Amgen 2007 Annual Report Download - page 101

On December 31, 2007, we had outstanding debt of $11.2 billion with a fair value of $10.6 billion, including
$5.1 billion of convertible debt with a fair value of $4.5 billion. Our outstanding debt at December 31, 2007 was
comprised of $9.2 billion of debt with fixed interest rates and $2.0 billion of debt with variable interest rates. On
December 31, 2006, we had $9.0 billion of outstanding fixed rate debt with a fair value of $8.9 billion, including
$6.8 billion of convertible debt with a fair value of $6.7 billion. Changes in interest rates do not affect interest
expense or cash flows on our fixed rate debt. A hypothetical 20% change in interest rates relative to interest rates
at December 31, 2007 would not have a material impact on income or cash flows on our $2.0 billion of variable
rate debt outstanding at December 31, 2007.
Changes in interest rates would affect the fair values of all of our outstanding debt at December 31, 2007
and 2006, including, to a lesser extent, our variable rate debt for which the interest rate resets quarterly. To
achieve a desired mix of fixed and floating interest rate debt, we entered into interest rate swap agreements,
which qualify and are designated as fair value hedges, for certain of our fixed rate debt with carrying values
totaling $2.1 billion and $2.2 billion at December 31, 2007 and 2006, respectively. These agreements swap the
receipt of fixed interest payments for LIBOR-based variable interest payments over the lives of the respective
notes. A hypothetical 20% change in interest rates relative to interest rates at December 31, 2007 would result in
a change of approximately $460 million in the aggregate fair value of our outstanding debt and would not have a
material effect on the fair value, cash flows or income with respect to our interest rate swap agreements. A hypo-
thetical 10% change in interest rates relative to the interest rates at December 31, 2006 would not have a material
impact on the aggregate fair value of our outstanding debt or on fair values, cash flows or income with respect to
our interest rate swap agreements.
Market price sensitive instruments
As noted above, a portion of our outstanding debt may be converted into our common stock in certain cir-
cumstances. Accordingly, the price of our common stock may affect the fair value of our convertible debt. A
hypothetical 10% decrease in the price of Amgen stock from the price at December 31, 2007 and 2006 would
have reduced the fair value of our then outstanding convertible debt by approximately $78 million and $274 mil-
lion, respectively.
On December 31, 2007 and 2006, we were also exposed to price risk on equity securities included in our
portfolio of investments, which were acquired primarily for the promotion of business and strategic objectives.
These investments are generally in small capitalization stocks in the biotechnology industry sector. Price risk
relative to our equity investment portfolio on December 31, 2007 and 2006 was not material.
Foreign currency sensitive instruments
Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to foreign
currencies, predominately the Euro, as a result of the sales of our products in foreign markets. Both positive and
negative impacts to our international product sales from movements in foreign exchange rates are partially miti-
gated by the natural, opposite impact that foreign exchange rates have on our international operating expenses.
To further reduce our exposure to foreign exchange rate fluctuations in our results of operations, we enter into
foreign currency forward exchange contracts and foreign currency option contracts.
On December 31, 2007, we had outstanding forward exchange and options contracts with notional amounts
of $1.4 billion and $788 million, respectively. On December 31, 2006, we had outstanding forward exchange and
options contracts with notional amounts of $1.6 billion and $902 million, respectively. These contracts are des-
ignated for accounting purposes as cash flow hedges of certain anticipated foreign currency transactions. As of
December 31, 2007 and 2006 the net unrealized losses on these contracts were not material. With regard to these
contracts, a hypothetical 10% adverse movement in foreign exchange rates compared with the U.S. dollar relative
to exchange rates on December 31, 2007 and December 31, 2006 would result in a reduction in fair value, cash
flows and income of approximately $160 million and $185 million, respectively.
Also on December 31, 2007 and 2006, we had outstanding forward exchange contracts with notional
amounts totaling $622 million and $326 million, respectively that hedge fluctuations of certain assets and li-
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