Abbott Laboratories 2013 Annual Report Download - page 60

ABBOTT 2013 ANNUAL REPORT
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MARKET PRICE SENSITIVE INVESTMENTS
Abbott holds available-for-sale equity securities from strategic
technology acquisitions. The market value of these investments was
approximately $26 million and $76 million as of December 31, 2013
and 2012, respectively. The decrease is due to the sale of securities.
Abbott monitors these investments for other than temporary
declines in market value, and charges impairment losses to
income when an other than temporary decline in value occurs.
A hypothetical 20 percent decrease in the share prices of these
investments would decrease their fair value at December 31, 2013
by approximately $5 million. (A 20 percent decrease is believed
to be a reasonably possible near-term change in share prices.)
NON-PUBLICLY TRADED EQUITY SECURITIES
Abbott holds equity securities from strategic technology acquisi-
tions that are not traded on public stock exchanges. The carrying
value of these investments was approximately $67 million and
$137 million as of December 31, 2013 and 2012, respectively. The
decrease of non-publicly traded securities is due to the separation
of AbbVie on January 1, 2013. No individual investment is recorded
at a value in excess of $20 million. Abbott monitors these invest-
ments for other than temporary declines in market value, and
charges impairment losses to income when an other than tempo-
rary decline in estimated value occurs.
INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS
At December 31, 2013 and 2012, Abbott had interest rate hedge
contracts totaling $1.5 billion and $9.5 billion, respectively, to man-
age its exposure to changes in the fair value of debt. $8.0 billion
of these contracts related to debt issued by AbbVie Inc. in the
fourth quarter of 2012 and were transferred to AbbVie as part of
the separation on January 1, 2013. The effect of these hedges is to
change the fixed interest rate to a variable rate. Abbott does not
use derivative financial instruments, such as interest rate swaps,
to manage its exposure to changes in interest rates for its invest-
ment securities. At December 31, 2013, Abbott had $2.5 billion of
domestic commercial paper outstanding with an average annual
interest rate of 0.13% with an average remaining life of 34 days.
The fair value of long-term debt at December 31, 2013 and 2012
amounted to $3.9 billion and $19.6 billion, respectively (average
interest rates of 5.3% and 2.9% as of December 31, 2013 and 2012,
respectively) with maturities through 2040. At December 31, 2013
and 2012, the fair value of current and long-term investment
securities amounted to approximately $4.7 billion. A hypothetical
100-basis point change in the interest rates would not have a material
effect on cash flows, income or market values. (A 100-basis point
change is believed to be a reasonably possible near-term change
in rates.)
FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS
Certain Abbott foreign subsidiaries enter into foreign currency
forward exchange contracts to manage exposures to changes in
foreign exchange rates for anticipated intercompany purchases
by those subsidiaries whose functional currencies are not the U.S.
dollar. These contracts are designated as cash flow hedges of the
variability of the cash flows due to changes in foreign currency
exchange rates and are marked-to-market with the resulting gains
or losses reflected in Accumulated other comprehensive income
(loss). Gains or losses will be included in Cost of products sold at
the time the products are sold, generally within the next twelve
months. At December 31, 2013 and 2012, Abbott held $137 million
and $1.6 billion, respectively, of such contracts, which all mature
in the following calendar year. Contracts totaling $1.0 billion were
transferred to AbbVie as part of the separation on January 1, 2013.
Abbott enters into foreign currency forward exchange contracts
to manage its exposure to foreign currency denominated inter-
company loans and trade payables and third-party trade payables
and receivables. The contracts are marked-to-market, and result-
ing gains or losses are reflected in income and are generally offset
by losses or gains on the foreign currency exposure being man-
aged. At December 31, 2013 and 2012, Abbott held $13.8 billion
and $18.2 billion, respectively, of such contracts, which mature in
the next twelve months. $4.3 billion of these contracts were trans-
ferred to AbbVie as part of the separation on January 1, 2013.
Abbott has designated foreign denominated short-term debt
of approximately $505 million and approximately $615 million as
of December 31, 2013 and 2012, respectively, as a hedge of the net
investment in a foreign subsidiary. Accordingly, changes in the fair
value of this debt due to changes in exchange rates are recorded
in Accumulated other comprehensive income (loss), net of tax.
The following table reflects the total foreign currency forward
contracts outstanding at December 31, 2013 and 2012:
2013 2012
Fair and Fair and
Weighted Carrying Weighted Carrying
Average Value Average Value
Contract Exchange Receivable/ Contract Exchange Receivable/
(dollars in millions) Amount Rate (Payable) Amount Rate (Payable)
Receive primarily U.S. Dollars
in exchange for the following currencies:
Euro $ 6,208 1.3735 $ (4) $11,349 1.317 $ (4)
British Pound 1,181 1.624 1 1,318 1.621 1
Japanese Yen 1,865 99.0 12 2,624 81.2 9
Canadian Dollar 191 1.06 1 332 .992 1
All other currencies 4,446 N/A (1) 4,169 N/A (33)
Total $13,891 $ 9 $19,792 $(26)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT