Abbott Laboratories 2015 Annual Report Download - page 62

ABBOTT 2015 ANNUAL REPORT
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FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
MARKET PRICE SENSITIVE INVESTMENTS
The fair value of the available-for-sale equity securities held by
Abbott was approximately $3.8billion and $9million as of
December31, 2015 and 2014, respectively. The increase is due
primarily to the shares of Mylan N.V. that Abbott received in the
sale of its developed markets branded generics pharmaceuticals
business and that it continued to hold at December 31, 2015. All
available-for-sale equity securities are subject to potential changes
in fair value. A hypothetical 20percent decrease in the share
prices of these investments would decrease their fair value at
December31, 2015 by approximately $750million. Abbott moni-
tors these investments for other than temporary declines in fair
value, and charges impairment losses to income when an other
than temporary decline in fair value occurs.
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 $120million and
$100million as of December31, 2015 and 2014, 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 fair
value occurs.
INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS
At December31, 2015 and 2014, Abbott had interest rate hedge
contracts totaling $4.0billion and $1.5billion, respectively, 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, 2015, Abbott had $2.7billion of domes-
tic commercial paper outstanding with an average annual interest
rate of 0.31% with an average remaining life of 27days. The fair
value of long-term debt at December31, 2015 and 2014 amounted
to $6.3billion and $4.1billion, respectively (average interest rates
of 4.1% and 5.3% as of December 31, 2015 and 2014, respectively)
with maturities through 2040. At December31, 2015 and 2014,
thefair value of current and long-term investment securities
amounted to approximately $5.2billion and $626million, respec-
tively. 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, 2015 and 2014, Abbott held
$2.4billion and $1.5billion, respectively, of such contracts.
Contracts held at December 31, 2015 will mature in 2016 or 2017
depending upon the contract. Contracts held at December 31,
2014matured in 2015 or will mature in 2016 depending upon
thecontract.
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, 2015 and 2014, Abbott held $14.0billion
and$14.1billion, respectively, of such contracts, which generally
mature in the next twelve months.
Abbott has designated foreign denominated short-term debt of
approximately $439million and approximately $445million as
ofDecember31, 2015 and 2014, 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, 2015 and 2014:
(inmillions)
2015 2014
Contract
Amount
Weighted
Average
Exchange
Rate
Fair and
Carrying
Value
Receivable/
(Payable) Contract Amount
Weighted
Average
Exchange
Rate
Fair and
Carrying
Value
Receivable/
(Payable)
Primarily U.S. Dollars to be exchanged
for the following currencies:
Euro $÷8,999 1.0943 $«67 $÷7,574 1.2458 $÷19
British Pound 1,531 1.5098 6 1,295 1.5790 9
Japanese Yen 711 121.8078 (1) 2,258 115.0311 56
Canadian Dollar 312 1.2917 18 371 1.1197 13
All other currencies 4,880 N/A (13) 4,064 N/A 31
Total $16,433 $«77 $15,562 $128