AbbVie 2014 Annual Report Download - page 60

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The company estimates that a 10 percent depreciation of AbbVie’s most significant foreign currency
positions against the U.S. dollar would cause a foreign exchange loss on cash and short-term investments of
$611 million at December 31, 2014. A 10 percent depreciation is believed to be a reasonably possible
near-term change in these currencies.
The company’s Venezuelan operations continue to report with the U.S. dollar as the functional
currency due to the hyperinflationary status of the Venezuelan economy. Currency restrictions enacted in
Venezuela require AbbVie to obtain approval from the Venezuelan government to exchange Venezuelan
bolivars for U.S. dollars and require such exchange to be made at the official exchange rate established by
the government. Effective February 8, 2013, the Venezuelan government devalued the official exchange rate
from 4.3 to 6.3, which resulted in a loss of $11 million in 2013 that was recorded in net foreign exchange
loss on the consolidated statement of earnings.
In the first quarter of 2014, the Venezuelan government expanded the number of exchange
mechanisms to three rates of exchange. As of December 31, 2014, these were the CENCOEX rate of 6.3
(the official rate); the SICAD I rate at approximately 12; and the SICAD II rate at approximately 50. In
February 2015, the Venezuelan government confirmed the official exchange rate of 6.3 Venezuelan bolivars
per U.S. dollar will be used for settlement of food and medicine purchases. The company continues to use
the official rate of 6.3 Venezuelan bolivars per U.S. dollar to report its Venezuela financial position, results
of operations and cash flows, since the company believes that the nature of AbbVie’s business operations
qualify for the official rate as permitted by law. The company cannot predict whether there will be further
devaluations of the Venezuelan currency or whether the use of the official rate of 6.3 will continue to be
supported by evolving facts and circumstances. If circumstances change such that the company concludes it
would be appropriate to use a different rate, or if a devaluation of the official rate occurs, it could result in
a significant change to AbbVie’s results of operations. At December 31, 2014, AbbVie had approximately
$240 million of net monetary assets denominated in the Venezuelan bolivar (converted at a rate
of 6.3 VEF/USD) in its Venezuelan entity, which had net sales of $240 million in 2014. If AbbVie’s net
monetary assets denominated in the Venezuelan bolivar had been converted at a rate of 12 VEF/USD at
December 31, 2014, it would have resulted in a devaluation loss of $114 million in 2014.
Interest Rate Risk
Interest rate swaps are used to manage the company’s exposure of changes in interest rates on the
fair value of fixed-rate debt. The effect of these hedges is to change the fixed interest rate to a variable
rate. AbbVie does not use derivative instruments, such as interest rate swaps, to manage its exposure to
changes in interest rates for investment securities. At both December 31, 2014 and 2013, AbbVie had
interest rate hedge contracts totaling $8.0 billion. The company estimates that an increase in the interest
rates of 100-basis points would decrease the fair value of our interest rate swap contracts by approximately
$348 million at December 31, 2014. If realized, the fair value reduction would affect earnings over the
remaining life of the contracts. The company estimates that an increase of 100-basis points in long-term
interest rates would decrease the fair value of long-term debt by $758 million at December 31, 2014. A
100-basis point change is believed to be a reasonably possible near-term change in interest rates.
Market Price Sensitive Investments
AbbVie holds equity securities from strategic technology acquisitions that are traded on public stock
exchanges. The fair value of these investments was approximately $82 million and $49 million as of
December 31, 2014 and 2013, respectively. AbbVie 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 have
had an immaterial decrease to their fair value at December 31, 2014. A 20 percent decrease is believed to
be a reasonably possible near-term change in share prices.
54 2014 Form 10-K