Amgen 2009 Annual Report Download - page 100

volatility in the currency markets, and we have consequentially assumed a hypothetical 20% change in foreign
exchange rates against the U.S. dollar based on its position relative to other currencies as of December 31, 2009
and 2008.
Interest rate sensitive financial instruments
Our investment portfolio of available-for-sale debt securities at December 31, 2009 and 2008 was comprised
primarily of U.S. treasury securities; obligations of U.S. government agencies and FDIC guaranteed bank debt;
corporate debt securities; mortgage and asset backed securities; money market mutual funds; and other short-
term interest bearing securities, principally comprised of commercial paper. The fair value of our investment
portfolio of debt securities was $13.3 billion and $9.4 billion at December 31, 2009 and 2008, respectively. Dura-
tion is a sensitivity measure that can be used to approximate the change in the value of a security that will result
from a 100 basis point change in interest rates. Applying a duration model, a hypothetical 100 basis point in-
crease in interest rates at December 31, 2009 and 2008 would not have resulted in a material effect on the fair
values of these securities on these dates. In addition, a hypothetical 100 basis point decrease in interest rates at
December 31, 2009 and 2008 would not result in a material effect on the related income or cash flows in the re-
spective ensuing year.
As of December 31, 2009, we had outstanding debt with a carrying value of $10.6 billion and a fair value of
$11.6 billion. As of December 31, 2008, we had outstanding debt with a carrying value of $9.4 billion and a fair
value of $9.8 billion. Our outstanding debt at December 31, 2009 and 2008 was comprised entirely of debt with
fixed interest rates. Changes in interest rates do not affect interest expense or cash flows on fixed rate debt.
Changes in interest rates would, however, affect the fair values of fixed rate debt. A hypothetical 100 basis point
decrease in interest rates relative to interest rates at December 31, 2009, would have resulted in an increase of
approximately $760 million in the aggregate fair value of our outstanding debt on this date. A hypothetical 100
basis point decrease in interest rates relative to the interest rates at December 31, 2008, would have resulted in an
increase of approximately $560 million in the aggregate fair value of our outstanding debt on this date.
To achieve a desired mix of fixed and floating interest rate debt, we have entered into interest rate swap
agreements, which qualify and have been designated as fair value hedges, for certain of our fixed rate debt with
notional amounts totaling $1.5 billion and $2.6 billion at December 31, 2009 and 2008, respectively. These de-
rivative contracts effectively convert a fixed rate interest coupon to a LIBOR-based floating rate coupon over the
life of the respective note. A hypothetical 100 basis point increase in interest rates relative to interest rates at De-
cember 31, 2009 and 2008 would not have resulted in a material effect on the fair value of our interest rate swap
agreements on these dates and would not result in a material effect on the related income or cash flows in the re-
spective ensuing year.
Foreign currency sensitive instruments
Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to foreign
currencies, predominately the Euro, as a result of the sale of our products in foreign markets. Increases and de-
creases in our international product sales from movements in foreign exchange rates are partially offset by the
corresponding increases or decreases in our international operating expenses. To further reduce our net exposure
to foreign exchange rate fluctuations on our results of operations, we enter into foreign currency forward and op-
tion contracts.
We enter into forward and options contracts that are designated for accounting purposes as cash flow hedges of
certain anticipated foreign currency transactions. As of December 31, 2009, we had open forward and options con-
tracts, primarily Euro based, with notional amounts of $3.4 billion and $376 million, respectively. As of
December 31, 2008, we had open forward and options contracts, primarily Euro based, with notional amounts of
$2.5 billion and $386 million, respectively. As of December 31, 2009, the net unrealized losses and at December 31,
2008 the net unrealized gains on these contracts were not material. With regard to forward and option contracts that
were open at December 31, 2009, a hypothetical 20% adverse movement in foreign exchange rates compared with
the U.S. dollar relative to exchange rates at December 31, 2009, would have resulted in a reduction in fair value of
approximately $720 million on this date and, in the ensuing year, a reduction in income and cash flows of approx-
imately $330 million. With regard to contracts that were open at December 31, 2008, a hypothetical 20% adverse
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