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Financial Instruments, Derivatives and Fair Value Measures
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments, Derivatives and Fair Value Measures Financial Instruments, Derivatives and Fair Value Measures
Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates primarily for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts, with gross notional amounts totaling $7.7 billion at December 31, 2022, and $8.6 billion at December 31, 2021, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value. Accumulated gains and losses as of December 31, 2022 will be included in Cost of products sold at the time the products are sold, generally through the next twelve to eighteen months.
Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies, in exchange for primarily U.S. dollars and European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar and European currencies. At December 31, 2022 and 2021, Abbott held gross notional amounts of $12.0 billion and $12.2 billion, respectively, of such foreign currency forward exchange contracts.
Abbott has designated a yen-denominated, 5-year term loan of approximately $446 million and $521 million as of December 31, 2022 and December 31, 2021, respectively, as a hedge of the net investment in certain foreign subsidiaries. The change in the value of the debt, which is due to changes in foreign exchange rates, is recorded in Accumulated other comprehensive income (loss), net of tax.
Abbott is a party to interest rate hedge contracts totaling approximately $2.9 billion at December 31, 2022 and 2021, to manage its exposure to changes in the fair value of fixed-rate debt. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.
The following table summarizes the amounts and location of certain derivative financial instruments as of December 31:
Fair Value — AssetsFair Value — Liabilities
(in millions)20222021Balance Sheet Caption20222021Balance Sheet Caption
Interest rate swaps designated as fair value hedges:
Non-current$— $87 Deferred income taxes and other assets$136 $— Post-employment obligations and other long-term liabilities
Current— — 20 — Other accrued liabilities
Foreign currency forward exchange contracts:
Hedging instruments304 222 Other prepaid expenses and receivables96 65 Other accrued liabilities
Others not designated as hedges108 70 Other prepaid expenses and receivables130 32 Other accrued liabilities
Debt designated as a hedge of net investment in a foreign subsidiary— — n/a446 521 Long-term debt
$412 $379 $828 $618 
The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in a foreign subsidiary and certain other derivative financial instruments, as well as the amounts and location of income (expense) and gain (loss) reclassified into income.
Gain (loss) Recognized in Other Comprehensive Income (loss)Income (expense) and Gain (loss) Reclassified into Income
(in millions)202220212020202220212020Income Statement Caption
Foreign currency forward exchange contracts designated as cash flow hedges$281 $164 $(207)$234 $(252)$102 Cost of products sold
Debt designated as a hedge of net investment in a foreign subsidiary75 56 (31) n/an/an/an/a
Interest rate swaps designated as fair value hedges n/an/an/a(243)(123)162 Interest expense
A gain of $70 million, a gain of $19 million and a loss of $171 million were recognized in 2022, 2021 and 2020, respectively, related to foreign currency forward exchange contracts not designated as hedges. These amounts are reported in the Consolidated Statement of Earnings on the Net foreign exchange (gain) loss line.
The interest rate swaps are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market.
The carrying values and fair values of certain financial instruments as of December 31 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties.
20222021
(in millions)Carrying Value Fair Value Carrying Value Fair Value
Long-term Investment Securities:
Equity securities$558 $558 $748 $748 
Other208 208 68 68 
Total long-term debt(16,773)(16,313)(18,050)(21,152)
Foreign Currency Forward Exchange Contracts:
Receivable position412 412 292 292 
(Payable) position(226)(226)(97)(97)
Interest Rate Hedge Contracts:
Receivable position— — 87 87 
(Payable) position(156)(156)— — 
The fair value of the debt was determined based on significant other observable inputs, including current interest rates.
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:
Basis of Fair Value Measurement
(in millions)Outstanding BalancesQuoted Prices in Active MarketsSignificant Other Observable InputsSignificant Unobservable Inputs
December 31, 2022:
Equity securities$307 $307 $— $— 
Foreign currency forward exchange contracts412 — 412 — 
Total Assets$719 $307 $412 $— 
Fair value of hedged long-term debt$2,691 $— $2,691 $— 
Interest rate swap derivative financial instruments156 — 156 — 
Foreign currency forward exchange contracts226 — 226 — 
Contingent consideration related to business combinations130 — — 130 
Total Liabilities$3,203 $— $3,073 $130 
December 31, 2021:
Equity securities$402 $402 $— $— 
Interest rate swap derivative financial instruments 87 — 87 — 
Foreign currency forward exchange contracts292 — 292 — 
Total Assets$781 $402 $379 $— 
Fair value of hedged long-term debt$2,926 $— $2,926 $— 
Foreign currency forward exchange contracts97 — 97 — 
Contingent consideration related to business combinations130 — — 130 
Total Liabilities$3,153 $— $3,023 $130 
The fair value of foreign currency forward exchange contracts is determined using a market approach, which utilizes values for comparable derivative instruments. The fair value of the debt was determined based on the face value of the debt adjusted for the fair value of the interest rate swaps, which is based on a discounted cash flow analysis using significant other observable inputs. Contingent consideration relates to businesses acquired by Abbott. The fair value of the contingent consideration was determined based on independent appraisals at the time of acquisition, adjusted for the time value of money and other changes in fair value. The maximum amount for certain contingent consideration is not determinable as it is based on a percent of certain sales. Excluding such contingent consideration, the maximum amount that may be due under the other contingent consideration arrangements was estimated at December 31, 2022 to be approximately $235 million, which is dependent upon attaining certain sales thresholds or upon the occurrence of certain events, such as regulatory approvals.