AbbVie 2014 Annual Report Download - page 75

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comprehensive (loss) income. The net assets of subsidiaries in highly inflationary economies are remeasured
as if the functional currency were the reporting currency. The remeasurement is recognized in earnings and
is immaterial for all years presented.
Derivatives
All derivative instruments are recognized as either assets or liabilities at fair value in AbbVie’s balance
sheets and are classified as current or long-term based on the scheduled maturity of the instrument. The
accounting for changes in the fair value of a derivative instrument depends on whether it has been
formally designated and qualifies as part of a hedging relationship under the applicable accounting
standards and, further, on the type of hedging relationship.
For derivatives formally designated as hedges, the company assesses at inception and quarterly
thereafter, whether the hedging derivatives are highly effective in offsetting changes in the fair value or
cash flows of the hedged item. The changes in fair value of a derivative designated as a fair value hedge
and of the hedged item attributable to the hedge risk are recognized in earnings immediately. Fair value
hedges are used to hedge the interest rate risk associated with certain of the company’s fixed-rate debt.
The effective portions of changes in the fair value of a derivative designated as a cash flow hedge are
reported in accumulated other comprehensive loss and are subsequently recognized in earnings consistent
with the underlying hedged item. Cash flow hedges are used to manage exposures from changes in foreign
currency exchange rates.
The derivatives that are not designated and do not qualify as hedges are adjusted to fair value through
current earnings. If it is determined that a derivative is no longer highly effective as a hedge, the company
discontinues hedge accounting prospectively. Gains or losses are immediately reclassified from accumulated
other comprehensive loss to earnings relating to hedged forecasted transactions that are no longer
probable of occurring. Gains or losses relating to terminations of effective cash flow hedges in which the
forecasted transactions are still probable of occurring are deferred and recognized consistent with the
income or loss recognition of the underlying hedged items. Terminations of a fair value hedges result in fair
value adjustments to the hedged items until the date of termination with the new bases being accreted to
par value on the date of maturity.
Derivatives, including those that are not designated as a hedge, are principally classified in the
operating section of the consolidated statements of cash flows, consistent with the underlying hedged item.
Refer to Note 10 for information regarding AbbVie’s derivative and hedging activities.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
No. 2014-09, Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606)
and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The amendments in ASU
2014-09 supersede most current revenue recognition requirements. The core principal of the new guidance
is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. This guidance is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within that reporting period. Early application is not
permitted. AbbVie can apply the amendments using one of the following two methods: (i) retrospectively
to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially
applying the amendments recognized at the date of initial application. AbbVie is currently assessing the
impact of adopting this guidance to its consolidated financial statements.
2014 Form 10-K 69