Abbott Laboratories 2014 Annual Report Download - page 62

ABBOTT 2014 ANNUAL REPORT
60
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
and long-term investment securities amounted to approxi-
mately $626million and $4.7billion, respectively. A hypothetical
100-basis point change in the interest rates would not have a
material eect on cash flows, income or fair 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
to eighteen months. At December31, 2014 and 2013, Abbott held
$1.5billion and $137million, respectively, of such contracts.
Contracts held at December31, 2014 will mature in 2015 or 2016
depending upon the contract. Contracts held at December31, 2013
matured in 2014.
Abbott enters into foreign currency forward exchange contracts
to manage its exposure to foreign currency denominated inter-
company loans and trade payables and third-party trade payables
and receivables. The contracts are marked-to-market, and result-
ing gains or losses are reflected in income and are generally oset
by losses or gains on the foreign currency exposure being man-
aged. At December31, 2014 and 2013, Abbott held $14.1billion
and $13.8billion, respectively, of such contracts, which generally
mature in the next twelve months.
Abbott has designated foreign denominated short-term debt of
approximately $445million and approximately $505million as
of December31, 2014 and 2013, 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.
MARKET PRICE SENSITIVE INVESTMENTS
Abbott holds available-for-sale equity securities from strategic
technology acquisitions. The fair value of these investments was
approximately $9million and $26million as of December31, 2014
and 2013, respectively. The decrease is due to the sale of securities.
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, 2014
by approximately $1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 acquisi-
tions that are not traded on public stock exchanges. The carrying
value of these investments was approximately $100million and
$67million as of December31, 2014 and 2013, respectively. No
individual investment is recorded at a value in excess of $25mil-
lion. 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 estimated value occurs.
INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS
At December31, 2014 and 2013, Abbott had interest rate hedge
contracts totaling $1.5billion to manage its exposure to changes
in the fair value of debt. The eect of these hedges is to change the
fixed interest rate to a variable rate for the portion of the debt that
is hedged. 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, 2014,
Abbott had $3.9billion of domestic commercial paper outstanding
with an average annual interest rate of 0.12% with an average
remaining life of 36 days. The fair value of long-term debt at
December31, 2014 and 2013 amounted to $4.1billion and $3.9bil-
lion, respectively (average interest rates of 5.3% and 5.3% as of
December31, 2014 and 2013, respectively) with maturities through
2040. At December31, 2014 and 2013, the fair value of current
The following table reflects the total foreign currency forward contracts outstanding at December31, 2014 and 2013:
(inmillions)
2014 2013
Contract
Amount
Weighted
Average
Exchange
Rate
Fair and
Carrying
Value
Receivable/
(Payable)
Contract
Amount
Weighted
Average
Exchange
Rate
Fair and
Carrying
Value
Receivable/
(Payable)
Receive primarily U.S. Dollars
in exchange for the following currencies:
Euro $÷7,574 1.2458 $÷19 $÷6,208 1.3735 $«(4)
British Pound 1,295 1.5790 9 1,181 1.6240 1
Japanese Yen 2,258 115.0311 56 1,865 99.0000 12
Canadian Dollar 371 1.1197 13 191 1.0600 1
All other currencies 4,064 N/A 31 4,446 N/A (1)
Total $15,562 $128 $13,891 $÷9