Amgen 2012 Annual Report Download - page 84

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77
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,
predominantly 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, 2012, we had outstanding euro and pound sterling denominated debt with a carrying value and fair
value of $3.5 billion and $3.8 billion, respectively. As of December 31, 2011, we had outstanding euro and pound sterling
denominated debt with both a carrying value and fair value of $1.5 billion. A hypothetical 20% adverse movement in foreign
currency exchange rates compared with the U.S. dollar relative to exchange rates at December 31, 2012, would have resulted in
an increase in fair value of this debt of approximately $760 million on this date and a reduction in income in the ensuing year of
approximately $700 million, but would have no material effect on the related cash flows in the ensuing year. 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 resulted in an increase in fair value of this debt of approximately $290 million on this date with a corresponding
reduction in income in the ensuing year, but would have no material effect on the related cash flows in the ensuing year. The
analysis for this debt does not consider the offsetting impact that hypothetical changes in foreign currency exchange rates would
have on the related cross-currency swap contracts which are in place for the majority of the foreign currency denominated debt.
With regard to our $2.7 billion notional amount of cross-currency swap contracts that are designated as cash flow hedges
of certain of our debt denominated in euros and pound sterling as of December 31, 2012, a hypothetical 20% adverse movement
in foreign currency exchange rates compared with the U.S. dollar relative to exchange rates on this date, would have resulted in
a reduction in the fair value of these contracts of approximately $710 million on this date, but would have no material effect on
the related cash flows in the ensuing year. The impact on income in the ensuing year from these contracts of this hypothetical
adverse movement in foreign currency exchange rates would be fully offset by the corresponding hypothetical change in the
carrying amount of the related hedged debt. With regard to our $748 million notional amount of cross-currency swap contracts
that are designated as cash flow hedges of certain of our debt denominated in pounds sterling as of December 31, 2011, a hypothetical
20% adverse movement in foreign currency exchange rates compared with the U.S. dollar relative to exchange rates on this date,
would have resulted in a reduction in the fair value of these contracts of approximately $210 million on this date, but would have
no material effect on the related cash flows in the ensuing year. The impact on income in the ensuing year from these contracts of
this hypothetical adverse movement in foreign currency exchange rates would be fully offset by the corresponding hypothetical
change in the carrying amount of the related hedged debt.
We enter into foreign currency forward and options contracts that are designated for accounting purposes as cash flow hedges
of certain anticipated foreign currency transactions. As of December 31, 2012, we had open foreign currency forward and options
contracts, primarily euro-based, with notional amounts of $3.7 billion and $200 million, respectively. As of December 31, 2011,
we had open foreign currency forward and options contracts, primarily euro-based, with notional amounts of $3.5 billion and $292
million, respectively. As of December 31, 2012 and 2011, the net unrealized gains on these contracts were not material. With
regard to foreign currency forward and option contracts that were open at December 31, 2012, a hypothetical 20% adverse
movement in foreign currency exchange rates compared with the U.S. dollar relative to exchange rates at December 31, 2012,
would have resulted in a reduction in fair value of these contracts of approximately $730 million on this date and, in the ensuing
year, a reduction in income and cash flows of approximately $350 million. With regard to contracts that were open at December 31,
2011, 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 resulted in a reduction in fair value of these contracts of approximately $700 million on
this date and, in the ensuing year, a reduction in income and cash flows of approximately $330 million. The analysis does not
consider the impact that hypothetical changes in foreign currency exchange rates would have on anticipated transactions that these
foreign currency sensitive instruments were designed to offset.
As of December 31, 2012 and 2011, we had open foreign currency forward contracts with notional amounts totaling $629
million and $389 million, respectively, that hedged fluctuations of certain assets and liabilities denominated in foreign currencies
but were not designated as hedges for accounting purposes. These contracts had no material net unrealized gains or losses at
December 31, 2012 and 2011. With regard to these foreign currency forward contracts that were open at December 31, 2012 and
2011, a hypothetical 20% adverse movement in foreign currency exchange rates compared with the U.S. dollar relative to exchange
rates on these dates would not have resulted in a material reduction in the fair value of these contracts on this date and would not
result in a material effect on the related income or cash flows in the respective ensuing year. The analysis does not consider the
impact that hypothetical changes in foreign currency exchange rates would have on assets and liabilities that these foreign currency
sensitive instruments were designed to offset.