Amgen 2010 Annual Report Download - page 158

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option contracts, primarily Euro-based, have been designated as cash flow hedges, and accordingly, the effective
portion of the unrealized gains and losses on these contracts are reported in AOCI in the Consolidated Balance
Sheets and reclassified to earnings in the same periods during which the hedged transactions affect earnings.
In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward
interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable Treasury rate
between the time we enter into these contracts and the time the related debt is issued. Gains and losses on such
contracts, which are designated as cash flow hedges, are recorded in Other Comprehensive Income (“OCI”) and
amortized into earnings over the lives of the associated debt issuances.
The following table reflects the effective portion of the unrealized gain/(loss) recognized in OCI for our cash
flow hedge contracts for the years ended December 31, 2010 and 2009 (in millions):
Derivatives in cash flow hedging relationships 2010 2009
Foreign currency contracts ................................................... $191 $(202)
Forward interest rate contracts ................................................ (5) (11)
Total ............................................................... $186 $(213)
The following table reflects the location in the Consolidated Statements of Income and the effective portion of
the gain/(loss) reclassified from AOCI into earnings for our cash flow hedge contracts for the years ended
December 31, 2010 and 2009 (in millions):
Derivatives in cash flow hedging relationships Statements of Income location 2010 2009
Foreign currency contracts ............................ Product sales $47 $(7)
Forward interest rate contracts.......................... Interest expense, net (1) (1)
Total ......................................... $46 $(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 were approximately $1 million of expense for the years ended
December 31, 2010 and 2009. As of December 31, 2010, the amounts expected to be reclassified from AOCI into
earnings over the next 12 months are approximately $8 million of losses on foreign currency forward and option
contracts and approximately $1 million of losses on forward interest rate contracts.
Fair value hedges
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. The terms of these interest rate swap
agreements correspond to the related hedged debt instruments and effectively convert a fixed interest rate coupon to
a floating LIBOR-based coupon over the lives of the respective notes. The rates on these swaps range from LIBOR
plus 0.3% to LIBOR plus 2.6%. We had interest rate swap agreements with aggregate notional amounts of
$3.6 billion and $1.5 billion as of December 31, 2010 and 2009, respectively. The interest rate swap agreements as
of December 31, 2010 were for our notes due in 2014, 2017, 2018 and 2019 and, as of December 31, 2009 for our
notes due in 2014 and 2018. For derivative instruments that are designated and qualify as a fair value hedge, the
unrealized gain or loss on the derivative resulting from the change in fair value during the period as well as the
offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period
attributable to the hedged risk are recognized in current earnings. For the year ended December 31, 2010, we
included the unrealized loss on the hedged debt of $105 million in the same line item, “Interest expense, net” in the
Consolidated Statement of Income, as the offsetting unrealized gain of $105 million on the related interest rate swap
agreements. For the year ended December 31, 2009, we included the unrealized gain on the hedged debt of
F-36
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)