AbbVie 2014 Annual Report Download - page 83

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floating interest amounts calculated by reference to an agreed-upon notional amount. Derivative
instruments are not used for trading purposes or to manage exposure to changes in interest rates for
investment securities, and none of the company’s outstanding derivative instruments contain credit risk
related contingent features; collateral is generally not required.
Financial Instruments
Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage
exposures to changes in foreign exchange rates for anticipated intercompany transactions denominated in a
currency other than the functional currency of the local entity. These contracts, with notional amounts
totaling $1.4 billion and $1.5 billion at December 31, 2014 and December 31, 2013, respectively, are
designated as cash flow hedges and are recorded at fair value. Accumulated gains and losses as of
December 31, 2014 will be included in cost of products sold at the time the products are sold, generally
not exceeding twelve months.
The company enters into foreign currency forward exchange contracts to manage its exposure to
foreign currency denominated trade payables and receivables and intercompany loans. The contracts are
marked-to-market, and resulting gains or losses are reflected in income and are generally offset by losses or
gains on the foreign currency exposure being managed. At December 31, 2014 and December 31, 2013,
AbbVie held notional amounts of $6.8 billion and $5.3 billion, respectively, of such foreign currency forward
exchange contracts.
In 2014, the company entered into undesignated forward contracts with a total notional amount of
$16.9 billion to hedge anticipated foreign currency cash outflows associated with the terminated proposed
combination with Shire. A large portion of these contracts original maturity is in the first quarter of 2015
but were net settled in the fourth quarter of 2014. In 2014, the company realized $490 million in net
foreign exchange loss associated with the Shire-related forward contracts.
AbbVie is a party to interest rate hedge contracts, designated as fair value hedges, totaling $8.0 billion
at both December 31, 2014 and December 31, 2013. The effect of the hedge is to change a fixed-rate
interest obligation to a floating rate for that portion of the debt. AbbVie recorded the contracts at fair
value and adjusted the carrying amount of the fixed-rate debt by an offsetting amount.
The following table summarizes the amounts and location of AbbVie’s derivative instruments as of
December 31.
Fair value—Derivatives in liability
Fair value—Derivatives in asset position position
(in millions) 2014 2013 Balance sheet caption 2014 2013 Balance sheet caption
Interest rate swaps designated as fair
value hedges $ — $ — n/a $180 $432 Long-term liabilities
Foreign currency forward exchange
contracts—
Hedging instruments 141 — Prepaid expenses and other — 61 Accounts payable
and accrued liabilities
Others not designated as hedges 70 17 Prepaid expenses and other 63 12 Accounts payable
and accrued liabilities
Total $211 $17 $243 $505
While certain derivatives are subject to netting arrangements with the company’s counterparties, the
company does not offset derivative assets and liabilities within the consolidated balance sheets.
The following table summarizes the activity for derivative instruments and the amounts and location of
income (expense) and gain (loss) reclassified into net earnings for the years ended December 31, 2014,
2014 Form 10-K 77