AbbVie 2012 Annual Report Download - page 63

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to risk that its earnings, cash flows and equity could be adversely impacted by
changes in foreign exchange rates and interest rates. Certain derivative instruments are used when
available on a cost-effective basis to hedge the company’s underlying economic exposures. Refer to
Note 8 for further information regarding the company’s financial instruments and hedging strategies.
Foreign Currency Risk
AbbVie’s primary net foreign currency translation exposures are the euro, British pound, Japanese yen
and Canadian dollar. 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 are designated as cash flow hedges of the variability of the cash flows due to changes in
foreign currency exchange rates and are marked-to-market with the resulting gains or losses reflected in
accumulated other comprehensive income (loss). Deferred gains or losses on these contracts are
included in cost of products sold at the time the products are sold to a third party, generally within
twelve months. At December 31, 2012 and 2011, AbbVie held $1.0 billion and $249 million,
respectively, of such contracts, which all mature in the following calendar year.
AbbVie enters into foreign currency forward exchange contracts to manage its exposure to foreign
currency denominated trade payables and receivables. The contracts, which are not designated as
hedges, 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, 2012 and
2011, AbbVie held $4.3 billion and $3.0 billion, respectively, of such foreign currency forward exchange
contracts.
The following table reflects the total foreign currency forward contracts outstanding at December 31.
2012 2011
Fair and Fair and
Weighted carrying Weighted carrying
average value average value
Contract exchange receivable/ Contract exchange receivable/
(in millions) amount rate (payable) amount rate (payable)
Receive primarily U.S. dollars in
exchange for the following currencies:
Euro $3,649 1.315 $(10) $1,656 1.329 $ (2)
British pound 91 1.612 — 143 1.571 —
Japanese yen 323 84.4 5 578 80.3 (15)
Canadian dollar 154 0.992 — 50 1.026 —
All other currencies 1,045 N/A (5) 794 N/A 13
Total $5,262 $(10) $3,221 $ (4)
The company estimates that a 10 percent appreciation in the underlying currencies being hedged from
their levels against the U.S. dollar, with all other variables held constant, would decrease the fair value
of foreign exchange forward contracts by $526 million at December 31, 2012. If realized, this
appreciation would negatively affect earnings over the remaining life of the contacts. A 10 percent
appreciation is believed to be a reasonably possible near-term change in foreign currencies.
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
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