Abbott Laboratories 2012 Annual Report Download - page 50

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Abbott 2012 Annual Report
Market Price Sensitive Investments
Abbott holds available-for-sale equity securities from strategic
technology acquisitions. The market value of these investments was
approximately $76million and $93million as of December31, 2012
and 2011, respectively. Abbott monitors these investments for other
than temporary declines in market value, and charges impairment
losses to income when an other than temporary decline in value
occurs. A hypothetical 20percent decrease in the share prices of
these investments would decrease their fair value at December31,
2012 by approximately $15million. (A 20percent decrease is believed
to be a reasonably possible near-term change in share prices.)
Non-Publicly Traded Equity Securities
Abbott holds equity securities from strategic technology acquisitions
that are not traded on public stock exchanges. The carrying value of
these investments was approximately $137million and $224million
as of December31, 2012 and 2011, respectively. No individual invest-
ment is recorded at a value in excess of $30million. Abbott monitors
these investments for other than temporary declines in market value,
and charges impairment losses to income when an other than tempo-
rary decline in estimated value occurs.
Interest Rate Sensitive Financial Instruments
At December31, 2012 and 2011, Abbott had interest rate hedge
contracts totaling $9.5billion and $6.8billion, respectively, to manage
its exposure to changes in the fair value of debt. The effect of these
hedges is to change the fixed interest rate to a variable rate. Abbott
does not use derivative financial instruments, such as interest rate
swaps, to manage its exposure to changes in interest rates for its
investment securities. At December31, 2012, Abbott had $1.3billion
of domestic commercial paper outstanding with an average annual
interest rate of 0.32% with an average remaining life of 17days.
The fair value of long-term debt at December31, 2012 and 2011
amounted to $19.6billion and $15.1billion, respectively (average interest
rates of 2.9%) with maturities through 2042. At December31, 2012
and 2011, the fair value of current and long-term investment securities
amounted to approximately $4.6billion and $1.7billion, respectively.
A hypothetical 100-basis point change in the interest rates would
not have a material effect on cash flows, income or market values.
(A 100-basis point change is believed to be a reasonably possible
near-term change in rates.)
Foreign Currency Sensitive Financial Instruments
Certain Abbott foreign subsidiaries enter into foreign currency forward
exchange contracts to manage exposures to changes in foreign
exchange rates for anticipated intercompany purchases by those
subsidiaries whose functional currencies are not the U.S. dollar. These
contracts are designated as cash flow hedges of the variability of the
cash flows due to changes in foreign currency exchange rates and
are marked-to-market with the resulting gains or losses reflected in
Accumulated other comprehensive income (loss). Gains or losses
will be included in Cost of products sold at the time the products are
sold, generally within the next twelve months. At December31, 2012
and 2011, Abbott held $1.6billion of such contracts, which all mature
in the following calendar year.
Abbott enters into foreign currency forward exchange contracts to
manage its exposure to foreign currency denominated intercompany
loans and trade payables and third-party trade payables and receiv-
ables. The contracts are marked-to-market, and resulting gains or
losses are reflected in income and are generally offset by losses or gains
on the foreign currency exposure being managed. At December31,
2012 and 2011, Abbott held $18.2billion and $15.7billion, respectively,
of such contracts, which mature in the next twelve months.
Abbott has designated foreign denominated short-term debt of
approximately $615million and approximately $680million as of
December31, 2012 and 2011, respectively, as a hedge of the net
investment in a foreign subsidiary. Accordingly, changes in the fair
value of this debt due to changes in exchange rates are recorded
in Accumulated other comprehensive income (loss), net of tax.
The following table reflects the total foreign currency forward contracts
outstanding at December31, 2012 and 2011:
2012 2011
Fair and Fair and
Weighted Carrying Weighted Carrying
Average Value Average Value
Contract Exchange Receivable/ Contract Exchange Receivable/
(dollars in millions) Amount Rate (Payable) Amount Rate (Payable)
Receive primarily U.S. Dollars
in exchange for the following currencies:
Euro $11,349 1.317 $ (4) $10,526 1.329 $102
British Pound 1,318 1.621 1 1,501 1.571 3
Japanese Yen 2,624 81.2 9 2,458 80.3 (3)
Canadian Dollar 332 .992 1 280 1.026 (2)
All other currencies 4,169 N/A (33) 2,544 N/A (1)
Total $19,792 $(26) $17,309 $ 99
Financial Instruments and Risk Management