 2021 2020 2019 Current: Federal (1) $ 938.5 $ 567.6 $ 280.2 Foreign 466.0 650.4 299.8 State ( 28.4 ) ( 47.3 ) ( 14.4 ) Total current tax expense 1,376.1 1,170.7 565.6 Deferred: Federal ( 977.5 ) ( 97.4 ) 141.3 Foreign 174.6 ( 16.6 ) ( 24.1 ) State 0.6 ( 20.5 ) ( 54.8 ) Total deferred tax (benefit) expense ( 802.3 ) ( 134.5 ) 62.4 Income taxes $ 573.8 $ 1,036.2 $ 628.0 (1) The 2021, 2020, and 2019 current tax expense includes $ 64.7 million, $ 144.4 million, and $ 153.1 million of tax benefit, respectively, from utilization of net operating loss and tax credit carryforwards. Significant components of our deferred tax assets and liabilities as of December 31 were as follows: 2021 2020 Deferred tax assets: Purchases of intangible assets $ 2,347.4 $ 2,560.6 Compensation and benefits 634.7 1,045.6 Tax credit carryforwards and carrybacks 463.7 523.5 Tax loss and other tax carryforwards and carrybacks 645.4 488.3 Sales rebates and discounts 832.3 461.3 Correlative tax adjustments 560.8 404.2 Foreign tax redeterminations 274.9 242.8 Operating lease liabilities 150.0 150.7 Capitalized research and development 275.1 135.2 Other 477.9 605.8 Total gross deferred tax assets 6,662.2 6,618.0 Valuation allowances ( 875.6 ) ( 816.3 ) Total deferred tax assets 5,786.6 5,801.7 Deferred tax liabilities: Earnings of foreign subsidiaries ( 1,583.3 ) ( 1,905.3 ) Intangibles ( 1,516.1 ) ( 1,465.7 ) Inventories ( 596.4 ) ( 623.7 ) Prepaid employee benefits ( 560.6 ) ( 410.1 ) Property and equipment ( 338.7 ) ( 315.2 ) Financial instruments ( 303.0 ) ( 216.9 ) Operating lease assets ( 132.6 ) ( 134.3 ) Total deferred tax liabilities ( 5,030.7 ) ( 5,071.2 ) Deferred tax assets - net $ 755.9 $ 730.5 The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings. 92 At December 31, 2021, based on filed tax returns we have tax credit carryforwards and carrybacks of $ 859.9 million available to reduce future income taxes; $ 148.8 million, if unused, will expire by 2026, and $ 21.5 million, if unused, will expire between 2030 and 2040. The remaining portion of the tax credit carryforwards is related to federal tax credits of $ 76.2 million, international tax credits of $ 115.3 million, and state tax credits of $ 498.1 million, all of which are fully reserved. At December 31, 2021, based on filed tax returns we had net operating losses and other carryforwards for international and U.S. federal income tax purposes of $ 2.21 billion: $ 832.6 million will expire by 2026; $ 818.2 million will expire between 2027 and 2041; and $ 561.5 million of the carryforwards will never expire. Net operating losses and other carryforwards for international and U.S. federal income tax purposes are partially reserved. Deferred tax assets related to state net operating losses and other carryforwards of $ 230.0 million are fully reserved as of December 31, 2021. Domestic and Puerto Rican companies contributed approximately 28 percent, 39 percent, and 44 percent for the years ended December 31, 2021, 2020, and 2019, respectively, to consolidated income before income taxes. We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2031. Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations. At December 31, 2021 and December 31, 2020, we accrued an immaterial amount of foreign withholding taxes and state income taxes that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested. For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities in the tax laws and assumptions we would have to make. Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows: 2021 2020 2019 Cash payments of income taxes $ 1,598.8 $ 954.6 $ 1,180.5 In December 2017, the Tax Cuts and Job Act (2017 Tax Act) was signed into law. The 2017 Tax Act included significant changes to the U.S. corporate income tax system, including a one-time repatriation transition tax (also known as the 'Toll Tax') on unremitted foreign earnings. The 2017 Tax Act provided an election to taxpayers subject to the Toll Tax to make payments over an eight-year period beginning in 2018 through 2025. Having made this election, our future cash payments relating to the Toll Tax as of December 31, 2021 are as follows: Total Less than 1 Year 1-3 Years 3-5 Years 2017 Tax Act Toll Tax $ 2,149.5 $ 253.7 $ 1,109.9 $ 785.9 We have additional noncurrent income tax payables of $ 2.02 billion unrelated to the Toll Tax; we cannot reasonably estimate the timing of future cash outflows associated with these liabilities. Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to reported consolidated income tax expense: 2021 2020 2019 Income tax at the U.S. federal statutory tax rate $ 1,292.6 $ 1,518.3 $ 1,105.8 Add (deduct): International operations, including Puerto Rico (1) ( 458.2 ) ( 297.2 ) ( 242.0 ) General business credits ( 100.5 ) ( 97.9 ) ( 108.8 ) Foreign-derived intangible income deduction ( 86.7 ) ( 71.5 ) ( 15.5 ) Other ( 73.4 ) ( 15.5 ) ( 111.5 ) Income taxes $ 573.8 $ 1,036.2 $ 628.0 (1) Includes the impact of Puerto Rico Excise Tax, GILTI tax, and other U.S. taxation of foreign income. 93 A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows: 2021 2020 2019 Beginning balance at January 1 $ 2,551.9 $ 2,108.6 $ 2,034.6 Additions based on tax positions related to the current year 310.3 225.6 187.2 Additions for tax positions of prior years 98.6 310.8 425.3 Reductions for tax positions of prior years ( 8.1 ) ( 52.4 ) ( 100.3 ) Settlements ( 38.5 ) ( 72.0 ) ( 260.5 ) Lapses of statutes of limitation ( 49.7 ) ( 41.7 ) ( 161.5 ) Changes related to the impact of foreign currency translation ( 66.2 ) 73.0 ( 16.2 ) Ending balance at December 31 $ 2,798.3 $ 2,551.9 $ 2,108.6 The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ 1.70 billion and $ 1.67 billion at December 31, 2021 and 2020, respectively. We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2012. The U.S. examination of tax years 2016-2018 began in 2019 and remains ongoing; therefore, the resolution of this audit period will likely extend beyond the next 12 months. For tax years 2013-2015, all matters were effectively settled in 2019. As a result, our gross uncertain tax positions were reduced by approximately $ 200 million, we made a cash payment of approximately $ 125 million, and our consolidated results were benefited by an immaterial reduction in tax expense. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized income tax (benefit) expense related to interest and penalties as follows: 2021 2020 2019 Income tax (benefit) expense $ 20.5 $ 34.0 $ ( 26.4 ) At December 31, 2021 and 2020, our accruals for the payment of interest and penalties totaled $ 220.1 million and $ 196.7 million, respectively. 94 Note 15: Retirement Benefits We use a measurement date of December 31 to develop the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows: Defined Benefit Pension Plans Retiree Health Benefit Plans 2021 2020 2021 2020 Change in benefit obligation: Benefit obligation at beginning of year $ 18,225.5 $ 16,251.0 $ 1,753.7 $ 1,601.4 Service cost 369.2 325.5 49.2 40.8 Interest cost 337.8 425.8 32.5 43.7 Actuarial (gain) loss ( 564.3 ) 1,563.1 ( 86.1 ) 142.1 Benefits paid ( 630.1 ) ( 587.2 ) ( 79.3 ) ( 75.1 ) Curtailment loss — 2.2 — — Foreign currency exchange rate changes and other adjustments ( 173.1 ) 245.1 ( 6.2 ) 0.8 Benefit obligation at end of year 17,565.0 18,225.5 1,663.8 1,753.7 Change in plan assets: Fair value of plan assets at beginning of year 14,579.0 12,858.0 3,227.0 2,768.2 Actual return on plan assets 2,458.1 1,802.4 202.6 539.0 Employer contribution 131.2 318.8 11.1 ( 5.1 ) Benefits paid ( 630.1 ) ( 587.2 ) ( 79.3 ) ( 75.1 ) Foreign currency exchange rate changes and other adjustments ( 122.2 ) 187.0 — — Fair value of plan assets at end of year 16,416.0 14,579.0 3,361.4 3,227.0 Funded status ( 1,149.0 ) ( 3,646.5 ) 1,697.6 1,473.3 Unrecognized net actuarial (gain) loss 3,908.2 6,515.5 ( 497.2 ) ( 349.1 ) Unrecognized prior service (benefit) cost 11.2 15.4 ( 117.6 ) ( 177.6 ) Net amount recognized $ 2,770.4 $ 2,884.4 $ 1,082.8 $ 946.6 Amounts recognized in the consolidated balance sheet consisted of: Other noncurrent assets $ 668.5 $ 299.6 $ 1,910.2 $ 1,697.0 Other current liabilities ( 68.3 ) ( 67.9 ) ( 7.9 ) ( 7.4 ) Accrued retirement benefits ( 1,749.3 ) ( 3,878.2 ) ( 204.8 ) ( 216.3 ) Accumulated other comprehensive (income) loss before income taxes 3,919.5 6,530.9 ( 614.7 ) ( 526.7 ) Net amount recognized $ 2,770.4 $ 2,884.4 $ 1,082.8 $ 946.6 The unrecognized net actuarial (gain) loss and unrecognized prior service (benefit) cost have not yet been recognized in net periodic pension costs and were included in accumulated other comprehensive loss at December 31, 2021 and 2020. 95 The $ 750.4 million decrease in benefit obligation in 2021 was driven primarily by an increase in the discount rate. The $ 2.13 billion increase in the benefit obligation in 2020 was driven by a decrease in the discount rate. The following represents our weighted-average assumptions as of December 31: Defined Benefit Pension Plans Retiree Health Benefit Plans (Percents) 2021 2020 2019 2021 2020 2019 Discount rate for benefit obligation 2.8 % 2.4 % 3.0 % 3.0 % 2.6 % 3.3 % Discount rate for net benefit costs 2.4 3.0 4.0 2.6 3.3 4.4 Rate of compensation increase for benefit obligation 3.5 3.3 3.3 Rate of compensation increase for net benefit costs 3.3 3.3 3.4 Expected return on plan assets for net benefit costs 6.8 7.3 7.4 5.0 6.0 6.0 We annually evaluate the expected return on plan assets in our defined benefit pension and retiree health benefit plans. In evaluating the expected rate of return, we consider many factors, with a primary analysis of current and projected market conditions; asset returns and asset allocations; and the views of leading financial advisers and economists. We may also review our historical assumptions compared with actual results, as well as the assumptions and trend rates utilized by similar plans, where applicable. Given the design of our retiree health benefit plans, healthcare-cost trend rates do not have a material impact on our financial condition or results of operations. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows: 2022 2023 2024 2025 2026 2027-2031 Defined benefit pension plans $ 631.9 $ 641.8 $ 669.4 $ 686.6 $ 707.5 $ 3,919.7 Retiree health benefit plans 89.4 89.5 93.1 93.9 94.5 477.7 Amounts relating to defined benefit pension plans with projected benefit obligations in excess of plan assets were as follows at December 31: 2021 2020 Projected benefit obligation $ 3,360.3 $ 15,770.7 Fair value of plan assets 1,542.8 11,824.4 Amounts relating to defined benefit pension plans and retiree health benefit plans with accumulated benefit obligations in excess of plan assets were as follows at December 31: Defined Benefit Pension Plans Retiree Health Benefit Plans 2021 2020 2021 2020 Accumulated benefit obligation $ 2,532.0 $ 14,682.3 $ 212.6 $ 223.8 Fair value of plan assets 973.4 11,824.4 — — The total accumulated benefit obligation for our defined benefit pension plans was $ 16.44 billion and $ 17.03 billion at December 31, 2021 and 2020, respectively. 96 Net pension and retiree health benefit expense included the following components: Defined Benefit Pension Plans Retiree Health Benefit Plans 2021 2020 2019 2021 2020 2019 Components of net periodic (benefit) cost: Service cost $ 369.2 $ 325.5 $ 250.4 $ 49.2 $ 40.8 $ 36.3 Interest cost 337.8 425.8 486.0 32.5 43.7 58.0 Expected return on plan assets ( 949.3 ) ( 901.5 ) ( 839.6 ) ( 146.2 ) ( 158.1 ) ( 144.3 ) Amortization of prior service (benefit) cost 4.2 4.5 6.1 ( 59.6 ) ( 59.5 ) ( 62.9 ) Recognized actuarial (gain) loss 487.7 396.3 284.9 3.2 ( 3.0 ) 1.9 Curtailment loss — — 2.2 — — — Net periodic (benefit) cost $ 249.6 $ 250.6 $ 190.0 $ ( 120.9 ) $ ( 136.1 ) $ ( 111.0 ) The following represents the amounts recognized in other comprehensive income (loss) for the years ended December 31, 2021 , 2020, and 2019: Defined Benefit Pension Plans Retiree Health Benefit Plans 2021 2020 2019 2021 2020 2019 Actuarial gain (loss) arising during period $ 2,072.4 $ ( 663.0 ) $ ( 1,461.0 ) $ 142.5 $ 238.8 $ 246.1 Plan amendments during period — ( 2.2 ) — — — — Curtailment gain — — 19.0 — — — Amortization of prior service (benefit) cost included in net income 4.2 4.5 6.1 ( 59.6 ) ( 59.5 ) ( 62.9 ) Amortization of net actuarial (gain) loss included in net income 487.7 396.3 284.9 3.2 ( 3.0 ) 1.9 Foreign currency exchange rate changes and other 47.2 ( 71.5 ) ( 7.7 ) 1.9 2.4 3.6 Total other comprehensive income (loss) during period $ 2,611.5 $ ( 335.9 ) $ ( 1,158.7 ) $ 88.0 $ 178.7 $ 188.7 We have defined contribution savings plans that cover our eligible employees worldwide. The purpose of these plans is generally to provide additional financial security during retirement by providing employees with an incentive to save. Our contributions to the plans are based on employee contributions and the level of our match. Expenses under the plans totaled $ 167.3 million, $ 164.3 million, and $ 145.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. We provide certain other postemployment benefits primarily related to disability benefits and accrue for the related cost over the service lives of employees. Expenses associated with these benefit plans for the years ended December 31, 2021, 2020, and 2019 were not material. Benefit Plan Investments Our benefit plan investment policies are set with specific consideration of return and risk requirements in relationship to the respective liabilities. U.S. and Puerto Rico plans represent approximately 80 percent of our global investments. Given the long-term nature of our liabilities, these plans have the flexibility to manage an above-average degree of risk in the asset portfolios. At the investment-policy level, there are no specifically prohibited investments. However, within individual investment manager mandates, restrictions and limitations are contractually set to align with our investment objectives, ensure risk control, and limit concentrations. We manage our portfolio to minimize concentration of risk by allocating funds within asset categories. In addition, within a category we use different managers with various management objectives to eliminate any significant concentration of risk. 97 Our global benefit plans may enter into contractual arrangements (derivatives) to implement the local investment policy or manage particular portfolio risks. Derivatives are principally used to increase or decrease exposure to a particular public equity, fixed income, commodity, or currency market more rapidly or less expensively than could be accomplished through the use of the cash markets. The plans utilize both exchange-traded and over-the-counter instruments. The maximum exposure to either a market or counterparty credit loss is limited to the carrying value of the receivable, and is managed within contractual limits. We expect all of our counterparties to meet their obligations. The gross values of these derivative receivables and payables are not material to the global asset portfolio, and their values are reflected within the tables below. The defined benefit pension and retiree health benefit plan allocation for the U.S. and Puerto Rico currently comprises approximately 75 percent growth investments and 25 percent fixed-income investments. The growth investment allocation encompasses U.S. and international public equity securities, hedge funds, private equity-like investments, and real estate. These portfolio allocations are intended to reduce overall risk by providing diversification, while seeking moderate to high returns over the long term. Public equity securities are well diversified and invested in U.S. and international small-to-large companies across various asset managers and styles. The remaining portion of the growth portfolio is invested in private alternative investments. Fixed-income investments primarily consist of fixed-income securities in U.S. treasuries and agencies, emerging market debt obligations, corporate bonds, bank loans, mortgage-backed securities, commercial mortgage-backed obligations, and any related repurchase agreements. Hedge funds are privately owned institutional investment funds that generally have moderate liquidity. Hedge funds seek specified levels of absolute return regardless of overall market conditions, and generally have low correlations to public equity and debt markets. Hedge funds often invest substantially in financial market instruments (stocks, bonds, commodities, currencies, derivatives, etc.) using a very broad range of trading activities to manage portfolio risks. Hedge fund strategies focus primarily on security selection and seek to be neutral with respect to market moves. Common groupings of hedge fund strategies include relative value, tactical, and event driven. Relative value strategies include arbitrage, when the same asset can simultaneously be bought and sold at different prices, achieving an immediate profit. Tactical strategies often take long and short positions to reduce or eliminate overall market risks while seeking a particular investment opportunity. Event strategy opportunities can evolve from specific company announcements such as mergers and acquisitions, and typically have little correlation to overall market directional movements. Our hedge fund investments are made through limited partnership interests in fund-of-funds structures and directly into hedge funds. Plan holdings in hedge funds are valued based on net asset values (NAVs) calculated by each fund or general partner, as applicable, and we have the ability to redeem these investments at NAV. Private equity-like investment funds typically have low liquidity and are made through long-term partnerships or joint ventures that invest in pools of capital invested in primarily non-publicly traded entities. Underlying investments include venture capital (early stage investing), buyout, special situations, private debt, and private real estate investments. Private equity management firms typically acquire and then reorganize private companies to create increased long term value. Private equity-like funds usually have a limited life of approximately 10-15 years, and require a minimum investment commitment from their limited partners. Our private equity-like investments are made both directly into funds and through fund-of-funds structures to ensure broad diversification of management styles and assets across the portfolio. Plan holdings in private equity-like investments are valued using the value reported by the partnership, adjusted for known cash flows and significant events through our reporting date. Values provided by the partnerships are primarily based on analysis of and judgments about the underlying investments. Inputs to these valuations include underlying NAVs, discounted cash flow valuations, comparable market valuations, and may also include adjustments for currency, credit, liquidity and other risks as applicable. The vast majority of these private partnerships provide us with annual audited financial statements including their compliance with fair valuation procedures consistent with applicable accounting standards. Real estate is composed of public holdings. Real estate investments in registered investment companies that trade on an exchange are classified as Level 1 on the fair value hierarchy. Real estate investments in funds measured at fair value on the basis of NAV provided by the fund manager are classified as such. These NAVs are developed with inputs including discounted cash flow, independent appraisal, and market comparable analyses. Other assets include cash and cash equivalents and mark-to-market value of derivatives. 98 The cash value of the trust-owned insurance contract is primarily invested in investment-grade publicly traded equity and fixed-income securities. Other than hedge funds, private equity-like investments, and a portion of the real estate holdings, which are discussed above, we determine fair values 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. The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2021 by asset category were as follows: Fair Value Measurements Using Asset Class Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Valued at Net Asset Value (1) Defined Benefit Pension Plans Public equity securities: U.S. $ 1,325.4 $ 430.4 $ 0.1 $ 1.2 $ 893.7 International 2,722.7 815.0 — — 1,907.7 Fixed income: Developed markets 4,496.0 2.6 3,356.6 — 1,136.8 Developed markets - repurchase agreements ( 1,376.2 ) — ( 1,376.2 ) — — Emerging markets 611.0 11.3 250.5 0.1 349.1 Private alternative investments: Hedge funds 3,046.8 — — — 3,046.8 Equity-like funds 3,816.4 2.1 — 5.5 3,808.8 Real estate 630.3 363.8 7.5 10.7 248.3 Other 1,143.6 103.2 263.2 ( 2.1 ) 779.3 Total $ 16,416.0 $ 1,728.4 $ 2,501.7 $ 15.4 $ 12,170.5 Retiree Health Benefit Plans Public equity securities: U.S. $ 124.7 $ 40.9 $ — $ 0.1 $ 83.7 International 180.6 47.7 — — 132.9 Fixed income: Developed markets 102.2 — 80.5 — 21.7 Emerging markets 51.6 — 23.7 — 27.9 Private alternative investments: Hedge funds 275.4 — — — 275.4 Equity-like funds 317.8 — — 0.5 317.3 Cash value of trust owned insurance contract 2,166.8 — 2,166.8 — — Real estate 36.2 34.5 0.7 1.0 — Other 106.1 24.4 18.3 ( 0.1 ) 63.5 Total $ 3,361.4 $ 147.5 $ 2,290.0 $ 1.5 $ 922.4 (1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. No material transfers between Level 1, Level 2, or Level 3 occurred during the year ended December 31, 2021. The activity in the Level 3 investments during the year ended December 31, 2021 was not material. 99 The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2020 by asset category were as follows: Fair Value Measurements Using Asset Class Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Valued at Net Asset Value (1) Defined Benefit Pension Plans Public equity securities: U.S. $ 737.6 $ 476.1 $ — $ 1.0 $ 260.5 International 2,635.8 1,102.3 — — 1,533.5 Fixed income: Developed markets 4,301.3 2.9 3,179.2 — 1,119.2 Developed markets - repurchase agreements ( 1,670.8 ) — ( 1,670.8 ) — — Emerging markets 631.0 14.2 262.7 0.1 354.0 Private alternative investments: Hedge funds 2,661.3 — — — 2,661.3 Equity-like funds 2,844.7 — — 16.9 2,827.8 Real estate 558.9 259.6 6.9 5.8 286.6 Other 1,879.2 60.4 301.2 18.0 1,499.6 Total $ 14,579.0 $ 1,915.5 $ 2,079.2 $ 41.8 $ 10,542.5 Retiree Health Benefit Plans Public equity securities: U.S. $ 68.3 $ 45.0 $ — $ 0.1 $ 23.2 International 162.3 58.1 — — 104.2 Fixed income: Developed markets 101.5 — 80.3 — 21.2 Emerging markets 53.5 — 24.7 — 28.8 Private alternative investments: Hedge funds 229.7 — — — 229.7 Equity-like funds 223.4 — — 1.6 221.8 Cash value of trust owned insurance contract 2,204.6 — 2,204.6 — — Real estate 25.8 24.5 0.7 0.6 — Other 157.9 14.1 21.1 1.7 121.0 Total $ 3,227.0 $ 141.7 $ 2,331.4 $ 4.0 $ 749.9 (1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. No material transfers between Level 1, Level 2, or Level 3 occurred during the year ended December 31, 2020. The activity in the Level 3 investments during the year ended December 31, 2020 was not material. In 2022, we expect to contribute approximately $ 40 million to our defined benefit pension plans to satisfy minimum funding requirements for the year. We do not currently expect to make material discretionary contributions in 2022. 100 Note 16: 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, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. These matters may involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, contractual rights, licensing obligations, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage, 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 believe the legal proceedings in which we are named as defendants are without merit and we are defending against them 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, 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 Alimta Patent Litigation U.S. Patent Litigation Alimta (pemetrexed) was protected by a vitamin regimen patent until November 2021, and since then has been protected by pediatric exclusivity through May 2022. In December 2019, we settled a lawsuit we filed against Eagle Pharmaceuticals, Inc. (Eagle) in response to its application to market a product using an alternative form of pemetrexed. Per the settlement agreement, Eagle has a limited initial entry into the market with its product starting February 2022 (up to an approximate three-week supply) and subsequent unlimited entry starting April 2022. European Patent Litigation In Europe, Alimta was protected by the vitamin regimen patent through June 2021. Despite the recent patent expiration, a number of legal proceedings that were initiated prior to expiration are ongoing . Emgality Patent Litigation In September 2018, we were named as a 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 Massa chusetts seeking a ruling that various claims in nine different Teva patents would be infringed by our launch and continued sales of Emgality for the prevention of migraine in adults. Trial is currently scheduled to begin in October 2022. In June 2021, we were named as a defendant in a second litigation filed by Teva in the U.S. District Court for the District of Massachusetts seeking a ruling that two of Teva's patents, which are directed toward use of the active ingredient in Emgality to treat migraine, would be infringed by our continued sales of Emgality. 101 Jardiance Patent Litigation In November 2018, Boehringer Ingelheim (BI), our partner in marketing and development of Jardiance, initiated U.S. patent litigation in the U.S. District Court of Delaware alleging infringement arising from submissions of Abbreviated New Drug Applications (ANDA) by a number of generic companies seeking approval to market generic versions of Jardiance, Glyxambi, and Synjardy in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act). Particularly with respect to Jardiance, the generic companies' ANDAs seek approval to market generic versions of Jardiance prior to the expiration of the relevant patents, and allege that certain patents, including in some allegations the compound patent, are invalid or would not be infringed. We are not a party to this litigation. This litigation has been stayed. Taltz Patent Litigation In April 2021, we petitioned the High Court of Ireland to declare invalid the patent that Novartis Pharma AG (Novartis) purchased from Genentech, Inc. in 2020. Novartis responded by filing a claim against us alleging patent infringement related to our commercialization of Taltz and seeking damages for past infringement and an injunction against future infringement. This matter is ongoing. In April 2021 and November 2021, Novartis petitioned the Court of Rome Intellectual Property Division and the Swiss Federal Patent Court, respectively, in preliminary injunction (PI) and main infringement proceedings against us related to our commercialization of Taltz. In June 2021, the Court of Rome Intellectual Property Division dismissed Novartis' PI action. Novartis appealed the ruling and in October 2021, the panel hearing Novartis' appeal appointed a technical expert to assess the merits of the case. Both matters are ongoing. Hearings on the Italian and Swiss PI requests are scheduled for May 2022. In June 2021, Novartis petitioned the Commercial Court of Vienna in PI proceedings and in November 2021, the Austrian court denied Novartis' request. Novartis did not appeal the ruling, and this matter is now closed. Zyprexa Canada Patent Litigation Beginning in the mid-2000s, several generic companies in Canada challenged the validity of our Zyprexa compound patent. In 2012, the Canadian Federal Court of Appeals denied our appeal of a lower court's decision that certain patent claims were invalid for lack of utility. In 2013, Apotex Inc. and Apotex Pharmachem Inc. (collectively, Apotex) brought claims against us in the Ontario Superior Court of Justice at Toronto for damages related to our enforcement of the Zyprexa compound patent under Canadian regulations governing patented drugs. Apotex seeks compensation based on novel legal theories under the Statute of Monopolies, Trade-Mark Act, and common law. In March 2021, the Ontario Superior Court granted our motion for summary judgement, thereby dismissing Apotex's case. Apotex appealed that ruling to the Court of Appeal for Ontario in April 2021 and a hearing occurred February 2022. We await a decision. Product Liability Litigation Actos® Product Liability We are named along with Takeda Chemical Industries, Ltd. and Takeda affiliates (collectively, Takeda) as a defendant in four purported product liability class actions in Canada related to Actos, which we commercialized with Takeda in Canada until 2009, including one in Ontario filed December 2011 ( Casseres et al. v. Takeda Pharmaceutical North America, Inc., et al. ), one in Quebec filed July 2012 ( Whyte et al. v. Eli Lilly et al. ), one in Saskatchewan filed November 2017 ( Weiler v. Takeda Canada Inc. et al. ), and one in Alberta filed January 2013 ( Epp v. Takeda Canada Inc. et al. ). In general, plaintiffs in these actions alleged that Actos caused or contributed to their bladder cancer. An agreement to settle these actions became effective in May 2021. The relevant courts approved the settlement and the deadline for class members to seek settlement funds has now expired. The lawsuits have been dismissed or discontinued. 102 Byetta® Product Liability We are named as a defendant in approximately 570 Byetta product liability lawsuits in the U.S. which were first initiated in March 2009 and involve approximately 805 plaintiffs. Approximately 55 of these lawsuits, covering about 285 plaintiffs, are filed in California state court and coordinated in a Los Angeles Superior Court. Approximately 515 of the lawsuits, covering about 515 plaintiffs, are filed in federal court, the majority of which are coordinated in a multi-district litigation (MDL) in the U.S. District Court for the Southern District of California. Two lawsuits, representing approximately two plaintiffs, have also been filed in various state courts. Approximately 565 of the lawsuits, involving approximately 800 plaintiffs, contain allegations that Byetta caused or contributed to the plaintiffs' cancer (primarily pancreatic cancer or thyroid cancer); while six plaintiffs allege Byetta caused or contributed to pancreatitis. In addition, one case alleges that Byetta caused or contributed to ampullary cancer. The federal and state trial courts granted summary judgment in favor of us and our co-defendants on the claims alleging pancreatic cancer. The plaintiffs appealed those rulings. In November 2017, the U.S. Court of Appeals for the Ninth Circuit reversed the U.S. District Court for the Southern District of California's grant of summary judgment in the MDL based on that court's discovery rulings and remanded the cases back to the U.S. District Court for further proceedings. In March 2021, the U.S. District Court granted summary judgment for the defendants. In April 2021, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit, but we have now been dismissed from that appeal. Certain plaintiffs have agreed to dismiss their lawsuits in exchange for a waiver of costs, and individual plaintiffs have begun dismissing their claims based upon this agreement. Approximately 311 of the MDL lawsuits have been dismissed as of February 2022. In the state court actions, in November 2018, the California Court of Appeal reversed the Los Angeles County Superior Court of California's grant of summary judgment based on that court's discovery rulings and remanded for further proceedings. In April 2021, the Los Angeles County Superior Court of California granted summary judgment for the defendants and the parties await entry of the order of judgment. Approximately 17 of the state court lawsuits have been dismissed as of February 2022. We are aware of approximately 20 additional potential claimants who have not yet filed suit. These additional possible claims allege damages for pancreatic cancer or thyroid cancer. Cialis Product Liability We are named as a defendant in approximately 350 Cialis product liability lawsuits in the U.S. which were first initiated in August 2015. These cases, many of which were originally filed in various federal courts, contain allegations that Cialis caused or contributed to the plaintiffs' cancer (melanoma). In December 2016, the Judicial Panel on Multidistrict Litigation (JPML) granted the plaintiffs' petition to have filed cases and an unspecified number of future cases coordinated into a federal MDL in the U.S. District Court for the Northern District of California, alongside an existing coordinated proceeding involving Viagra ® . The JPML ordered the transfer of the existing cases to the now-renamed MDL In re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation . In April 2020, the MDL court granted summary judgment to the defendants on all of the claims brought against them by the plaintiffs. In May 2020, plaintiffs filed an appeal in the U.S. Court of Appeals for the Ninth Circuit. The parties have reached agreement to resolve the majority of claims pending in the appeal and expect those claims to soon be dismissed. Jardiance Product Liability First initiated in January 2019, we and Boehringer Ingelheim Pharmaceuticals, Inc., a subsidiary of BI, have been named as a defendant in 5 currently pending product liability lawsuits in Stamford Superior Court in Connecticut, alleging that Jardiance caused or contributed to plaintiffs' Fournier's gangrene. Our agreement with BI calls for BI to defend and indemnify us against any damages, costs, expenses, and certain other losses with respect to product liability claims in accordance with the terms of the agreement. All pending cases have been paused to allow for settlement negotiations and dismissals. 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. 103 Other Matters 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 the HHS's December 30, 2020 advisory opinion stating that drug manufacturers are required to deliver discounts under the 340B program to all contract pharmacies. We seek a declaratory judgment that the defendants violated the Administrative Procedures 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 notified us that it determined that our policy was contrary to the 340B statute. In response, in May 2021, we filed a motion for preliminary injunction and temporary restraining order requesting that the U.S. District Court for the Southern District of Indiana enjoin defendants from taking any action against us relating to the 340B drug pricing program until after the court issues a final judgment on the aforementioned litigation. In May 2021, the court denied our motion for a temporary restraining order but deferred resolution of our motion for preliminary injunction. 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, the defendants' motion to dismiss, and our motion for preliminary injunction related to HRSA's May 2021 enforcement letter. 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. We have filed a notice of appeal. This matter is ongoing. In January 2021, we, along with other pharmaceutical manufacturers, were named as a defendant in a petition currently pending before the HHS Administrative Dispute Resolution Panel. Petitioner seeks declaratory and other injunctive 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 this administrative dispute resolution process against us. In July 2021, we, along with Sanofi-Aventis U.S., LLC (Sanofi), Novo Nordisk Inc. (Novo Nordisk), and AstraZeneca Pharmaceuticals LP, 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 and Novo Nordisk, filed a motion to dismiss the lawsuit. 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 United States Department of Justice requesting the production of certain documents relating to our manufacturing site in Branchburg, New Jersey. We are cooperating with the subpoena. 104 Brazil Litigation – Cosmopolis Facility Labor Attorney Litigation First initiated in 2008, our subsidiary in Brazil, Eli Lilly do Brasil Limitada (Lilly Brasil), is named in a Public Civil Action brought by the Labor Attorney for the 15th Region in the Labor Court of Paulinia, State of Sao Paulo, Brazil, (the Labor Court) alleging possible harm to employees and former employees caused by alleged exposure to soil and groundwater contaminants at a former Lilly Brasil manufacturing facility in Cosmopolis, Brazil, operated by the company between 1977 and 2003. In May 2014, the Labor Court judge ruled against Lilly Brasil, ordering it to undertake several actions, including some with unspecified financial impact, consisting primarily of paying lifetime health coverage for the employees and contractors who worked at the Cosmopolis facility for more than six months during the affected years and their children who were born during and after this period. We appealed this decision. In July 2018, the appeals court (TRT) generally affirmed the Labor Court's ruling, which included a liquidated award of 300 million Brazilian real. This 300 million Brazilian real liquidated award, when adjusted for inflation and the addition of pre and post judgment interest using the current Central Bank of Brazil's special system of clearance and custody rate, is approximately 950 million Brazilian real (approximately $ 170 million as of December 31, 2021). The TRT also restricted the broad health coverage awarded by the Labor Court to health problems that claimants could prove in a separate evidentiary proceeding arose from exposure to the alleged contamination. In August 2019, Lilly Brasil filed an appeal to the superior labor court (TST) and in June 2021, the TRT published its decision on the admissibility of Lilly Brasil's appeal, allowing the majority of the elements of the appeal to proceed; elements not proceeding are subject to an interlocutory appeal to the TST that was filed in June 2021. In September 2019, the TRT stayed a number of elements of its trial court decision pending the determination of Lilly Brasil's appeal to the TST. In June 2019, the Labor Public Attorney (LPA) filed an application in the Labor Court for enforcement of the healthcare coverage granted by the TRT in its July 2018 ruling, requested restrictions on Lilly Brasil’s assets in Brazil, and required Lilly Brasil and Antibióticos do Brasil Ltda. (ABL) to submit a list of potential beneficiaries of the Public Civil Action for the LPA to identify and contact those individuals. In July 2019, the Labor Court issued a ruling requiring a freeze of Lilly Brasil’s immovable property or, alternatively, a security deposit or lien of 500 million Brazilian real. Lilly Brasil filed a writ of mandamus challenging this ruling. In June 2021, the court reduced the security deposit or lien to 100 million Brazilian real and limited the scope of the initial order. ABL and LPA appealed to the TST, which appeal is currently still under review. In addition, in September 2020, the LPA initiated a second preliminary enforcement of the portion of the July 2018 TRT decision in the Labor Court that prohibits the exposure of workers to the contaminated areas. The Labor Court is currently assessing the status of Lilly Brasil’s compliance with such portion of the July 2018 TRT decision. These matters are ongoing. Individual Former Employee Litigation Lilly Brasil is also named in approximately 25 pending lawsuits filed in the Labor Court by individual former employees making similar claims. These lawsuits are each at various stages in the litigation process, with judgments being handed down in more than half of the lawsuits by the trial courts, of which, approximately half of those judgements are on appeal in the labor courts. China NDRC Antitrust Matter The competition authority in China has investigated our distributor pricing practices in China in connection with a broader inquiry into pharmaceutical industry pricing. We cooperated with this investigation. In July 2021 Lilly divested Cialis in China. We consider this matter closed. 105 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. In October 2021, the Municipality filed a motion to execute a purported judgment, and the CFI scheduled a hearing in March 2022 to consider the Municipality's motion. We have opposed the Municipality's motion. This matter is ongoing. Eastern District of Pennsylvania Pricing (Average Manufacturer Price) Inquiry 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. In October 2021 the parties filed cross motions for summary judgment. Trial is scheduled for April 2022. Health Choice Alliance We are named as a defendant in a lawsuit filed in June 2017 in the U.S. District Court for the Eastern District of Texas seeking damages under the federal anti-kickback statute and state and federal false claims acts for certain patient support programs related to our products Humalog, Humulin, and Forteo. In September 2019, the U.S. District Court granted the U.S. Department of Justice's motion to dismiss the relator's second amended complaint. In January 2020, the relator appealed the District Court's dismissal to the U.S. Court of Appeals for the Fifth Circuit. In July 2021, the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of the lawsuit, and the relator did not petition the U.S. Supreme Court for certiorari. We are also named as a defendant in two similar 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. In November 2020, the Texas state court action was stayed pending a final determination with respect to the aforementioned federal lawsuit. In April 2021, the New Jersey state court action was dismissed with prejudice and in June 2021, the relator appealed the state court's decision to the Appellate Division of the New Jersey Superior Court. In January 2022, the relator filed its appellate brief. Pricing Litigation, Investigations, and Inquiries Litigation In December 2017, we, along with Sanofi and Novo Nordisk were named as defendants in a consolidated purported class action lawsuit, In re. Insulin Pricing Litigation , in the U.S. District Court for the District of New Jersey relating to insulin pricing seeking damages under various state consumer protection laws and the Federal Racketeer Influenced and Corrupt Organization Act (federal RICO Act). Separately, in February 2018, we, along with Sanofi and Novo Nordisk, were named as defendants in MSP Recovery Claims, Series, LLC et al. v. Sanofi Aventis U.S. LLC et al. , in the same court, seeking damages under various state consumer protection laws, common law fraud, unjust enrichment, and the federal RICO Act. In both In re. Insulin Pricing Litigation and the MSP Recovery Claims litigation, the court dismissed claims under the federal RICO Act and certain state laws. In April 2021, the plaintiffs in In re. Insulin Pricing Litigation amended their complaint to allege additional state law claims for civil conspiracy and violations of state RICO statutes. The court has allowed the Arizona RICO statute and certain state civil conspiracy law claims to proceed. Also, we, along with Sanofi, Novo Nordisk, CVS, Express Scripts, and Optum, have been sued in a purported class action, FWK Holdings, LLC v. Novo Nordisk Inc., et al., filed in the same court in November 2020, for alleged violations of the federal RICO Act as well as the New Jersey RICO Act and antitrust law. That same group of defendants, along with Medco Health and United Health Group, also have been sued in other purported class actions in the same court, Rochester Drug Co-Operative Inc. v. Eli Lilly & Co. et al. and Value Drug Co. v. Eli Lilly & Co. et al. both initiated in March 2020, for alleged violations of the federal RICO Act. In September 2020, the U.S. District Court for the District of New Jersey granted plaintiffs' motion to consolidate FWK Holdings, LLC v. Novo Nordisk Inc., et al. , Rochester Drug Co-Operative Inc. v. Eli Lilly & Co. et al. , and Value Drug Co. v. Eli Lilly & Co. et al. In July 2021, the U.S. District Court for the District of New Jersey dismissed the three antitrust claims alleged by plaintiffs in the consolidated litigation and denied dismissal of the RICO claims. 106 In October 2018, the Minnesota Attorney General's Office initiated litigation against us, Sanofi, and Novo Nordisk, State of Minnesota v. Sanofi-Aventis U.S. LLC et al., in the U.S. District Court for the District of New Jersey, alleging unjust enrichment, violations of various Minnesota state consumer protection laws, and the federal RICO Act. In March 2021, the U.S. District Court for the District of New Jersey dismissed with prejudice the Minnesota Attorney General's federal RICO claims and false advertising claims under state law; the consumer fraud and other related state law claims remain ongoing. Additionally, in May 2019, the Kentucky Attorney General's Office filed a complaint against us, Sanofi, and Novo Nordisk, Commonwealth of Kentucky v. Novo Nordisk, Inc. et al. , in Kentucky state court, alleging violations of the Kentucky consumer protection law, false advertising, and unjust enrichment. In November 2019, Harris County in Texas initiated litigation against us, Sanofi, Novo Nordisk, Express Scripts, CVS, Optum, and Aetna, County of Harris Texas v. Eli Lilly & Co., et al. , in federal court in the Southern District of Texas alleging violations of the federal RICO Act, the state deceptive trade practices-consumer protection act, and common law claims such as fraud, unjust enrichment, and civil conspiracy. Harris County also alleged violations of federal and state antitrust law, but voluntarily dismissed them. This lawsuit relates to our insulin products as well as Trulicity. In June 2021, the City of Miami, Florida initiated litigation against us, Sanofi, Novo Nordisk, ESI, CVS/Caremark/Aetna, and Optum, asserting state law antitrust, common law fraud, money had and received, unjust enrichment, and civil conspiracy claims. After removing the case to federal court, we, along with the other defendants, filed a motion to dismiss the lawsuit. In January 2022, the court granted the motion in part but has allowed the antitrust and conspiracy claims to proceed against us, Sanofi and Novo Nordisk. We, along with Sanofi and Novo Nordisk, have moved the court to reconsider its denial of our motion to dismiss the antitrust and conspiracy claims. In June 2021, the Mississippi Attorney General's Office (Mississippi AG) initiated litigation against us, Sanofi, Novo Nordisk, Evernorth/ESI, CVS/Caremark, and United/Optum in the Hinds County, Mississippi Chancery Court, alleging state law consumer protection, unjust enrichment, and civil conspiracy claims. After the case was removed to federal court, we, along with the other defendants, filed a motion to dismiss the lawsuit. In response, the Mississippi AG filed a motion to amend its complaint, which the court granted. This matter is ongoing. Investigations, Subpoenas, and Inquiries We received subpoenas from the New York and Vermont Attorney General Offices and civil investigative demands from the Washington, New Mexico, and Colorado Attorney General Offices relating to the pricing and sale of our insulin products. The Offices of the Attorney General in Mississippi, Washington D.C., California, Florida, Hawaii, and Nevada have requested information relating to the pricing and sale of our insulin products. We also received interrogatories and a subpoena from the California Attorney General's Office regarding our competition in the long-acting insulin market, which was subsequently withdrawn in June 2021. In January 2022, the Michigan Attorney General filed against us in state court a petition seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), and a complaint seeking a declaratory judgment that the MCPA applies to the conduct it seeks to investigate and allows it to conduct the investigation. The state court granted the State's petition to investigate, authorizing the State to issue civil investigative subpoenas. The State's complaint for declaratory judgment remains pending. We received a request in January 2019 from the House of Representatives' Committee on Oversight and Reform seeking commercial information and business records related to the pricing of insulin products, among other issues. We also received requests from the Senate Finance Committee and the Senate Committee on Health, Education, Labor, and Pensions, and separate requests from the House Committee on Energy and Commerce majority and minority members. Those requests sought pricing and other commercial information regarding Lilly's insulin products. In January 2021, the Senate Finance Committee released a report summarizing the findings of its investigation. In December 2021 the House of Representatives' Committee on Oversight and Reform majority and minority staffs released separate reports with findings from their investigations into drug pricing, including of insulin products. We are cooperating with all of these aforementioned investigations, subpoenas, and inquiries. 107 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. Both parties moved for summary judgment and hearing on the motions took place in August 2021. In October 2021, the Court issued a summary judgment decision finding in favor of RCT on certain issues, including with respect to a disputed royalty. Both parties filed motions for reconsideration, which are underway. Potential damages payable under the litigation, if finally awarded after an appeal, could be material but are not currently reasonably estimable. A trial date has not been set. Note 17: Other Comprehensive Income (Loss) The following table summarizes the activity related to each component of other comprehensive income (loss): Continuing Operations (Amounts presented net of taxes) Foreign Currency Translation Gains (Losses) Unrealized Net Gains (Losses) on Securities Defined Benefit Pension and Retiree Health Benefit Plans Effective Portion of Cash Flow Hedges Discontinued Operations Accumulated Other Comprehensive Loss Beginning balance at January 1, 2019 (1) $ ( 1,569.7 ) $ ( 22.1 ) $ ( 3,852.7 ) $ ( 238.9 ) $ ( 56.8 ) $ ( 5,740.2 ) Other comprehensive income (loss) before reclassifications ( 46.2 ) 28.9 ( 967.6 ) 14.5 ( 27.2 ) ( 997.6 ) Net amount reclassified from accumulated other comprehensive loss ( 62.1 ) ( 1.9 ) 181.7 12.5 84.0 214.2 Net other comprehensive income (loss) ( 108.3 ) 27.0 ( 785.9 ) 27.0 56.8 ( 783.4 ) Balance at December 31, 2019 ( 1,678.0 ) 4.9 ( 4,638.6 ) ( 211.9 ) — ( 6,523.6 ) Other comprehensive income (loss) before reclassifications 250.5 6.8 ( 379.7 ) ( 133.8 ) — ( 256.2 ) Net amount reclassified from accumulated other comprehensive loss — 3.1 267.3 13.0 — 283.4 Net other comprehensive income (loss) 250.5 9.9 ( 112.4 ) ( 120.8 ) — 27.2 Balance at December 31, 2020 ( 1,427.5 ) 14.8 ( 4,751.0 ) ( 332.7 ) — ( 6,496.4 ) Other comprehensive income (loss) before reclassifications ( 122.7 ) ( 11.9 ) 1,823.4 106.6 — 1,795.4 Net amount reclassified from accumulated other comprehensive loss — 0.8 344.0 13.1 — 357.9 Net other comprehensive income (loss) ( 122.7 ) ( 11.1 ) 2,167.4 119.7 — 2,153.3 Ending balance at December 31, 2021 $ ( 1,550.2 ) $ 3.7 $ ( 2,583.6 ) $ ( 213.0 ) $ — $ ( 4,343.1 ) (1) Accumulated other comprehensive loss as of January 1, 2019 consists of $ 5.73 billion of accumulated other comprehensive loss attributable to controlling interest and $ 11.0 million of accumulated other comprehensive loss attributable to noncontrolling interest. 108 The tax effects on the net activity related to each component of other comprehensive income (loss) for the years ended December 31, were as follows: Tax benefit (expense) 2021 2020 2019 Foreign currency translation gains/losses $ ( 136.2 ) $ 128.3 $ ( 18.4 ) Unrealized net gains/losses on securities 4.7 ( 4.3 ) ( 7.4 ) Defined benefit pension and retiree health benefit plans ( 532.0 ) 44.8 184.1 Effective portion of cash flow hedges ( 31.8 ) 32.1 ( 7.3 ) Benefit/(provision) for income taxes allocated to other comprehensive income (loss) items $ ( 695.3 ) $ 200.9 $ 151.0 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 7), 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 statements of operations. Reclassifications out of accumulated other comprehensive loss were as follows: Details about Accumulated Other Comprehensive Loss Components Year Ended December 31, Affected Line Item in the Consolidated Statements of Operations 2021 2020 2019 Amortization of retirement benefit items: Prior service benefits, net $ ( 55.4 ) $ ( 55.0 ) $ ( 56.8 ) Other—net, (income) expense Actuarial losses 490.9 393.3 286.8 Other—net, (income) expense Total before tax 435.5 338.3 230.0 Tax benefit ( 91.5 ) ( 71.0 ) ( 48.3 ) Income taxes Net of tax 344.0 267.3 181.7 Other, net of tax 13.9 16.1 ( 51.5 ) Other—net, (income) expense Reclassifications from continuing operations (net of tax) 357.9 283.4 130.2 Reclassifications from discontinued operations (net of tax) — — 84.0 Net income from discontinued operations Total reclassifications for the period, net of tax $ 357.9 $ 283.4 $ 214.2 109 Note 18: Other–Net, (Income) Expense Other–net, (income) expense consisted of the following: 2021 2020 2019 Interest expense $ 339.8 $ 359.6 $ 400.6 Interest income ( 25.4 ) ( 33.0 ) ( 80.4 ) Net investment gains on equity securities (Note 7) ( 176.9 ) ( 1,442.2 ) ( 401.2 ) Debt extinguishment loss (Note 11) 405.2 — 252.5 Gain on sale of antibiotic business in China (Note 3) — — ( 309.8 ) Retirement benefit plans ( 289.7 ) ( 251.8 ) ( 209.9 ) Other (income) expense ( 51.4 ) 195.5 56.6 Other–net, (income) expense $ 201.6 $ ( 1,171.9 ) $ ( 291.6 ) Note 19: Discontinued Operations On March 11, 2019, we completed the disposition of our remaining 80.2 percent ownership of Elanco common stock through a tax-free exchange offer. The earnings attributable to the divested, noncontrolling interest for the period from the initial public offering until disposition were not material. As a result of the disposition, in the first quarter of 2019, we recognized a gain related to the disposition of approximately $ 3.7 billion, and we presented Elanco, including the gain related to the disposition, as discontinued operations in our consolidated financial statements for all periods presented. Revenue and net income from discontinued operations in 2019 was $ 580.0 million and $ 3.68 billion, respectively. There were no discontinued operations in 2020 and 2021. The gain related to the disposition of Elanco in the consolidated statement of cash flows includes the operating results of Elanco through the disposition date, which were not material. Net cash flows of our discontinued operations for operating and investing activities were not material for the year ended December 31, 2019. We entered into a transitional services agreement (TSA) with Elanco to facilitate the orderly transfer of various services to Elanco. The TSA related primarily to administrative services, which were generally provided over 24 months from the date of disposition, and is now complete. This agreement was not material and did not confer upon us the ability to influence the operating and/or financial policies of Elanco subsequent to the disposition date. 110 Management's Reports Management's Report for Financial Statements—Eli Lilly and Company and Subsidiaries Management of Eli Lilly and Company and subsidiaries is responsible for the accuracy, integrity, and fair presentation of the financial statements. The statements have been prepared in accordance with generally accepted accounting principles in the United States and include amounts based on judgments and estimates by management. In management's opinion, the consolidated financial statements present fairly our financial position, results of operations, and cash flows. In addition to the system of internal accounting controls, we maintain a code of conduct (known as " The Red Book" ) that applies to all employees worldwide, requiring proper overall business conduct, avoidance of conflicts of interest, compliance with laws, and confidentiality of proprietary information. All employees must take training annually on The Red Book and are required to report suspected violations. A hotline number is available on our lilly.com website and on the internal LillyNow website to enable reporting of suspected violations anonymously. Employees who report suspected violations are protected from discrimination or retaliation by the company. In addition to The Red Book , the chief executive officer and all financial management must sign a financial code of ethics, which further reinforces their ethical and fiduciary responsibilities. The consolidated financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm (PCAOB ID: 42 ). Their responsibility is to examine our consolidated financial statements in accordance with generally accepted auditing standards of the Public Company Accounting Oversight Board (United States). Ernst & Young's opinion with respect to the fairness of the presentation of the statements is included in Item 8 of our Annual Report on Form 10-K. Ernst & Young reports directly to the audit committee of the board of directors. Our audit committee includes six nonemployee members of the board of directors, all of whom are independent from our company. The committee charter, which is available on our website, outlines the members' roles and responsibilities. It is the audit committee's responsibility to appoint an independent registered public accounting firm subject to shareholder ratification, pre-approve both audit and non-audit services performed by the independent registered public accounting firm, and review the reports submitted by the firm. The audit committee meets several times during the year with management, the internal auditors, and the independent public accounting firm to discuss audit activities, internal controls, and financial reporting matters, including reviews of our externally published financial results. The internal auditors and the independent registered public accounting firm have full and free access to the committee. We are dedicated to ensuring that we maintain the high standards of financial accounting and reporting that we have established. We are committed to providing financial information that is transparent, timely, complete, relevant, and accurate. Our culture demands integrity and an unyielding commitment to strong internal practices and policies. Finally, we have the highest confidence in our financial reporting, our underlying system of internal controls, and our people, who are objective in their responsibilities, operate under a code of conduct and are subject to the highest level of ethical standards. Management's Report on Internal Control Over Financial Reporting—Eli Lilly and Company and Subsidiaries Management of Eli Lilly and Company and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. We have global financial policies that govern critical areas, including internal controls, financial accounting and reporting, fiduciary accountability, and safeguarding of corporate assets. Our internal accounting control systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records are adequate for preparation of financial statements and other financial information. A staff of internal auditors regularly monitors, on a worldwide basis, the adequacy and effectiveness of internal accounting controls. The general auditor reports directly to the audit committee of the board of directors. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control—Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 111 Based on our evaluation under this framework, we concluded that our internal control over financial reporting was effective as of December 31, 2021. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The effectiveness of internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report, which appears herein. Their responsibility is to evaluate whether internal control over financial reporting was designed and operating effectively. David A. Ricks Anat Ashkenazi Chair, President, and Chief Executive Officer Senior Vice President and Chief Financial Officer February 23, 2022 112 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Eli Lilly and Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eli Lilly and Company and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 113 Medicaid, Managed Care, and Medicare sales rebate accruals Description of the Matter As described in Note 2 to the consolidated financial statements under the caption "Net Product Revenue," the Company establishes provisions for sales rebate and discounts in the same period as the related sales occur. At December 31, 2021 the Company had $6,845.8 million in sales rebate and discount accruals. A large portion of these accruals are rebates associated with sales in the United States for which payment for purchase of the product is covered by Medicaid, Managed Care, and Medicare. Auditing the Medicaid, Managed Care, and Medicare sales rebate and discount liabilities is challenging because of the subjectivity of certain assumptions required to estimate the rebate liabilities. In calculating the appropriate accrual amount, the Company considers historical Medicaid, Managed Care, and Medicare rebate payments by product as a percentage of their historical sales as well as any significant changes in sales trends, the lag in payment timing, an evaluation of the current Medicaid and Medicare laws and interpretations, the percentage of products that are sold via Medicaid, Managed Care, and Medicare, and product pricing. For Medicaid, there is significant complexity associated with calculating the legislated Medicaid rebates. Management utilizes employees with legislative experience and knowledge in developing assumptions used to calculate Medicaid rebates. Similarly, for Managed Care and Medicare, given variability in prescription drug costs, continued historical year over year increases in enrollees and variability in prescription data, historical rebate information may not be predictive for management to estimate the rebate accrual and thus, management supplements its historical data analysis with qualitative adjustments based upon current utilization. How We Addressed the Matter in Our Audit We tested the Company's controls addressing the identified risks of material misstatement related to the valuation of the sales rebate and discount liabilities. This included testing controls over management's review of the significant assumptions used to calculate the Medicaid, Managed Care, and Medicare rebate liabilities, including the significant assumptions discussed above. This testing also included management's control to compare actual activity to forecasted activity and controls to ensure the data used to evaluate the significant assumptions was complete and accurate. Our audit procedures included, among others, evaluating for reasonableness the significant assumptions in light of economic trends, product profiles, and other regulatory factors. Our testing involved assessing the historical accuracy of management's estimates by comparing actual activity to previous estimates and performing analytical procedures, based on internal and external data sources, to evaluate the completeness of the reserves. Additionally, our procedures included reviewing a sample of contracts, testing a sample of rebate payments and testing the underlying data used in management's evaluation. For Medicaid, we involved our professionals with an understanding of the statutory reimbursement requirements to assess the consistency of the Company's calculation methodologies with the applicable government regulations and policy. For Medicare we evaluated the reasonableness of assumptions made by management in estimating the Medicare coverage gap liability. 114 Retirement Benefits - Valuation of Alternative Investments Description of the Matter As described in Note 15 to the consolidated financial statements under the caption "Benefit Plan Investments," the Company's benefit plan investment policies are set with specific consideration of return and risk requirements in relationship to the respective liabilities. At December 31, 2021 the Company had $19,777.4 million in plan assets related to the defined benefit pension plans and retiree health benefit plans. Approximately 38 percent of the total pension and retiree health assets are in hedge funds and private equity-like investment funds ("alternative investments"). These alternative investments are valued using significant unobservable inputs or are valued at net asset value (NAV) reported by the counterparty, adjusted as necessary. Auditing the fair value of these alternative investments is challenging because of the higher estimation uncertainty of the inputs to the fair value calculations, including the underlying net asset values ("NAVs"), discounted cash flow valuations, comparable market valuations, and adjustments for currency, credit, liquidity and other risks. Additionally, certain information regarding the fair value of these alternative investments is based on unaudited information available to management at the time of valuation. How We Addressed the Matter in Our Audit We tested the Company's controls addressing the risks of material misstatement relating to valuation of alternative investments. This included testing management's review controls over alternative investment valuation, which included a comparison of returns to benchmarks and in-person or telephonic meetings with investment firms to discuss valuation policies and procedures, as well as portfolio performance. Our audit procedures included, among others, comparing fund returns to selected relevant benchmarks and understanding variations, obtaining the latest audited financial statements and comparing to the Company's estimated fair values and reconciling any differences. We also inquired of management about changes to the investment portfolio and/or related investment strategies and considerations. We assessed the historical accuracy of management's estimates by comparing actual activity to previous estimates. We evaluated for contrary evidence by confirming the fair value of the investments and ownership interest directly with the trustees and a sample of managers at year end. /s/ Ernst & Young LLP We have served as the Company's auditor since 1940. Indianapolis, Indiana February 23, 2022 115 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Eli Lilly and Company Opinion on Internal Control Over Financial Reporting We have audited Eli Lilly and Company and subsidiaries' internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Eli Lilly and Company and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 23, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 116 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Indianapolis, Indiana February 23, 2022 117 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.