v3.20.1
Financial Instruments and Fair Value Measures (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Summary of amounts and location of derivatives on the condensed consolidated balance sheets
The following table summarizes the amounts and location of AbbVie’s derivative instruments on the condensed consolidated balance sheets:
 
Fair value –
Derivatives in asset position
 
Fair value –
Derivatives in liability position
(in millions)
Balance sheet caption
March 31, 2020
December 31, 2019
 
Balance sheet caption
March 31, 2020
December 31, 2019
Foreign currency forward exchange contracts
 
 
 
 
 
 
 
Designated as cash flow hedges
Prepaid expenses and other
$
35

$
3

 
Accounts payable and accrued liabilities
$

$
14

Designated as cash flow hedges
Other assets
2


 
Other long-term liabilities


Designated as net investment hedges
Prepaid expenses and other
22


 
Accounts payable and accrued liabilities
1

24

Not designated as hedges
Prepaid expenses and other
43

19

 
Accounts payable and accrued liabilities
12

18

Interest rate swap contracts
 
 
 
 
 
 
 
Designated as cash flow hedges
Other assets

3

 
Other long-term liabilities
44


Designated as fair value hedges
Prepaid expenses and other


 
Accounts payable and accrued liabilities

2

Designated as fair value hedges
Other assets
133

28

 
Other long-term liabilities

74

Total derivatives
 
$
235

$
53

 
 
$
57

$
132

Schedule of pre-tax amounts of derivatives designated as cash flow hedges recognized in other comprehensive income (loss)
The following table presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive income (loss):
 
 
Three months ended
March 31,
(in millions)
 
2020
 
2019
Foreign currency forward exchange contracts
 
 
 
 
Designated as cash flow hedges
 
$
49

 
$
3

Designated as net investment hedges
 
40

 

Interest rate swap contracts designated as cash flow hedges
 
(46
)
 


Schedule of pre-tax amounts of derivatives designated as net investment hedges recognized in other comprehensive income (loss)
The following table presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive income (loss):
 
 
Three months ended
March 31,
(in millions)
 
2020
 
2019
Foreign currency forward exchange contracts
 
 
 
 
Designated as cash flow hedges
 
$
49

 
$
3

Designated as net investment hedges
 
40

 

Interest rate swap contracts designated as cash flow hedges
 
(46
)
 


Summary of pre-tax amounts and location of derivatives recognized in the condensed consolidated statements of earnings
The following table summarizes the pre-tax amounts and location of derivative instrument net gains (losses) recognized in the condensed consolidated statements of earnings, including the net gains (losses) reclassified out of AOCI into net earnings. See Note 10 for the amount of net gains (losses) reclassified out of AOCI.
 
 
 
Three months ended
March 31,
(in millions)
Statement of earnings caption
 
2020
 
2019
Foreign currency forward exchange contracts
 
 
 
 
 
Designated as cash flow hedges
Cost of products sold
 
$

 
$
40

Designated as net investment hedges
Interest expense, net
 
8

 

Not designated as hedges
Net foreign exchange loss
 
2

 
15

Treasury rate lock agreements designated as cash flow hedges
Interest expense, net
 
6

 

Interest rate swap contracts
 
 
 
 
 
Designated as cash flow hedges
Interest expense, net
 
1

 

Designated as fair value hedges
Interest expense, net
 
360

 
112

Debt designated as hedged item in fair value hedges
Interest expense, net
 
(360
)
 
(112
)

Summary of bases used to measure assets and liabilities carried at fair value on a recurring basis
The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the condensed consolidated balance sheet as of March 31, 2020:
 
 
 
Basis of fair value measurement
(in millions)
Total
 
Quoted prices in active markets for
identical assets
(Level 1)
 
Significant other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Cash and equivalents
$
41,142

 
$
1,272

 
$
39,870

 
$

Debt securities
3

 

 
3

 

Interest rate swap contracts
133

 

 
133

 

Foreign currency contracts
102

 

 
102

 

Total assets
$
41,380

 
$
1,272

 
$
40,108

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
44

 
$

 
$
44

 
$

Foreign currency contracts
13

 

 
13

 

Contingent consideration
7,359

 

 

 
7,359

Total liabilities
$
7,416

 
$

 
$
57

 
$
7,359

The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the condensed consolidated balance sheet as of December 31, 2019:
 
 
 
Basis of fair value measurement
(in millions)
Total
 
Quoted prices in active markets for
identical assets
(Level 1)
 
Significant other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Cash and equivalents
$
39,924

 
$
1,542

 
$
38,382

 
$

Debt securities
3

 

 
3

 

Equity securities
24

 
24

 

 

Interest rate swap contracts
31

 

 
31

 

Foreign currency contracts
22

 

 
22

 

Total assets
$
40,004

 
$
1,566

 
$
38,438

 
$

Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
76

 
$

 
$
76

 
$

Foreign currency contracts
56

 

 
56

 

Contingent consideration
7,340

 

 

 
7,340

Total liabilities
$
7,472

 
$

 
$
132

 
$
7,340


Summary of significant level 3 unobservable inputs
The fair value of the company's contingent consideration liabilities as of March 31, 2020 was calculated using the following significant unobservable inputs:
 
Range
Weighted average(a)
Discount rate
2.2% - 3.5%
2.8
%
Probability of payment for unachieved milestones
16% - 57%
54
%
Probability of payment for royalties by indication(b)
16% - 100%
89
%
Projected year of payments
2020 - 2034
2027

(a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities.
(b) Excludes early stage indications with 0% estimated probability of payment and includes approved indications with 100% probability of payment. Excluding approved indications, the estimated probability of payment ranged from 16% to 56% at March 31, 2020.
Schedule of changes in fair value of Level 3 inputs The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:
 
 
Three months ended
March 31,
(in millions)
 
2020
 
2019
Beginning balance
 
$
7,340

 
$
4,483

Change in fair value recognized in net earnings
 
72

 
169

Payments
 
(53
)
 

Ending balance
 
$
7,359

 
$
4,652


Schedule of book values, approximate fair values and bases used to measure certain financial instruments The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of March 31, 2020 are shown in the table below:
 
 
 
 
Basis of fair value measurement
(in millions)
Book value
Approximate fair value
 
Quoted prices
in active markets for
identical assets
(Level 1)
 
Significant other 
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Liabilities
 
 
 
 
 
 
 
 
Short-term borrowings
$
6

$
6

 
$

 
$
6

 
$

Current portion of long-term debt and finance lease obligations, excluding fair value hedges
3,756

3,757

 
3,750

 
7

 

Long-term debt and finance lease obligations, excluding fair value hedges
62,974

66,176

 
66,157

 
19

 

Total liabilities
$
66,736

$
69,939

 
$
69,907

 
$
32

 
$


The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 2019 are shown in the table below:
 
 
 
 
Basis of fair value measurement
(in millions)
Book value
Approximate fair value
 
Quoted prices
in active markets for
identical assets
(Level 1)
 
Significant other 
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Liabilities
 
 
 
 
 
 
 
 
Current portion of long-term debt and finance lease obligations, excluding fair value hedges
$
3,755

$
3,760

 
$
3,753

 
$
7

 
$

Long-term debt and finance lease obligations, excluding fair value hedges
63,021

66,651

 
66,631

 
20

 

Total liabilities
$
66,776

$
70,411

 
$
70,384

 
$
27

 
$