FINANCIAL INSTRUMENTS AND FINANCIAL RISK

6 Months Ended

Jun. 30, 2012

FINANCIAL INSTRUMENTS AND FINANCIAL RISK

FINANCIAL INSTRUMENTS AND FINANCIAL RISK

4.FINANCIAL INSTRUMENTS AND FINANCIAL RISK

For certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and interest payable, the carrying amounts approximate fair value due to their short-term nature. The fair value of short term investments was determined based on quoted market prices for identical assets. As at June 30, 2012, the fair value of Angiotech’s short-term investments was approximately $0.6 million (December 31, 2011 — $3.3 million).

As at June 30, 2012, the total fair value of the Successor Company’s Existing Notes was approximately $328.4 million (December 31, 2011 - $316.0 million) and the carrying value was $325.0 million (December 31, 2011 - $325 million).  The estimated fair value of the Existing Notes was based on a consideration of cash flows associated with future interest and principal payments and discount rates from similar companies in the healthcare industry. As discussed above, the Successor Company’s Existing Notes were issued on May 12, 2011 and replaced the Predecessor Company’s Existing Floating Rate Notes.

Financial risk includes interest rate risk, exchange rate risk and credit risk.

·Interest rate risk arises due to the Successor Company’s long-term debt bearing variable interest rates. The interest rate on the Existing Notes resets quarterly to 3-month LIBOR plus 3.75%, subject to a LIBOR floor of 1.25%. The Existing Notes currently bear interest at a rate of 5%. The Successor Company does not use derivatives to hedge against interest rate risks.

·Foreign exchange rate risk arises as a portion of the Successor Company’s investments, revenues and expenses are denominated in other than U.S. dollars. The Successor Company’s financial results are subject to the variability that arises from exchange rate movements in relation to the U.S. dollar, and is primarily limited to the Canadian dollar, the Danish kroner, the Swiss franc, the Euro, and the UK pound sterling. Foreign exchange risk is mitigated, to some extent by satisfying foreign denominated expenditures with cash inflows or assets denominated in either the same currency or a pegged currency.

·Credit risk arises as the Successor Company provides credit to its customers in the normal course of business. The Successor Company performs credit evaluations of its customers on a continuing basis and the majority of its trade receivables are unsecured. The maximum credit risk loss that the Successor Company could face is limited to the carrying amount of accounts receivable. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. However, the Successor Company has a significant amount of trade accounts receivable with customers who form part of the national healthcare systems of several countries. Efforts by governmental and third-party payers to reduce health care costs or the announcement of legislative proposals or reforms to implement government controls could impact the Successor Company’s credit risk. Although the Successor Company does not currently foresee any significant credit risk associated with these receivables, collection is dependent upon the financial stability of those countries’ national economies. At June 30, 2012, the accounts receivable allowance for uncollectible accounts was $0.3 million (December 31, 2011 — $0.2 million).