Amgen 2011 Annual Report Download - page 104

asset-backed securities; money market mutual funds; and additionally at December 31, 2010, other short-term
interest bearing securities, composed principally of commercial paper. The fair value of our investment portfolio of
debt securities was $20.0 billion and $17.3 billion at December 31, 2011 and 2010, respectively. Duration 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 increase in interest
rates at December 31, 2011 and 2010, 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, 2011
and 2010, would not result in a material effect on the related income or cash flows in the respective ensuing year.
As of December 31, 2011, we had outstanding debt with a carrying value of $21.4 billion and a fair value of
$23.0 billion. As of December 31, 2010, we had outstanding debt with a carrying value of $13.4 billion and a fair
value of $14.5 billion. Our outstanding debt at December 31, 2011 and 2010, 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, 2011, would have resulted in an increase of
approximately $2.1 billion 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, 2010, would have resulted in an
increase of approximately $1.0 billion in the aggregate fair value of our outstanding debt on this date. The
analysis for the debt does not consider the impact that hypothetical changes in interest rates would have on the
related interest rate swap and cross currency swap contracts.
To achieve a desired mix of fixed and floating interest rate debt, we have entered into interest rate swap
contracts, which qualify and have been designated for accounting purposes as fair value hedges, for certain of our
fixed rate debt with notional amounts totaling $3.6 billion at December 31, 2011 and 2010. These derivative
contracts effectively convert a fixed rate interest coupon to a floating rate LIBOR-based coupon over the life of
the respective note. A hypothetical 100 basis point increase in interest rates relative to interest rates at
December 31, 2011 and 2010, would have resulted in a reduction fair value of approximately $200 million on our
interest rate swap contracts on these dates and would not result in a material effect on the related income or cash
flows in the respective ensuing year. The analysis for the interest rate swap contracts does not consider the
impact that hypothetical changes in interest rates would have on the related fair values of debt that these interest
rate sensitive instruments were designed to offset.
As of December 31, 2011, we had open cross currency swap contracts with an aggregate notional amount of
$748 million that hedge the entire principal amount of our pound sterling denominated debt and related interest
payments. These contracts effectively convert payments on this debt to U.S. dollars and are designated for
accounting purposes as cash flow hedges. A hypothetical 100 basis point adverse movement in interest rates
relative to interest rates at December 31, 2011, would have resulted in approximately a $130 million reduction in
the fair value of our cross currency swap contracts on this date but would not have a material effect on cash flows
or income in the ensuing year.
Foreign currency sensitive financial instruments
Our international operations are affected by fluctuations in the value of the U.S. dollar as compared to
foreign currencies, predominately the euro. Increases and decreases in our international product sales from
movements in foreign currency exchange rates are offset partially by the corresponding increases or decreases in
our international operating expenses. Increases and decreases in our foreign currency denominated assets from
movements in foreign currency exchange rates are offset partially by the corresponding increases or decreases in
our foreign currency denominated liabilities. To further reduce our net exposure to foreign currency exchange
rate fluctuations on our results of operations, we enter into foreign currency forward, option and cross currency
swap contracts.
As of December 31, 2011, we had outstanding debt with a carrying value and fair value of $1.5 billion that
was denominated in pounds sterling and euros. A hypothetical 20% adverse movement in foreign currency
exchange rates compared with the U.S. dollar relative to exchange rates at December 31, 2011, would have
88