Amgen 2009 Annual Report Download - page 161

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AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
derivative instrument depends on whether it has been formally designated and qualifies as part of a hedging rela-
tionship under the applicable accounting standards and, further, on the type of hedging relationship. For
derivatives formally designated as hedges, we assess both at inception and quarterly thereafter, whether the hedg-
ing derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item.
Our derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current
earnings.
We are exposed to possible changes in values of certain anticipated foreign currency cash flows resulting
from changes in foreign currency exchange rates, primarily associated with our international product sales de-
nominated in Euros. Increases or decreases in the cash flows associated with our international product sales due
to movements in foreign currency exchange rates are partially offset by the corresponding increases and de-
creases in our international operating expenses resulting from these foreign currency exchange rate movements.
To further reduce our exposure to foreign currency exchange rate fluctuations on our international product sales,
we enter into foreign currency forward and option contracts to hedge a portion of our projected international
product sales over a three-year time horizon with, at any given point in time, a higher percentage of nearer term
projected product sales being hedged than successive periods. As of December 31, 2009, we had open foreign
currency forward and option contracts, primarily Euro-based, with notional amounts of $3.4 billion and $376
million, respectively.
In connection with the anticipated issuance of long-term fixed-rate debt, we may enter into forward interest
rate contracts in order to hedge the variability in cash flows due to changes in the applicable Treasury rate be-
tween the time we entered into these contracts and the time the related debt is issued. In connection with the
issuance of our 2019 Notes and 2039 Notes in January 2009, we entered into forward interest rate contracts re-
lated to a portion of these borrowings.
These foreign currency forward and option contracts and forward interest rate contracts have been des-
ignated as cash flow hedges, and accordingly, the effective portion of the unrealized gains and losses on these
contracts are reported in “Accumulated other comprehensive income” in the Consolidated Balance Sheet and re-
classified to earnings in the same periods during which the hedged transactions affect earnings. The following
table reflects the effective portion of the unrealized loss recognized in OCI for our cash flow hedge contracts (in
millions):
Derivatives in cash flow hedging relationships
Year ended
December 31, 2009
Foreign exchange contracts ..................................................... $(202)
Interest rate contracts .......................................................... (11)
Total ................................................................... $(213)
The following table reflects the location in the Consolidated Statement of Income and the effective portion
of the loss reclassified from Accumulated OCI into income for our cash flow hedge contracts (in millions):
Derivatives in cash flow hedging relationships Statement of Income location
Year ended
December 31, 2009
Foreign exchange contracts ............... Product sales $(7)
Interest rate contracts .................... Interest expense, net (1)
Total ............................. $(8)
No portions of our cash flow hedge contracts are excluded from the assessment of hedge effectiveness and
the ineffective portions of these hedging instruments resulted in less than $1 million of expense recorded in
“Interest expense, net” and “Interest and other income, net” in the Consolidated Statement of Income for the year
ended December 31, 2009. As of December 31, 2009, the amounts expected to be reclassified from Accumulated
F-41