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1 North Waukegan Road North Chicago, Illinois 60064-6400 (Address of principal executive offices) (Zip Code) | (847) 932-7900 (Telephone number) | |
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February 2, 2018: 1,587,972,655
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AbbVie to Abbott's shareholders. Additional Virology products. AbbVie's additional virology products unsuitable. No material portion of AbbVie's Orders are generally filled on a current basis and order backlog is not material to AbbVie's business. New products or treatments brought to market by AbbVie’s competitors could cause revenues for AbbVie’s products to decrease due to price reductions and sales volume decreases. uncertainty. market (such as the United States or Europe) before the country will begin or complete its regulatory review process. Some countries also require that local clinical studies be conducted in order to obtain regulatory approval in the country. United States. Specifically, U.S. federal laws require pharmaceutical manufacturers to pay certain statutorily-prescribed rebates to state Medicaid programs on prescription drugs reimbursed under state Medicaid plans, and the efforts by states to seek additional rebates affect AbbVie's business. Similarly, the Veterans Health Care Act of 1992, as a prerequisite to participation in Medicaid and other federal health care programs, requires that manufacturers extend additional discounts on pharmaceutical products to various federal agencies, including the United States Department of Veterans Affairs, Department of Defense and Public Health Service entities and institutions. In addition, recent legislative changes would require similarly discounted prices to be offered to TRICARE program beneficiaries. The Veterans Health Care Act of 1992 also established the 340B drug discount program, which requires pharmaceutical manufacturers to provide products at reduced prices to various designated health care entities and facilities. European Union. The European Union has adopted directives and other legislation governing labeling, advertising, distribution, supply, pharmacovigilance and marketing of pharmaceutical products. Such legislation provides mandatory standards throughout the European Union and permits member states to supplement these standards with additional regulations. European governments also regulate pharmaceutical product prices through their control of national health care systems that fund a large part of the cost of such products to consumers. As a result, patients are unlikely to use a pharmaceutical product that is not reimbursed by the government. In many European countries, the government either regulates the pricing of a new product at launch or subsequent to launch through direct price controls or reference pricing. In recent years, many countries have also imposed new or additional cost containment measures on pharmaceutical products. Differences between national pricing regimes create price differentials within the European Union that can lead to significant parallel trade in pharmaceutical products. the patents are invalid, unenforceable and/or not infringed. In addition, petitioners have filed, and may continue to file, challenges to the validity of AbbVie patents under the 2011 Leahy-Smith America Invents Act, which createdinter partes review and post grant review procedures for challenging patent validity in administrative proceedings at the United States Patent and Trademark Office. industry is inherent in the research and development of new products, and failure can occur at any point in the research and development process, including after significant funds have been invested. Products that appear promising in development may fail to reach the market for numerous reasons, including failure to demonstrate effectiveness, safety concerns, superior safety or efficacy of competing therapies, failure to achieve positive clinical or pre-clinical outcomes beyond the current standards of care, inability to obtain necessary regulatory approvals or delays in the approval of new products and new indications, limited scope of approved uses, excessive costs to manufacture, the failure to obtain or maintain intellectual property rights, or infringement of the intellectual property rights of others. leukemia and AbbVie is investigating its efficacy for additional indications. large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically. Failure to successfully discover, develop, manufacture and sell biologics—including HUMIRA—could adversely impact AbbVie's business and results of operations. batches or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. violation; the inability to obtain future approvals; and withdrawals or suspensions of current products from the market. Any of these events could disrupt AbbVie's business and have a material adverse effect on its business and results of operations. results of operations from acquisition or disposition-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. These effects could cause a deterioration of AbbVie's credit rating and result in increased borrowing costs and interest expense. designation, powers, preferences and relative, participating, optional and other special rights, including preferences over AbbVie's common stock respecting dividends and distributions, as AbbVie's board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of AbbVie's common stock. For example, AbbVie could grant the holders of preferred stock the right to elect some number of AbbVie's directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences AbbVie could assign to holders of preferred stock could affect the residual value of the common stock. In addition to the above, AbbVie has other manufacturing facilities There are no material encumbrances on AbbVie's owned properties. Richard A. Gonzalez Chairman of the Board and Chief Executive Officer Carlos Alban Executive Vice President, Commercial Operations William J. Chase Executive Vice President, Chief Financial Officer Henry O. Gosebruch* Executive Vice President and Chief Strategy Officer Laura J. Schumacher Executive Vice President, External Affairs, General Counsel and Corporate Secretary Michael E. Severino, M.D.* Executive Vice President, Research and Development and Chief Scientific Officer Timothy J. Richmond Senior Vice President, Human Resources Azita Saleki-Gerhardt, Ph.D. Senior Vice President, Operations Vice President, Controller Mr. Gonzalez is also led Licensing and Acquisition and Ventures and Early Stage Collaborations. At Abbott, Ms. Schumacher was also responsible for its Office of Ethics and Compliance. Ms. Schumacher joined Abbott in 1990. She serves on the board of General Dynamics Corporation. 1993. First Quarter Second Quarter Third Quarter Fourth Quarter 2018. 2016: October 1, 2015 - October 31, 2015 November 1, 2015 - November 30, 2015 December 1, 2015 - December 31, 2015 Total Statement of earnings data Net revenues Net earnings(a)(b) Basic earnings per share(a)(b) Diluted earnings per share(a)(b) Cash dividends declared per share Weighted-average basic shares outstanding(d) Weighted-average diluted shares outstanding(d) Balance sheet data Total assets(e) Long-term debt and lease obligations(e)(f) brands. in support of opportunities in immunology, oncology and the next twelve months. expenses. in the next twelve months. and Developments United States International Net revenues HUMIRA United States International Total IMBRUVICA United States Collaboration revenues Total VIEKIRA United States International Total Creon United States Synagis International Lupron United States International Total Synthroid United States Kaletra United States International Total AndroGel United States Sevoflurane United States International Total Duodopa United States International Total Dyslipidemia products United States All other Total net revenues 2017. 2018. Gross margin as a percent of net revenues favorable changes in product mix and operational efficiencies. Selling, general and administrative as a percent of net revenues VIEKIRA. Research and development as a percent of net revenues Acquired in-process research and developmentPage No. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. ITEM 1. BUSINESSSeparation from Abbott LaboratoriesAbbVie AbbVie(1) was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an independent company as a result of the distribution by Abbott Laboratories (Abbott) of 100 percent of the outstanding common stock of AbbVie to Abbott's shareholders. AbbVie's common stock began trading "regular-way" under the ticker symbol "ABBV" on the New York Stock Exchange on January 2, 2013.Overview AbbVie is a global, research-based biopharmaceutical company. AbbVie develops and markets advanced therapies that address some of the world's most complex and serious diseases. AbbVie's products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson's disease;disease and multiple sclerosis; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; as well as other serious health conditions. AbbVie also has a pipeline of promising new medicines including more than 50 compounds or indications in clinical development across such important medical specialties as immunology, virology/liver disease, oncology neurological diseasesand neurology, with additional targeted investment in cystic fibrosis and women's health.May 26, 2015,January 1, 2013, AbbVie completed its acquisitionbecame an independent company as a result of Pharmacyclics, Inc., a biopharmaceutical company that develops and commercializes novel therapies for people impactedthe distribution by cancer, and its flagship asset IMBRUVICA, a highly effective treatment for hematologic malignancies, for approximately $20.8 billion, consistingAbbott Laboratories (Abbott) of cash consideration100% of $12.4 billion and equity considerationthe outstanding common stock of $8.4 billion.Incorporated herein by reference isSee Note 15 entitled "Segment and Geographic Area Information" ofto the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" and the sales information related to HUMIRA included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations."(1)As used throughout the text of this report on Form 10-K, the term "AbbVie" refers to AbbVie Inc., a Delaware corporation, or AbbVie Inc. and its consolidated subsidiaries, as the context requires.2015 Form 10-K |
1, and in the European Union:Condition Principal Markets Rheumatoid arthritis (moderate to severe) North America, European Union Psoriatic arthritis North America, European Union Ankylosing spondylitis North America, European Union Adult Crohn's disease (moderate to severe) North America, European Union Plaque psoriasis (moderate to severe)severe chronic) North America, European Union Juvenile idiopathic arthritis (moderate to severe polyarticular) North America, European Union Ulcerative colitis (moderate to severe) United States,North America, European UnionAxial spondyloarthropathy United States, European UnionPediatric Crohn's disease (severe)(moderate to severe) United States,North America, European UnionHidradenitis Suppurativa (moderate to severe) United States,North America, European UnionPediatric enthesitis-related arthritis European Union Non-infectious intermediate, posterior and panuveitis North America, European Union over 60Japan for the treatment of intestinal Behçet's disease.Australia. HUMIRA was introduced to the market in January 2003. HUMIRA is AbbVie's largest productAustralia, and accounted for approximately 61 percent65% of AbbVie's total net revenues in 2015. The United States composition of matter (that is, compound) patent covering adalimumab (which is sold under the trademark HUMIRA) is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in October 2018. In addition, in the United States, non-composition of matter patents covering adalimumab expire no earlier than 2022. AbbVie continues to dedicate substantial research and development efforts to expanding indications for HUMIRA, including in the fields of rheumatology, gastroenterology (pediatric ulcerative colitis), and ophthalmology (uveitis). A regulatory application for uveitis has been filed in the United States.2017. AbbVie continues to work on HUMIRA formulation and delivery enhancements to improve convenience and the overall patient experience.(1) As used throughout the text of this report on Form 10-K, the terms "AbbVie" or "the company" refer to AbbVie Inc., a Delaware corporation, or AbbVie Inc. and its consolidated subsidiaries, as the context requires. 
1with chronicwith: who have received at least one prior therapy, CLL patients who have del/Small lymphocytic lymphoma (SLL) and CLL/SLL with 17p and patients with Waldenström's macroglobulinemia. IMBRUVICA is also approved for the treatment of patients with mantledeletion;the MCLthis indication based on overall response rate. Continued approval for this indication may be contingent upon verification of clinical benefit in confirmatory trials. IMBRUVICA wasofprior treatment. VENCLEXTA is the first medicines to receiveFDA-approved treatment that targets the B-cell lymphoma 2 (BCL-2) protein, which supports cancer cell growth and is overexpressed in many patients with CLL. VENCLEXTA has been approved in the EU for the treatment of CLL in patients with 17p deletion or TP53 mutation and are unsuitable for or have failed a U.S. FoodB-cell receptor pathway inhibitor and Drug Administration (FDA) approval after being grantedfor the treatment of CLL in absence of 17p deletion or TP53 mutation who have failed both chemoimmunotherapy and a Breakthrough Therapy DesignationB-cell receptor pathway inhibitor.IMBRUVICA is one of the few therapies to receive three separate designations.HIV-1.(ombitsavir,AND TECHNIVIE. VIEKIRA PAK (ombitasvir, paritaprevir and ritonavir tablets; dasabuvir tablets) is an all-oral, short-course, interferon-free therapy, with or without ribavirin, for the treatment of adult patients with genotype 1 chronic HCV, including those with compensated cirrhosis. VIEKIRA PAK was approved by the FDA in December 2014. In Europe, AbbVie's HCV treatmentVIEKIRA PAK is marketed as VIEKIRAX + EXVIERA and is approved for use in patients with genotype 1 and genotype 4 HCV. The European Commission granted marketing authorization for this treatment in January 2015. In July 2015, the FDA approved AbbVie's TECHNIVIE (ombitasvir, paritaprevir and ritonavir) is FDA-approved for use in combination with ribavirin for the treatment of adults with genotype 4 HCV infection in the United States.2 |2015 Form 10-Kinclude KALETRA and Norvir for the treatment of HIV infection and Synagis for the prevention of respiratory syncytial virus (RSV) infection in high risk infants.include:KaletraKALETRA is used with other anti-HIV-1 medications as a treatment that maintains viral suppression in people with HIV-1. Norvir. NORVIR. NorvirNORVIR (ritonavir) is a protease inhibitor that is indicated in combination with other antiretroviral agents for the treatment of HIV-1 infection. Synagis. SYNAGIS. SynagisSYNAGIS (palivizumab) is a product marketed by AbbVie outside of the United States that protects at-risk infants from severe respiratory disease caused by RSV. |2017 Form 10-K Creon. CREON. CreonCREON (pancrelipase) is a pancreatic enzyme therapy for exocrine pancreatic insufficiency, a condition that occurs in patients with cystic fibrosis, chronic pancreatitis and several other conditions.CreonCREON and Synthroid only in the United States.(levprolide(leuprolide acetate), which is also marketed as Lucrin and Lupron Depot,LUPRON DEPOT, is a product for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids. Lupron is approved for daily subcutaneous injection and one-month, three-month, four-month and six-month intramuscular injection.include the following:include: Dyslipidemia products. ZINBRYTA.AbbVie's dyslipidemia products (TriCor (fenofibrate), Trilipix (fenofibric acid), and Niaspan (niacin extended-release)) address the range of metabolic conditions characterized by high cholesterol and/or high triglycerides. Zemplar. Zemplar (paricalcitol) ZINBRYTA (daclizumab) is a product sold worldwideonce-monthly, self-administered, subcutaneous treatment for the treatmentrelapsing forms of secondary hyperparathyroidism associated with Stage 3, 4, and 5 chronic kidney disease (CKD).2015 Form 10-K | 3Research and Development Activities AbbVie has numerous compounds in clinical development, including potential treatments for complex, life-threatening diseases. AbbVie's ability to discover and develop new compounds is enhancedmultiple sclerosis (MS), which was approved by the company'sFDA in May 2016 and by the European Commission in July 2016. Due to the risk of serious liver damage, the use of integrated discovery and development project teams, which include chemists, biologists, physicians, and pharmacologists who work on the same compounds as a team. The research and development process generally beginsZINBRYTA is restricted to adult patients with discovery research which focuses on the identification of a molecule that has a desired effect against a given disease. If preclinical testing of an identified compound proves successful, the compound moves into clinical development which generally includes the following phases:•Phase 1—involves the first human tests in a small number of healthy volunteers or patients to assess safety, tolerability and potential dosing.•Phase 2—tests the drug's efficacy against the disease in a relatively small group of patients.•Phase 3—tests a drug that demonstrates favorable results in the earlier phases in a significantly larger patient population to further demonstrate efficacy and safety based on regulatory criteria. The clinical trials from all of the development phases provide the data required to prepare and submit a New Drug Application (NDA), a Biological License Application (BLA) or other submission for regulatory approval to the FDA or similar government agencies outside the United States. The specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions. The research and development process from discovery through a new drug launch typically takes 8 to 12 years and can be even longer. The research and development of new pharmaceutical products has a significant amount of inherent uncertainty. There is no guarantee when, or if, a molecule will receive the regulatory approval required to launch a new drug or indication. In addition to the development of new products and new formulations, research and development projects also may include Phase 4 trials, sometimes called post-marketing studies. For such projects, clinical trials are designed and conducted to collect additional data regarding, among other parameters, the benefits and risks of an approved drug. AbbVie spent approximately $4.3 billion in 2015, $3.3 billion in 2014, and $2.9 billion in 2013 on research to discover and develop new products, indications and processes and to improve existing products and processes. These expenses consisted primarily of salaries and related expenses for personnel, license fees, consulting payments, contract research, clinical drug supply manufacturing, the costs of laboratory equipment and facilities, clinical trial costs, and collaboration fees and expenses.Intellectual Property Protection and Regulatory Exclusivity Generally, upon approval, products may be entitled to certain kinds of exclusivity under applicable intellectual property and regulatory regimes. AbbVie seeks patent protection, where available, in all significant markets and/or countries for each product in development. In the United States, the expiration date for patents filed on or after June 8, 1995 is 20 years after the filing date. Given that patents relating to pharmaceutical products are often obtained early in the development process, and given the amount of time needed to complete clinical trials and other development activities required for regulatory approval, the length of time between product launch and patent expiration is significantly less than 20 years. The Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act) permits a patent holder to seek a patent extension, commonly called a "patent term restoration," for patents on products (or processes for making the product) regulated by the Federal Food, Drug, and Cosmetic Act. The length of the patent extension is roughly based on 50 percent of the period of time from the filing of an Investigational New Drug Application for a compound to the submission of the NDA4 |2015 Form 10-Kfor such compound, plus 100 percent of the time period from NDA submission to regulatory approval. The extension, however, cannot exceed five years and the patent term remaining after regulatory approval cannot exceed 14 years. Pharmaceutical products may be entitled to otherrelapsing forms of legalMS who have had an inadequate response to at least two disease modifying therapies (DMTs) and for whom treatment with any other DMT is contraindicated or regulatory exclusivity upon approval. The scope, length, and requirements for each of these exclusivities vary both in the United States and in other jurisdictions. In the United States, if the FDA approves a drug product that contains an active ingredient not previously approved, the product is typically entitled to five years of non-patent regulatory exclusivity. Other products may be entitled to three years of exclusivity if approval was based on the FDA's reliance on new clinical studies essential to approval submitted by the NDA applicant. If the NDA applicant studies the product for use by children, the FDA may grant pediatric exclusivity, which extends by 180 days the longest existing exclusivity (patent or regulatory) related to the product. For products that are either used to treat conditions that afflict a relatively small population or for which there is not a reasonable expectation that the research and development costs will be recovered, the FDA may designate the pharmaceutical as an orphan drug and grant it seven years of market exclusivity. Applicable laws and regulations dictate the scope of any exclusivity to which a product is entitled upon its approval in any particular country. In certain instances, regulatory exclusivity may protect a product where patent protection is no longer available or for a period of time in excess of patent protection. It is not possible to estimate for each product in development the total period and scope of exclusivity to which it may become entitled until regulatory approval is obtained. However, given the length of time required to complete clinical development of a pharmaceutical product, the minimum and maximum periods of exclusivity that might be achieved in any individual case would not be expected to exceed three and 14 years, respectively. These estimates do not consider other factors, such as the difficulty of recreating the manufacturing process for a particular product or other proprietary knowledge that may delay the introduction of a generic or other follow-on product after the expiration of applicable patent and other regulatory exclusivity periods. Biologics may be entitled to exclusivity under the Biologics Price Competition and Innovation Act, which was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law provides a pathway for approval of biosimilars following the expiration of 12 years of exclusivity for the innovator biologic and a potential additional 180 day-extension term for conducting pediatric studies. Biologics are also eligible for orphan drug exclusivity, as discussed above. The law also includes an extensive process for the innovator biologic and biosimilar manufacturer to litigate patent infringement, validity, and enforceability prior to the approval of the biosimilar. The European Union has also created a pathway for approval of biosimilars and has published guidelines for approval of certain biosimilar products. The more complex nature of biologics and biosimilar products has led to greater regulatory scrutiny and more rigorous requirements for approval of follow-on biosimilar products than for small molecule generic pharmaceutical products, and in the European Union, it has also reduced the effect of biosimilars on sales of the innovator biologic as compared to the sales erosion caused by generic versions of small molecule pharmaceutical products. AbbVie owns or has licensed rights to a substantial number of patents and patent applications. AbbVie licenses or owns a patent portfolio of thousands of patent families, each of which includes United States patent applications and/or issued patents, and may also contain the non-United States counterparts to these patents and applications. These patents and applications, including various patents that expire during the period 2016 to the late 2030s, in aggregate are believed to be of material importance in the operation of AbbVie's business. However, AbbVie believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to adalimumab (which is sold under the trademark HUMIRA), are material in relation to the company's business as a whole. The United States composition of matter (that is, compound) patent covering adalimumab is expected to expire in December 2016, and the equivalent2015 Form 10-K | 5European Union patent is expected to expire in the majority of European Union countries in October 2018. In the United States, non-composition of matter patents covering adalimumab expire no earlier than 2022. In addition, the following patents, licenses, and trademarks are significant: those related to ibrutinib (which is sold under the trademark IMBRUVICA), those related to ombitasvir/paritaprevir/ritonavir and dasabuvir (which are sold under the trademarks VIEKIRA PAK, VIEKIRAX, EXVIERA, and HOLKIRA PAK), and those related to testosterone (which is sold under the trademark AndroGel). The United States composition of matter patent covering ibrutinib is expected to expire in 2027. The United States composition of matter patents covering ombitasvir, paritaprevir and dasabuvir are expected to expire in 2032, 2031 and 2029, respectively. AbbVie may rely, in some circumstances, on trade secrets to protect its technology. However, trade secrets are difficult to protect. AbbVie seeks to protect its technology and product candidates, in part, by confidentiality agreements with its employees, consultants, advisors, contractors, and collaborators. These agreements may be breached and AbbVie may not have adequate remedies for any breach. In addition, AbbVie's trade secrets may otherwise become known or be independently discovered by competitors. To the extent that AbbVie's employees, consultants, advisors, contractors, and collaborators use intellectual property owned by others in their work for the company, disputes may arise as to the rights in related or resulting know-how and inventions.payors,payers, physicians and country regulatory bodies. AbbVie also provides patient support programs closely related to its products.2015,2017, three wholesale distributors (McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation) accounted for substantially all of AbbVie's sales in the United States. No individual wholesaler accounted for greater than 43 percent42% of AbbVie's 20152017 gross revenues in the United States. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. These wholesalers purchase product from AbbVie under standard terms and conditions of sale. 36 |2015 Form 10-KThird Party Agreements AbbVie has agreements with third parties for process development, analytical services, and manufacturing of certain products. AbbVie procures certain products and services from a limited number of suppliers and, in some cases, a single supply source. For example, the filling and packaging of HUMIRA syringes to be sold outside of the United States and Puerto Rico is performed by a single supplier at its two different facilities. AbbVie does not currently believe that this agreement is material because AbbVie's business is not substantially at risk without access to these facilities. AbbVie maintains significant inventory of HUMIRA syringes to reduce the risk of any supply disruption and its own syringe-filling and packaging facility in the United States is approved to supply syringes to primary markets outside of the United States and Puerto Rico. In addition, AbbVie has agreements with third parties for active pharmaceutical ingredient and product manufacturing, formulation and development services, fill, finish, and packaging services, transportation, and distribution and logistics services for certain products. AbbVie does not believe that these manufacturing related agreements are material because AbbVie's business is not substantially dependent on any individual agreement. In most cases, AbbVie maintains alternate supply relationships that it can utilize without undue disruption of its manufacturing processes if a third party fails to perform its contractual obligations. AbbVie also maintains sufficient inventory of product to minimize the impact of any supply disruption. AbbVie is also party to certain collaborations and other arrangements, as discussed in Note 5, "Licensing, Acquisitions and Other Arrangements—Other Licensing & Acquisitions Activity," of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data," and has certain agreements with Abbott as discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Transition from Abbott and Cost to Operate as an Independent Company."Sources and Availability of Raw Materials AbbVie purchases, in the ordinary course of business, raw materials and supplies essential to its operations from numerous suppliers around the world. In addition, certain medical devices and components necessary for the manufacture of AbbVie products are provided by unaffiliated third party suppliers. AbbVie has not experienced any recent significant availability problems or supply shortages for forecasted sales.Environmental Matters AbbVie believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. AbbVie's capital and operating expenditures for pollution control in 2015 were approximately $5 million and $23 million, respectively. Capital and operating expenditures for pollution control in 2016 are estimated to be approximately $2 million and $25 million, respectively. Abbott was identified as one of many potentially responsible parties in investigations and/or remediations at several locations in the United States, including Puerto Rico, under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. Some of these locations were transferred to AbbVie in connection with the separation and distribution, and AbbVie has become a party to these investigations and remediations. Abbott was also engaged in remediation at several other sites, some of which have been transferred to AbbVie in connection with the separation and distribution, in cooperation with the Environmental Protection Agency or similar agencies. While it is not feasible to predict with certainty the final costs related to those investigations and remediation activities, AbbVie believes that such costs, together with other expenditures to maintain compliance with applicable2015 Form 10-K | 7laws and regulations concerning environmental protection, should not have a material adverse effect on the company's financial position, cash flows, or results of operations.a number of anti-TNF products and other competitive products that are approved forintended to treat a number of disease states and AbbVie's virology products compete with protease inhibitors and other anti-HIV treatments.available HCV treatment options. The search for technological innovations in pharmaceutical products is a significant aspect of competition. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price is also a competitive factor. In addition, the substitution of generic pharmaceutical products for branded pharmaceutical products creates competitive pressures on AbbVie's products that do not have patent protection.AbbVie'sAbbVie’s biologic products is affected by the approval of follow-on biologics, also known as "biosimilars."“biosimilars.” Biologics have added major therapeutic options for the treatment of many diseases, including some for which therapies were unavailable or inadequate. The advent of biologics has also raised complex regulatory issues and significant pharmacoeconomic concerns because the cost of developing and producing biologic therapies is typically dramatically higher than for conventional (small molecule) medications, and because many expensive biologic medications are used for ongoing treatment of chronic diseases, such as rheumatoid arthritis or inflammatory bowel disease, or for the treatment of previously untreatable cancer. Significant investments in biologics infrastructure and manufacturing are necessary to produce biologic products, as are significant investments in marketing, distribution, and sales organization activities, which may limit the number of biosimilar competitors.potency, and in vitro characterization.potency. The types of data that could ordinarily be required in an application to show similarity may include analytical data and studies to demonstrate chemical similarity, animal studies (including toxicity studies), and clinical studies. The law also requires that the biosimilar must be for a condition of use approved for the original biologic and that the manufacturing facility meets the standards necessary to assure that the biosimilar is safe, pure and potent.is only beginningcontinues to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning will likely beremains subject to substantial uncertainty for years to come.8 |2015 Form 10-K |2017 Form 10-K 5 |2017 Form 10-K three sequential phases, although the phases may overlap or be combined. If the required clinical testing is successful, the results are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. The FDA reviews an NDA or BLA to determine whether a product is safe and effective for its intended use and whether its manufacturing is compliant with current Good Manufacturing Practices (cGMP).Agency.Agency (EMA). After the agency evaluates the application, it makes a recommendation to the European Commission, which then makes the final determination on whether to approve the application. The decentralized procedure provides for mutual recognition of individual national approval decisions and is available for products that are not subject to the centralized procedure. 72015 Form 10-K | 9payorspayers and providers, which have instituted various cost reduction and containment measures. AbbVie expects insurers and providers to continue attempts to reduce the cost of health care products. Outside the United States, many countries control the price of health care products directly or indirectly, through reimbursement, payment, pricing, coverage limitations, or compulsory licensing. Budgetary pressures in the United States and in other countries may also heighten the scope and severity of pricing pressures on AbbVie's products for the foreseeable future.10 |2015 Form 10-K |2017 Form 10-Krecently been reduced in the hospital outpatient setting. Medicare enters into contracts with private plans to negotiate prices for most patient-administered medicine delivered under Part D. In March 2010, Congress enacted. Under the Affordable Care Act,, AbbVie pays a fee related to its pharmaceuticals sales to government programs. Also in 2011,In addition, AbbVie began providingprovides a discount of 50 percent50% for branded prescription drugs sold to patients who fall into the Medicare Part D coverage gap, or "donut hole."starting in 2012 to record any transfers of value to physicians and teaching hospitals and to report this data beginning in 2013 to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted on the state level in the United States, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring disclosure of interactions with health care professionals. Failure to report appropriate data may result in civil or criminal fines and/or penalties.20162018 at all government levels worldwide over the marketing, availability, method of delivery and payment for health care products and services. AbbVie believes that future legislation and regulation in the markets it serves could affect access to health care products and services, increase rebates, reduce prices or the rate of price increases for health care products and services, change health care delivery systems, create new fees and obligations for the pharmaceuticals industry, or require additional reporting and disclosure. It is not possible to predict the extent to which AbbVie or the health care industry in general might be affected by the matters discussed above.2015 Form 10-K | 11 928,00029,000 persons as of January 31, 2016.2018. Outside the United States, some of AbbVie's employees are represented by unions or works councils. AbbVie believes that it has good relations with its employees.12 |2015 Form 10-KITEM 1A. RISK FACTORSthreetwo groups: risks related to AbbVie's business risks related to AbbVie's separation from Abbott, and risks related to AbbVie's common stock. Based on the information currently known to it, AbbVie believes that the following information identifies the most significant risk factors affecting it in each of these categories of risks. However, the risks and uncertainties AbbVie faces are not limited to those set forth in the risk factors described below and may not be in order of importance or probability of occurrence. Additional risks and uncertainties not presently known to AbbVie or that AbbVie currently believes to be immaterial may also adversely affect its business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. |2017 Form 10-K$14.0$18.4 billion in 2015, is expected to expire2017, expired in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in October 2018. Because HUMIRA is a biologic and biologics cannot be readily substituted, it is uncertain what impact the loss of patent protection would have on the sales of HUMIRA.
AbbVie's major products could lose patent protection earlier than expected, which could adversely affect AbbVie's future revenues and operating earnings.2015 Form 10-K | 13
A third party's intellectual property may prevent AbbVie from selling its products or have a material adverse effect on AbbVie's future profitability and financial condition. 11
Any significant event that adversely affects HUMIRA revenues could have a material and negative impact on AbbVie's results of operations and cash flows.61 percent65% of AbbVie's total net revenues in 2015.2017. Any significant event that adversely affects HUMIRA's revenues could have a material adverse impact on AbbVie's results of operations and cash flows. These events could include loss of patent protection for HUMIRA, the approvalcommercialization of biosimilars of HUMIRA, the discovery of previously unknown side effects or impaired efficacy, increased competition from the introduction of new, more effective or less expensive treatments and discontinuation or removal from the market of HUMIRA for any reason.
AbbVie's research and development efforts may not succeed in developing and marketing commercially successful products and technologies, which may cause its revenues and profitability to decline.14 |2015 Form 10-K
A portion of AbbVie's near-term pharmaceutical pipeline relies on collaborations with third parties, which may adversely affect the development and sale of its products.Biogen to develop a treatment for the relapsing remitting form of multiple sclerosis. It is also collaborating with Roche Holding AG to discover, develop and commercialize a next-generation Bcl-2 inhibitor, ABT-199Venclexta (venetoclax), for patients with relapsed/refractory chronic lymphocytic leukemia. |2017 Form 10-K
Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.2015 Form 10-K | 15
AbbVie's biologic products may becomeare subject to competition from biosimilars.was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law createdcreates a framework for the approval of biosimilars in the United States and could allow competitors to reference data from biologic products already approved. In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In addition, companies are developing biosimilars in other countries that could compete with AbbVie'sAbbVie’s biologic products. For example, Amgen has submitted a marketing authorization application to the European Medicines Agency for a biosimilar of HUMIRA and the United States FDA has accepted for review Amgen's application for a HUMIRA biosimilar. IfAs competitors are able to obtain marketing approval for biosimilars referencing AbbVie'sAbbVie’s biologic products, AbbVie'sAbbVie’s products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Expiration or successful challenge of AbbVie'sAbbVie’s applicable patent rights could also trigger competition from other products, assuming any relevant exclusivity period has expired. As a result, AbbVie could face more litigation and administrative proceedings with respect to the validity and/or scope of patents relating to its biologic products.
New products and technological advances by AbbVie's competitors may negatively affect AbbVie's results of operations.a number of anti-TNF products that are approved forand other competitive products intended to treat a number of disease states and AbbVie'sAbbVie’s virology products compete with protease inhibitors and other anti-HIV treatments.available hepatitis C treatment options. These competitors may introduce new products or develop technological advances that compete with AbbVie'sAbbVie’s products in therapeutic areas such as immunology, virology/liver disease, oncology dyslipidemia, and neuroscience. AbbVie cannot predict with certainty the timing or impact of the introduction by competitors of new products or technological advances. Such competing products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than AbbVie'sAbbVie’s products, and this could negatively impact AbbVie'sAbbVie’s business and results of operations.
The manufacture of many of AbbVie's products is a highly exacting and complex process, and if AbbVie or one of its suppliers encounters problems manufacturing AbbVie's products, AbbVie's business could suffer.16 |2015 Form 10-K 13
AbbVie uses a number of products in its pharmaceutical and biologic manufacturing processes that are sourced from single suppliers, and an interruption in the supply of those products could adversely affect AbbVie's business and results of operations.
Significant safety or efficacy issues could arise for AbbVie's products, which could have a material adverse effect on AbbVie's revenues and financial condition.
AbbVie is subject to product liability claims and lawsuits that may adversely affect its business and results of operations.2015 Form 10-K | 17
AbbVie is subject to cost-containment efforts and pricing pressures that could cause a reduction in future revenues and operating earnings, and changes in the terms of rebate and chargeback programs, which are common in the pharmaceuticals industry, could have a material adverse effect on AbbVie's operations. |2017 Form 10-K
AbbVie is subject to numerous governmental regulations, and it can be costly to comply with these regulations and to develop compliant products and processes.18 |2015 Form 10-K
Laws and regulations affecting government benefit programs could impose new obligations on AbbVie, require it to change its business practices, and restrict its operations in the future.
AbbVie could be subject to increased monetary penalties and/or other sanctions, including exclusion from federal health care programs, if it fails to comply with the terms of the May 7, 2012 resolution of the Department of Justice's investigation into sales and marketing activities for Depakote. 15
The international nature of AbbVie's business subjects it to additional business risks that may cause its revenue and profitability to decline.41 percent35% of AbbVie's total net revenues in 2015.2017. The risks associated with AbbVie's operations outside the United States include:•••••••••••• AbbVie's ability to realize the anticipated benefits of its merger with Pharmacyclics will depend on its ability to effectively and profitably commercialize IMBRUVICA® (ibrutinib). The anticipated benefits of AbbVie's merger with Pharmacyclics will depend on AbbVie's ability to:
If AbbVie does not effectively and profitably commercialize IMBRUVICA, including AbbVie's ability to createrevenues and meetfinancial condition could be adversely affected.demand, achievedemand; achieving market acceptance and generategenerating product sales; ensureensuring that the active pharmaceutical ingredient for IMBRUVICA and the finished product are manufactured in sufficient quantities and in compliance with requirements of the FDA and similar foreign regulatory agencies and with acceptable quality and pricing to meet commercial demand; and ensureensuring that the entire supply chain efficiently and consistently delivers IMBRUVICA to AbbVie's customers. The commercialization of |2017 Form 10-K
AbbVie may acquire other businesses, license rights to technologies or products, form alliances, or dispose of assets, which could cause it to incur significant expenses and could negatively affect profitability.20 |2015 Form 10-K
AbbVie is dependent on wholesale distributors for distribution of its products in the United States and, accordingly, its results of operations could be adversely affected if they encounter financial difficulties.2015,2017, three wholesale distributors—AmerisourceBergendistributors (McKesson Corporation, Cardinal Health, Inc. and McKesson Corporation—AmerisourceBergen Corporation) accounted for substantially all of AbbVie's net revenuessales in the United States. If one of its significant wholesale distributors encounters financial or other difficulties, such distributor may decrease the amount of business that it does with AbbVie, and AbbVie may be unable to collect all the amounts that the distributor owes it on a timely basis or at all, which could negatively impact AbbVie's business and results of operations.
AbbVie has debt obligations that could adversely affect its business and its ability to meet its obligations.
AbbVie may need additional financing in the future to meet its capital needs or to make opportunistic acquisitions, and such financing may not be available on favorable terms, if at all. 17
AbbVie depends on information technology and a failure of those systems could adversely affect AbbVie's business.2015 Form 10-K | 21
Other factors can have a material adverse effect on AbbVie's profitability and financial condition.••••••
AbbVie cannot guarantee the timing, amount, or payment of dividends on its common stock.
An AbbVie stockholder's percentage of ownership in AbbVie may be diluted in the future. |2017 Form 10-K22 |2015 Form 10-K
Certain provisions in AbbVie's amended and restated certificate of incorporation and amended and restated by-laws, and of Delaware law, may prevent or delay an acquisition of AbbVie, which could decrease the trading price of AbbVie's common stock.•••••80 percent80% of AbbVie's voting stock is required to amend certain provisions in AbbVie's amended and restated certificate of incorporation and AbbVie's amended and restated by-laws relating to the number, term and election of AbbVie's directors, the filling of board vacancies, the calling of special meetings of stockholders and director and officer indemnification provisions.15 percent15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15 percent15% of the corporation's outstanding voting stock.20152017 Form 10-K | 19 23 None.ITEM 2. PROPERTIESprincipal manufacturing plantsfacilities are in the following locations:United States Outside the United States Abbott Park, Illinois* Campoverde di Aprilia, Italy Barceloneta, Puerto Rico Cork, Ireland Jayuya, Puerto Rico Ludwigshafen, Germany North Chicago, Illinois Singapore* Worcester, Massachusetts* Sligo, Ireland Worcester, Massachusetts * Leased property. *Leased property. in the United States and worldwide. AbbVie believes its facilities are suitable and provide adequate production capacity. four research and development facilities in the United States located at: Abbott Park, Illinois; North Chicago, Illinois; Redwood City, California; South San Francisco, California; Sunnyvale, California; Cambridge, Massachusetts; and Worcester, Massachusetts. Outside the United States, AbbVie's principal research and development facilities are located in Ludwigshafen, Germany. Except as noted, the principal plants in the United States listed above are owned by AbbVie or subsidiaries of AbbVie. The remaining manufacturing plants and all other facilities are owned or leased by AbbVie or subsidiaries of AbbVie.24 |2015 Form 10-K |2017 Form 10-KITEM 3. LEGAL PROCEEDINGSentitled "Legal Proceedings and Contingencies" ofto the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data," and is incorporated by reference herein.ITEM 4. MINE SAFETY DISCLOSURES20152017 Form 10-K | 21 25Name AgePosition Age Position 6264 5355 4850 4345 5254 * 5052 4951 5254 ThomasRobert A. Hurwich 5547 * Mr. Gosebruch was first appointed as a corporate officer in December 2015; Dr. Severino was first appointed as a corporate officer in June 2014; and Mr. Michael was first appointed as a corporate officer in December 2015. *First appointed as a corporate officer in December 2015.**First appointed as a corporate officer in June 2014.AbbVie'sthe Chairman of the Board and Chief Executive Officer.Officer of AbbVie. He served as Abbott'sAbbott’s Executive Vice President of the Pharmaceutical Products Group from July 2010 to December 2012, and was responsible for Abbott'sAbbott’s worldwide pharmaceutical business, including commercial operations, research and development, and manufacturing. He has also served as President, Abbott Ventures Inc., Abbott'sAbbott’s medical technology investment arm, from 2009 to 2011. Mr. Gonzalez joined Abbott in 1977 and held various management positions before briefly retiring in 2007, including Abbott'sincluding: Abbott’s President and Chief Operating Officer,Officer; President, Chief Operating Officer of Abbott'sAbbott’s Medical Products Group,Group; Senior Vice President and President of Abbott'sAbbott’s former Hospital Products Division (now Hospira, Inc.),Division; Vice President and President of Abbott'sAbbott’s Health Systems Division,Division; and Divisional Vice President and General Manager for Abbott'sAbbott’s Diagnostics Operations in the United States and Canada.allAbbVie's legal functions and biotherapeutics strategy.functions. Prior to AbbVie's separation from Abbott, Ms. Schumacher served as Executive Vice President, General Counsel and Corporate Secretary from 2007 to 2012, and as Senior Vice President, Corporate Secretary and General Counsel from 2005 to 2007. Both at Abbott and AbbVie, Ms. Schumacher26 |2015 Form 10-K |2017 Form 10-KHurwich is AbbVie's Vice President, Controller. He served as Abbott's Vice President, Internal Audit from 2009 to 2012, and as DivisionalMichael has been Vice President, Controller, since March 1, 2017. He became an AbbVie officer in 2015 and served as AbbVie’s Vice President, Treasurer from 2015 to 2016, as Vice President, Controller, Commercial Operations from 2013 to 2015 and Vice President, Financial Planning and Analysis from 2012 to 2013. At Abbott, DiagnosticsMr. Michael served as Division Controller, Nutrition Supply Chain from 20032010 to 2009.2012. Mr. HurwichMichael joined Abbott in 1983.20152017 Form 10-K | 23 27ITEM 5. MARKET FOR REGISTRANT's COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Outside the United States, AbbVie's common stock is listed on NYSE Euronext Paris and the SIX Swiss Exchange. Market Price Per Share 2015 2014 Market Price Per Share high low high low 2017 2016 High Low High Low $ 68.29 $ 54.78 $ 54.73 $ 46.42 $66.79 $59.27 $59.81 $50.71 $ 70.75 $ 56.33 $ 56.90 $ 45.50 $73.67 $63.12 $65.37 $56.36 $ 71.60 $ 51.88 $ 60.02 $ 51.37 $90.95 $69.38 $68.12 $61.77 $ 64.30 $ 45.45 $ 70.76 $ 52.06 $99.10 $85.24 $65.05 $55.06 53,65350,095 stockholders of record of AbbVie common stock as of January 31, 2016. Fourwere paid on common stock in 2015declared for the years ended December 31, 2017 and 2014. The first quarter 2015 cash dividend of $0.49 per share was payable February 13, 2015 and the second, third and fourth quarter 2015 dividends of $0.51 per share were payable May 15, 2015, August 14, 2015 and November 16, 2015, respectively. The first quarter 2014 cash dividend of $0.40 per share was payable February 14, 2014 and the second, third and fourth quarter 2014 dividends of $0.42 per share were payable May 15, 2014, August 15, 2014 and November 17, 2014, respectively.2017 2016 Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share 10/27/17 02/15/18 $0.71 10/28/16 02/15/17 $0.64 09/08/17 11/15/17 $0.64 09/09/16 11/15/16 $0.57 06/22/17 08/15/17 $0.64 06/16/16 08/15/16 $0.57 02/16/17 05/15/17 $0.64 02/18/16 05/16/16 $0.57 30, 2015,27, 2017, AbbVie's board of directors declared an increase in the quarterly cash dividend from $0.51$0.64 per share to $0.57$0.71 per share, payable on February 16, 201615, 2018 to stockholders of record as of January 15, 2016.12, 2018. The timing, declaration, amount of and payment of any dividends by AbbVie in the future is within the discretion of its board of directors and will depend upon many factors, including AbbVie's financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of AbbVie's debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by its board of directors. Moreover, if AbbVie determines to pay any dividend in the future, there can be no assurance that it will continue to pay such dividends or the amount of such dividends.2015.2017. This graph assumes $100 was invested in AbbVie common stock and each index on January 2, 2013 and also assumes the reinvestment of dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.28 24 |20152017 Form 10-KCOMPARISON OF CUMULATIVE TOTAL RETURN
ourAbbVie's filings under the Securities Act of 1933, as amended.Period (a) Total
Number
of Shares
(or Units)
Purchased (b) Average
Price Paid
per Share
(or Unit) (c) Total
Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced
Plans or
Programs (d) Maximum Number (or
Approximate Dollar Value) of
Shares (or Units) that May
Yet Be Purchased Under the
Plans or Programs 1,949 (1) $ 38.02 — $ 3,450,133,355 (2) 10,423,835 (1) $ 61.75 10,418,732 $ 2,806,648,800 (2) 15,129,432 (1) $ 58.26 15,088,646 $ 1,927,160,135 (2) 25,555,216 (1) $ 59.68 25,507,378 $ 1,927,160,135 (2) Period October 1, 2017 - October 31, 2017 8,469 $ 94.35 — $ 4,536,288,945 November 1, 2017 - November 30, 2017 5,279,237 $ 94.76 5,276,274 $ 4,036,289,077 December 1, 2017 - December 31, 2017 20,588 $ 97.85 — $ 4,036,289,077 Total 5,308,294 94.77 5,276,274 $ 4,036,289,077 1.1. In addition to AbbVie shares repurchased on the open market under a publicly announced program, if any, these shares included the shares deemed surrendered to AbbVie to pay the exercise price in connection with the exercise of employee stock options – 4,552 in October; 1,855 in November; and 5,368 in December, with average exercise prices of $95.96 in October; $93.36 in November; and $97.33 in December. repurchased on the open market under a publicly announced program, these shares include the following:(i)the shares deemed surrendered to AbbVie to pay the exercise price in connection with the exercise of employee stock options—1,949 in October; 5,103 in November; and 18,615 in December; and(ii)Plan—0Plan – 3,917 in October; 01,108 in November; and 22,17115,220 in December.2. 25restricted stock or restricted stock units. stock-based awards.October 20, 2014, AbbVie announced that itsFebruary 15, 2018, AbbVie's board of directors authorized the purchase of up to $5.0a new $10.0 billion of its common stock. Purchasesstock repurchase program, which superseded AbbVie's previous stock repurchase program. The new stock repurchase program permits purchases of AbbVie shares under this program may be made from time to time in open-market or private transactions, including accelerated share repurchases, at management'smanagement’s discretion. The program has no time limit and can be discontinued at any time.2015 Form 10-K | 29 |2017 Form 10-KITEM 6. SELECTED FINANCIAL DATA The following table sets forth AbbVie's selected financial information derived from its (i) audited consolidated financial statements as of and for the years ended December 31, 2015, 2014 and 2013; and (ii) audited combined financial statements as of and for the years ended December 31, 2012 and 2011. The historical financial statements for periods prior to January 1, 2013 were prepared on a stand-alone basis and were derived from Abbott's consolidated financial statements and accounting records as if the former research-based pharmaceutical business of Abbott had been part of AbbVie for all periods presented. Accordingly, AbbVie's financial statements for periods prior to January 1, 2013 are presented on a combined basis and reflect AbbVie's financial position, results of operations and cash flows as its business was operated as part of Abbott prior to the separation, in conformity with generally accepted accounting principles (GAAP) in the United States.as of and for the years ended December 31
(in millions, except per share data) 2015 2014 2013 2012 2011 $ 22,859 $ 19,960 $ 18,790 $ 18,380 $ 17,444 $ 5,144 $ 1,774 $ 4,128 $ 5,275 $ 3,433 $ 3.15 $ 1.11 $ 2.58 $ 3.35 $ 2.18 $ 3.13 $ 1.10 $ 2.56 $ 3.35 $ 2.18 $ 2.10 $ 1.75 $ 2.00 (c) n/a n/a 1,625 1,595 1,589 1,577 1,577 1,637 1,610 1,604 1,577 1,577 $ 53,050 $ 27,513 $ 29,241 $ 27,058 $ 19,521 $ 31,265 $ 14,552 $ 14,353 $ 14,702 $ 48 n/a—Not applicable.(a)AbbVie's historical financial statements for periods prior to January 1, 2013 reflected an allocation of expenses related to certain Abbott corporate functions, including senior management, legal, human resources, finance, information technology, and quality assurance. These expenses were allocated to AbbVie based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. AbbVie considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expenses that would have been incurred had AbbVie operated as an independent, stand-alone, publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to January 1, 2013 may not be indicative of the results of operations or financial position that would have been achieved if AbbVie had been an independent, stand-alone, publicly-traded company during the periods shown or of AbbVie's performance for periods subsequent to December 31, 2012.(b)Results for 2015, 2014 and 2013 included higher expenses associated with operating as an independent, stand-alone, publicly-traded company than the historically derived financial statements for periods prior to January 1, 2013. The increases include the impact of interest expense on debt issued in November 2012, a higher tax rate and other incremental costs of operating as an independent company. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" for a discussion of other items that affected the comparability of financial results for 2015, 2014 and 2013.30 |2015 Form 10-K(c)AbbVie declared regular quarterly cash dividends in 2013 aggregating $1.60 per share of common stock. In addition, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings on January 4, 2013 and was recorded as a reduction of additional paid-in capital.(d)On January 1, 2013, Abbott distributed 1,577 million shares of AbbVie common stock to shareholders of Abbott common stock. For periods prior to the separation, the weighted-average basic and diluted shares outstanding were based on the number of shares of AbbVie common stock outstanding on the distribution date. Refer to Note 4 to the audited consolidated financial statements included under Item 8, "Financial Statements and Supplementary Data" for information regarding the calculation of basic and diluted earnings per common share for 2015, 2014 and 2013.(e)On May 26, 2015, AbbVie acquired Pharmacyclics, Inc. for approximately $20.8 billion, including cash consideration of $12.4 billion and equity consideration of approximately 128 million shares of AbbVie common stock valued at $8.4 billion. In connection with the acquisition, AbbVie issued $16.7 billion aggregate principal amount of unsecured senior notes, of which approximately $11.5 billion were used to finance the acquisition of Pharmacyclics Inc. and approximately $5.0 billion were used to finance an accelerated share repurchase agreement. Refer to Notes 5, 9 and 12 to the audited consolidated financial statements included under Item 8, "Financial Statements and Supplementary Data" for information regarding the acquisition of Pharmacyclics, Inc., the senior notes and the accelerated share repurchase program, respectively.(f)Also includes current portion of long-term debt and lease obligations.2015 Form 10-K | 31as of and for the years ended December 31 (in millions, except per share data) 2017 2016 2015 2014 2013 Statement of earnings data Net revenues $ 28,216 $ 25,638 $ 22,859 $ 19,960 $ 18,790 Net earnings 5,309 5,953 5,144 1,774 4,128 Basic earnings per share $ 3.31 $ 3.65 $ 3.15 $ 1.11 $ 2.58 Diluted earnings per share $ 3.30 $ 3.63 $ 3.13 $ 1.10 $ 2.56 Cash dividends declared per common share $ 2.63 $ 2.35 $ 2.10 $ 1.75 $ 2.00 Weighted-average basic shares outstanding 1,596 1,622 1,625 1,595 1,589 Weighted-average diluted shares outstanding 1,603 1,631 1,637 1,610 1,604 Balance sheet data $ 70,786 $ 66,099 $ 53,050 $ 27,513 $ 29,241 36,968 36,465 31,265 14,552 14,353 (a) AbbVie declared regular quarterly cash dividends in 2013 aggregating $1.60 per share of common stock. In addition, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings on January 4, 2013 and was recorded as a reduction of additional paid-in capital. (b) (c) (d) Includes current portion of both long-term debt and lease obligations. 27ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS20152017 and 20142016 and results of operations for each of the three years in the period ended December 31, 2015.2017. This commentary should be read in conjunction with the consolidated financial statements and accompanying notes appearing in Item 8, "Financial Statements and Supplementary Data."disease;disease and multiple sclerosis; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; as well as other serious health conditions. AbbVie also has a pipeline of promising new medicines across such important medical specialties as immunology, virology/liver disease, oncology and neurology, with additional targeted investment in cystic fibrosis and women's health.28,00029,000 employees. AbbVie operates in one business segment—pharmaceutical products. On May 26, 2015, AbbVie completed its acquisition of Pharmacyclics, Inc. (Pharmacyclics), a biopharmaceutical company that develops and commercializes novel therapies for people impacted by cancer, and its flagship asset IMBRUVICA® (ibrutinib), a novel, orally active, selective covalent inhibitor of Bruton's Tyrosine Kinase (BTK). As part of a worldwide collaboration and license agreement with Janssen Biotech, Inc., one of the Janssen Pharmaceutical companies of Johnson & Johnson (Janssen), IMBRUVICA is approved for use in the United States, Canada, and the European Union (EU) as well as in other countries worldwide. In the United States, AbbVie co-markets IMBRUVICA for four indications approved by the U.S. Food and Drug Administration (FDA) prior to the acquisition date: (i) for the treatment of patients with mantle cell lymphoma (MCL) who have received at least one prior therapy; (ii) for the treatment of patients with chronic lymphocytic leukemia (CLL) who have received at least one prior therapy; (iii) for the treatment of CLL patients with deletion of the short arm chromosome 17 (del 17p CLL); and (iv) for the treatment of patients with Waldenstrom's macroglobulinemia. In the EU, Janssen markets IMBRUVICA. At the date of the acquisition, IMBRUVICA was indicated in the EU for the treatment of adult patients with relapsed or refractory MCL, or adult patients with CLL who have received at least one prior therapy, or in first-line in the presence of 17p deletion or TP53 mutation in patients unsuitable for chemoimmunotherapy. The acquisition will accelerate AbbVie's clinical and commercial presence in oncology, strengthen its pipeline, and establish a leadership position in hematological oncology. The acquisition will also accelerate AbbVie's revenue and earnings growth and further diversify its revenue base. AbbVie expects the acquisition to be accretive to earnings beginning in 2017. Refer to Note 5 entitled "Licensing, Acquisitions and Other Arrangements" of the Notes to Condensed ConsolidatedStatements included under32 |2015 Form 10-KPart II, Item 8, "Financial Statements and Supplementary Data" for further information regarding the acquisition of Pharmacyclics.2015 Financial ResultsIn 2015, AbbVie'sThe company's financial performance in 2017 included delivering worldwide net revenues of $28.2 billion, operating earnings of $9.6 billion and diluted earnings per share of $3.30. Worldwide net revenues grew by 15 percent to $22.9 billion,10% on a constant currency basis, driven primarily by the continued strength of HUMIRA, both in the United States and internationally, the global launch of AbbVie's interferon-free HCV treatment, revenue growth inrelated to IMBRUVICA and other key products including Creon and Duodopa and post-acquisition revenues related to IMBRUVICA.the launch of HCV product MAVYRET. These increases were partially offset by a decline in net revenues of AndroGel, principallyHCV product VIEKIRA.continued market declinesthe remeasurement of net deferred tax liabilities and the entry of generic competition for the AndroGel 1% formulation, as well as the continued decline of the company's lipid franchise, and the unfavorable impact of foreign exchange. The company's financial performance in 2015 included delivering fullyother related impacts.of $3.13, including after-tax costs totaling $410included the following: (i) $809 million incurred in connection with the acquisition and integration of Pharmacyclics, a $350 million after-tax charge for the purchase of a rare pediatric disease priority review voucher (PRV) from United Therapeutics Corporation, a $100 million after-tax charge as a result of entering into an exclusive worldwide license agreement with C2N Diagnostics (C2N), after-tax foreign exchange losses of $170 million as a result of the liquidation in 2015 of remaining foreign currency positions related to the terminated proposed combination with Shire plc (Shire)amortization of intangible assets; (ii) $625 million for the change in 2014, after-taxfair value of contingent consideration liabilities; (iii) $327 million for acquired in-process research and development (IPR&D); (iv) litigation reserve charges of $129$286 million; (v) an intangible asset impairment charge of $244 million; (vi) milestone payments of $143 million; and (vii) acquisition related costs of $49 million. These costs were partially offset by an after-tax benefit of $91 million to increase the company's litigation reserves, and an $83 million after-tax charge due to the achievement of a development milestone under the global collaboration with Infinity Pharmaceuticals, Inc. (Infinity). Refer to Note 5 for further information regarding these items. AbbVie'stax audit settlement. 2017 financial performance in 2015 also reflected an improvement in gross margin to 80 percent of net revenues, primarily due to favorable product mix across the product portfolio, operating efficiencies, and the impact of foreign exchange rates. Financial results for 2015 also reflected continued added funding into support of AbbVie'sAbbVie’s emerging mid-andmid- and late-stage pipeline assets and continued investment in AbbVie'sAbbVie’s growth brands, and the global launch of AbbVie's interferon-free HCV treatment, VIEKIRA PAK.2015,2017, the company generated cash flows from operations of $7.5 billion. These cash flows enabled the company$10.0 billion, which AbbVie utilized to pay cash dividends to shareholders of $3.3 billion, repurchase approximately 46 million shares for $2.8 billion in the open market (excluding the shares repurchased under an accelerated repurchase agreement), and continue to enhance its pipeline through licensing and collaboration activities, including a $500 million paymentpay cash dividends to Calico Life Sciences LLC (Calico) as a resultstockholders of the satisfaction of certain conditions under the research$4.1 billion and development (R&D) collaboration with Calico for which a charge to acquired in-process research and development (IPR&D) was recorded in 2014. In addition, AbbVie issued $16.7 billion aggregate principal amount of senior notes the proceeds of which were used to finance the acquisition of Pharmacyclics and a $5.0 billion accelerated share repurchase agreement (ASR) pursuant to which AbbVie paid $5.0 billion for an aggregate 73approximately 13 million shares of AbbVie's common stock.for $1.0 billion in the open market. In October 2015,2017, AbbVie's board of directors declared a quarterly cash dividend of $0.57$0.71 per share of common stock payable in February 2016.2018. This reflectsreflected an increase of approximately 12 percent11% over the previous quarterly ratedividend of $0.51$0.64 per share of common stock.2016 |2017 Form 10-Kincludingincluding: (i) growing revenues through continuedby diversifying revenue streams, driving late-stage pipeline assets to the market and ensuring strong performance from its existing portfoliocommercial execution of on-market products, including its flagship brands, HUMIRA, IMBRUVICA and VIEKIRA PAK, as well as growth from pipeline products;new product launches; (ii) expanding gross and operating margins; (iii) continued investment and expansion in its pipeline2015 Form 10-K | 33virology,neurology as well as continued investment in key on-market products; (iv) augmentation of its pipeline through concerted focus on strategic licensing, acquisition(iii) expanding operating margins; and partnering activity with a focus on identifying compelling programs that fit AbbVie's strategic criteria; and (v)(iv) returning cash to shareholders via dividends and share repurchases. In addition, AbbVie anticipates several regulatory submissions and key data readouts from key clinical trials in 2016.revenue growthstrategic objectives as follows:•increasingmaintaining market leadership strong commercial execution and expansion to new indications for hidradenitis suppurativa (regulatory approval in the United States and EU achieved in 2015) and uveitis (regulatory submissions in the United States and the EU are under review with approval expected in 2016).•withinwith its foureight currently approved indications as well as indication expansionin six different disease areas.IMBRUVICA as a first-line therapy for CLL (currently under priority review by the FDA). Revenues for 2016 will also benefit from a full year of IMBRUVICA revenue.•VIEKIRA PAK revenue growth driven by continued uptake across geographies,new product launches, including Japan, the second largest HCV market globally, as well as indication expansion for a once-daily, fixed-dosed formulation of VIEKIRA PAK to treat genotype 1 (GT1) HCV (currently under review).MAVYRET.•20152017 or currently under regulatory review where approval is expected in 2016 including venetoclax, Empliciti (elotuzumab), and ZINBRYTA (daclizumab).2018. These pipeline products are described in greater detail in the section labeled "Research and Development" included as part of this Item 7. In 2016, 7. gross and operating margins and expects to achieve this objective through continued leverage from revenue growth, the reduction of HUMIRA royalty expense, productivity initiatives in supply chain and ongoing efficiency programs to optimize manufacturing, commercial infrastructure, administrative costs and general corporate expenses, and continued leverage from revenue growth. AbbVie also remains committed to returning cash to shareholders via dividends and share repurchases.atby other biotechnology or pharmaceutical companies.5060 compounds or indications in clinical development individually or under collaboration or license agreements and is focused on such important medical specialties as immunology, oncology virology/liver disease, and neurology along with targeted investments in renal disease, cystic fibrosis and women's health. Of these programs, more than 30 are in mid- and late-stage development.during 2016.34 |2015 Form 10-KClinical Programs Approved or Submittedsubmitted for review or received approval forannounced that top-line results from the following significantPhase 3 SELECT-NEXT clinical trial evaluating upadacitinib (ABT-494), the company’s selective JAK1 inhibitor currently in late-stage development programs:Immunology•FDAsafety profile of upadacitinib was consistent with previously reported Phase 2 trials and no new safety signals were detected. 29HUMIRA orphan drugbreakthrough therapy designation for upadacitinib in adult patients with moderate to severe atopic dermatitis who are candidates for systemic therapy.moderate-to-severe hidradenitis suppurativa (HS), a painful,patients with moderate to severe chronic inflammatory skin disease. AbbVie's supplemental Biological License Application (BLA) inplaque psoriasis. The safety profile was consistent with all previously reported studies, and there were no new safety signals detected across the United States and its marketing authorization in the EU were approved by the FDA and the European Medicines Agency (EMA) in 2015, respectively. Approval for this indication represents the thirteenth indication for HUMIRA in major geographies around the world.three studies.•April 2015December 2017, AbbVie announced that top-line results from the European Commission (EC) granted marketing authorization for HUMIRAPhase 3 IMMhance clinical trial evaluating risankizumab at 16 weeks and 52 weeks of treatment compared to placebo met all primary and ranked secondary endpoints for the treatment of patients with moderate to severe chronic plaque psoriasispsoriasis. The safety profile was consistent with all previously reported Phase 3 studies, and there were no new safety signals detected across the Phase 3 program.children and adolescence from four years of age who have had an inadequate responsesubjects with moderately to or are inappropriate candidatesseverely active Crohn’s disease. topical therapy and phototherapies. With the EC decision, HUMIRA is now approved for use in this indication in all member states of the EU.•AbbVie submitted regulatory applications in the United States and the EU for the use of HUMIRA in the treatment of uveitis. AbbVie expects to receive regulatorypatients with relapsed/refractory marginal zone lymphoma (MZL) who require systemic therapy and have received at least one prior anti-CD20-based therapy. This indication is approved under accelerated approval based on overall response rate (ORR) and continued approval may be contingent upon verification and description of clinical benefit in 2016.Oncology•July 2015, AbbVie announced thatAugust 2017, the EC granted marketing authorizationFDA approved IMBRUVICA for IMBRUVICA as the first treatment option specifically approved for treatment of adult patients with Waldenstrom's macroglobulinemia,chronic graft-versus-host-disease (cGVHD) after failure of one or more lines of systemic therapy. IMBRUVICA is the first therapy specifically approved for adults with cGVHD, a rare, slow growing blood cancer. Pharmacyclics received FDA approvalsevere and potentially life-threatening consequence of stem cell or bone marrow transplant. This marked the sixth U.S. disease indication for IMBRUVICA for patients with Waldenstrom's macroglobulinemiasince the medication's initial approval in January 2015. The EC approval triggered a $20 million milestone payment from Janssen.2013 and the first approved indication outside of cancer.•September 2015,December 2017, AbbVie announced that itthe Phase 3 iNNOVATE clinical trial evaluating IMBRUVICA in combination with rituximab in patients with untreated (treatment-naïve) and previously-treated Waldenström’s macroglobulinemia (WM) met its primary endpoint. This is the first and only treatment approved for newly or previously-treated patients with WM. |2017 Form 10-KSupplementalsupplemental New Drug Application (sNDA) to the FDA for IMBRUVICAVENCLEXTA (venetoclax) in combination with Rituxan in patients with relapsed or refractory CLL and in January 2018, AbbVie submitted an sNDA for treatment-naïveVENCLEXTA monotherapy in patients with CLL patients. The sNDA iswho have relapsed or are refractory to B-cell receptor inhibitors.onchemotherapy in participants with extensive stage small cell lung cancer (SCLC).3 RESONATE™-22 study which evaluated efficacyevaluating depatuxizumab mafodotin (ABT-414), an investigational, antibody drug conjugate (ADC) targeting epidermal growth factor receptor (EGFR) alone or in combination with temozolomide (TMZ) in subjects with recurrent glioblastoma multiforme (GBM). Results from the INTELLANCE-2 study failed to meet the primary endpoint of overall survival and safetyAbbVie will not be submitting regulatory applications for ABT-414 in recurrent GBM. In INTELLANCE-2, the combination of IMBRUVICA versus traditional chemotherapy, chlorambucil,ABT-414 and TMZ performed numerically better than lomustine or TMZ and a positive trend in treatment-naïve CLL patients aged 65 years or older. The application has received a priority review.•In November 2015,overall survival was observed. While AbbVie submitted a sNDA to the FDA for labeling considerationswill not file in recurrent GBM based on these data, the Phase 2/3 INTELLANCE-1 trial evaluating the safety and efficacy results from theof ABT-414 in combination with TMZ in subjects with newly diagnosed GBM with EGFR amplification is ongoing.HELIOS trial investigating the use of IMBRUVICA, bendamustine,studies evaluating veliparib, an investigational, oral poly (adenosine diphosphate-ribose) polymerase (PARP) inhibitor in combination with chemotherapy did not meet their primary endpoints. The studies evaluated veliparib in combination with carboplatin and rituximab, versus placebo plus bendamustine and rituximab,paclitaxel in patients with relapsed/refractory CLL or small lymphocytic lymphoma.squamous non-small cell lung cancer (NSCLC) and triple negative breast cancer (TNBC). Ongoing Phase 3 studies include non-squamous non-small cell lung cancer, BRCA1/2 breast cancer and ovarian cancer.•2016,2017, the FDA granted IMBRUVICA orphan drug designation for the treatment of patients with extranodal marginal zone lymphoma.•AbbVie submitted regulatory applications in the United States and the EU for venetoclax (ABT-199), an inhibitor of the B-cell lymphoma-2 (Bcl-2) protein developed in collaboration with Genentech and Roche Holding AG. Priority review status was granted by the FDA and validation provided by the EMA for these submissions. Venetoclax is also in Phase 3 development for patients with relapsed/refractory CLL. In addition, venetoclax was granted three Breakthrough Therapy Designations by the FDA: (i) for the treatment of CLL in previously treated (relapsed/refractory) patients with the 17p deletion mutation; (ii) in combination with rituximab for the treatment of patients with relapsed/refractory CLL, including patients with chromosome 17p deletion; and (iii) in combination with hypomethylating agents for the treatment of patients with untreated (treatment-naïve) acute2015 Form 10-K | 35myeloid leukemia who are ineligible to receive standard induction therapy (high-dose chemotherapy).•Registration submissions were submitted to the FDA and the EC for Empliciti (elotuzumab), a Signaling Lymphocyte Activation Molecule (SLAM7)-directed immunostimulatory antibody developed in partnership with Bristol-Myers Squibb (BMS) for first-line and relapsed/refractory multiple myeloma (MM). Subsequently, the EMA validated for review the marketing authorization application for Empliciti (elotuzumab) for the treatment of MM as combination therapy in adult patients who have received one or more prior therapies. The application was granted accelerated assessment by the EMA'sEuropean Committee for Medicinal Products for Human Use (CHMP). In addition, the FDA approved Empliciti (elotuzumab) granted a positive opinion for thea shorter, eight-week treatment of MM as a combination therapy in patients who have received one to three prior therapies. This is the first FDA approval for an immune-stimulatory antibody for MM in this indication. Empliciti will be marketed by BMS.Virology/Liver Disease•On January 16, 2015, AbbVie announced that the EC granted marketing authorizations for its all-oral, short-course, interferon-free treatment VIEKIRAX (ombitasvir/paritaprevir/ritonavir tablets) + EXVIERA (dasabuvir tablets) as an option for previously untreated adult patients with genotype 1b chronic HCV and minimal to moderate fibrosis.The treatment was approved with or without ribavirin (RBV)MAVIRET is also indicated for patients with GT1 chronic HCV infection,specific treatment challenges, including those with compensated liver cirrhosis HIV-1 co-infection,across all major genotypes, and those who previously had limited treatment options, such as patients on opioid substitution therapy and liver transplant recipients. Additionally, VIEKIRAX/EXVIERA was approved for use with RBV insevere chronic kidney disease (CKD) or those with genotype 4 (GT4)3 chronic HCV patients.infection.•AbbVie's regulatory application in Japan forcompany's all-oral, RBV and interferon-free, 12-week, two direct-acting antiviral treatment of ombitasvir/paritaprevir/ritonavir (OBV/PTV/r), dosed once daily, wasFDA approved in September 2015MAVYRET (glecaprevir/pibrentasvir) for the treatment of patients with GT1 chronic HCV infection.•In July 2015, the FDA approved AbbVie's regulatory application for TECHNIVIE (OBV/PTV/r tablets) in combinationgenotype 1-6 infection without cirrhosis and with RBVcompensated cirrhosis (Child-Pugh A). MAVYRET is also 31adults with GT4 chronic HCV infection who do not have cirrhosis. TECHNIVIE is the first and only all-oral, interferon-free, direct-acting antiviral treatment approved in the United States for adult patients with GT4 chronic HCV infection.genotype 1 infection, who previously have been treated with a regimen containing an HCV NS5A inhibitor or an NS3/4A protease inhibitor, but not both. MAVYRET/MAVIRET is an 8-week, pan-genotypic treatment for patients without cirrhosis and who are new to treatment.•regulatory application inNew Drug Application to the United StatesFDA for a once-daily, fixed-dosed formulation of VIEKIRA PAK to treat GT1 HCV. The proposed dosingelagolix, an investigational, orally administered gonadotropin-releasing hormone (GnRH) antagonist, being evaluated for the fixed-dose formulation is three oral tablets, taken once dailymanagement of endometriosis with a meal, with or without RBV.associated pain. In October, AbbVie anticipates regulatory action on the new formulation in 2016.•The FDA accepted AbbVie's sNDA andwas granted priority review for VIEKIRA PAK without RBV in patientselagolix by the FDA for the management of endometriosis with genotype 1b (GT1b) chronic HCV infection and compensated cirrhosis (Child-Pugh A).Neurology•On January 12, 2015,associated pain. In November, AbbVie announced thatdetailed results from two replicate Phase 3 extension studies evaluating the FDA approved Duopa (carbidopalong-term efficacy and levodopa), an enteral suspensionsafety of elagolix, being evaluated for the treatmentmanagement of motor fluctuations for peopleendometriosis with advanced Parkinson's disease. Duopa is administered using a small, portable infusion pump that delivers carbidopa and levodopa directly into the small intestine for 16 continuous hours via a procedurally-placed tube. This product is sold under the name Duodopa outside the United States.associated pain.•AbbVie is collaborating with Biogen to develop ZINBRYTA (daclizumab), an anti-CD25 monoclonal antibody, for the treatment of the relapsing/remitting form of multiple sclerosis (MS). February 2015, the registration submission for ZINBRYTA was made in the United States followed by the EU submission in March 2015. In March, AbbVie and Biogen announced that the EMA had validated the companies' marketing authorization application for ZINBRYTA for the treatment of relapsing forms of MS in the EU. Validation confirms that the submission is complete and signifies the initiation of the36 |2015 Form 10-Kreview process by the CHMP. In April 2015, AbbVie and Biogen announced that the FDA accepted for review the registration submission in the United States.Other Significant Developments Transitions of significant programs from Phase 2 to Phase 3 development, as well as other significant developments, included the following:Immunology•In January 2016,December 2017, AbbVie announced the commencement ofstrategic decision to close the SONAR study, a Phase 3 clinical trial program to studyevaluating the useeffects of AbbVie's once-daily formulationthe investigational compound atrasentan on progression of ABT-494, its internally developed investigational selective Janus Kinase 1 (JAK-1) inhibitor, for the treatment of rheumatoid arthritis. A Phase 2 trial of ABT-494 for the treatment of Crohn'skidney disease is also ongoing.•In 2015, AbbVie received a decision by the EC regarding compliance with its pediatric investigation plan for HUMIRA, which ensures that necessary data are obtained through studies in children. As a result of this positive decision, the company is seeking an extension from each EU member state where a supplementary protection certificate is held. Once approved, this will extend the HUMIRA composition of matter patent in the EU by six months from April 2018 to October 2018.Oncology•In July 2015, AbbVie initiated a Phase 3 study for the use of Veliparib (ABT-888), a PARP-inhibitor, for the treatment of ovarian cancer in combination with chemotherapy. Veliparib is also in Phase 3 development for various forms of breast and lung cancer.•AbbVie recently initiated its first Phase 3 clinical trial for IMBRUVICA in solid tumors. The trial will evaluate the safety and efficacy of IMBRUVICA in combination with gemcitabine and nab-paclitaxel for first-line treatment of patients with metastatic pancreatic adenocarcinoma.Virology/Liver Disease•In October 2015, in consultation with the FDA, the product inserts in the United States for VIEKIRA PAK and TECHNIVIE were updated from "not recommended in Child-Pugh B patients" to a contraindication in patients with Child-Pugh B cirrhosis. Patients classified as Child-Pugh C remained contraindicated as they have been since approval.•In January 2016, AbbVie initiated a Phase 3 clinical trial program evaluating the safetystage 2 to 4 chronic kidney disease and efficacytype 2 diabetes when added to standard of its next-generation, all-oral, once-daily, pan-genotypic, RBV-free investigational HCV regimen, which includes ABT-493, a NS3/4A protease inhibitor, and ABT-530, an NS5A inhibitor.Other•AbbVie is developing a novel oral gonadotropin-releasing hormone (GnRH) antagonist, Elagolix, under a collaboration with Neurocrine Biosciences (Neurocrine) for the treatmentcare. The ongoing monitoring of endometriosis-related pain and uterine fibroids. In January 2016, AbbVie announced the initiation of the first of two planned Phase 3 studies evaluating the safety and efficacy of Elagolixrenal events observed in the treatmentstudy revealed considerably fewer endpoints than expected at the time of analysis, which will likely affect the ability to test the SONAR study hypothesis. Therefore, AbbVie determined that it cannot justify continuing the participation of patients with uterine fibroids. AbbVie will make a milestone payment of $15 millionin the study. The decision to Neurocrine upon enrollment ofclose the first patient. Elagolix is in late-stage development for endometriosis.•In 2012, AbbVie entered into a collaboration with Galapagos NV (Galapagos)SONAR study early was not related to develop filgotinib, an oral JAK1 inhibitor. In 2015, following a thorough review of available data, AbbVie announced that it will not exercise its right to in-license filgotinib from Galapagos. Pursuant to the terms of the global collaboration agreement with Galapagos, all rights to filgotinib reverted solely to Galapagos.2015 Form 10-K | 37
any safety concerns. In 2015, AbbVie also augmented its pipeline through strategic licensing and partnering activities including in-licensing an anti-tau antibody (ABBV-8E12) for the treatment of Alzheimer's disease and other neurological disorders from C2N, a privately held protein diagnostic and therapeutic discovery company. Refer to Note 5 of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" for further information regarding the license agreement with C2N.period.periods. AbbVie believes that the non-GAAP measure of change in net revenues at constant currency rates, when used in conjunction with the GAAP measure of change in net revenues at actual currency rates, may provide a more complete understanding of the company's operations and can facilitate analysis of the company's results of operations, particularly in evaluating performance from one period to another. Percent change At actual
currency
rates At constant
currency
rates for the years ended (in millions) 2015 2014 2013 2015 2014 2015 2014 $ 13,561 $ 10,845 $ 10,181 25 % 7 % 25 % 7 % 9,298 9,115 8,609 2 % 6 % 18 % 9 % $ 22,859 $ 19,960 $ 18,790 15 % 6 % 22 % 8 % Percent change At actual currency rates At constant currency rates for the years ended (dollars in millions) 2017 2016 2015 2017 2016 2017 2016 United States $ 18,251 $ 15,947 $ 13,561 14.4 % 17.6 % 14.4 % 17.6 % International 9,965 9,691 9,298 2.8 % 4.2 % 2.1 % 7.3 % Net revenues $ 28,216 $ 25,638 $ 22,859 10.1 % 12.2 % 9.8 % 13.5 % 38 32 |20152017 Form 10-K Percent change At actual
currency
rates At constant
currency
rates Percent change years ended December 31 (in millions) 2015 2014 2013 2015 2014 2015 2014 At actual currency rates At constant currency rates 2017 2016 2015 2017 2016 2017 2016 $ 8,405 $ 6,524 $ 5,236 29 % 25 % 29 % 25 % $ 12,361 $ 10,432 $ 8,405 18.5 % 24.1 % 18.5 % 24.1 % 5,607 6,019 5,423 (7 )% 11 % 9 % 13 % 6,066 5,646 5,607 7.4 % 0.7 % 6.7 % 4.3 % $ 14,012 $ 12,543 $ 10,659 12 % 18 % 19 % 19 % $ 18,427 $ 16,078 $ 14,012 14.6 % 14.7 % 14.4 % 16.1 % $ 659 $ — $ — n/a n/a n/a n/a $ 2,144 $ 1,580 $ 659 35.8 % >100.0 % 35.8 % >100.0 % 95 — — n/a n/a n/a n/a 429 252 95 70.0 % >100.0 % 70.0 % >100.0 % $ 754 $ — $ — n/a n/a n/a n/a $ 2,573 $ 1,832 $ 754 40.5 % >100.0 % 40.5 % >100.0 % HCV $ 804 $ 48 $ — n/m 100 % n/m 100 % $ 338 $ 342 $ 804 (1.4 )% (57.4 )% (1.4 )% (57.4 )% 835 — — n/a n/a n/a n/a 936 1,180 835 (20.6 )% 41.3 % (20.5 )% 42.7 % $ 1,639 $ 48 $ — n/m 100 % n/m 100 % $ 1,274 $ 1,522 $ 1,639 (16.3 )% (7.1 )% (16.2 )% (6.4 )% $ 632 $ 516 $ 412 22 % 25 % 22 % 25 % �� $ 740 $ 835 $ 827 (11 )% 1 % 1 % 9 % $ 653 $ 580 $ 566 13 % 3 % 13 % 3 % $ 669 $ 663 $ 653 0.8 % 1.5 % 0.8 % 1.5 % 173 198 219 (13 )% (10 )% — % (5 )% 160 158 173 1.4 % (8.5 )% 0.5 % (5.2 )% $ 826 $ 778 $ 785 6 % (1 )% 9 % — % $ 829 $ 821 $ 826 0.9 % (0.6 )% 0.7 % 0.1 % Creon United States $ 831 $ 730 $ 632 13.9 % 15.5 % 13.9 % 15.5 % Synagis International $ 738 $ 730 $ 740 1.2 % (1.5 )% 0.6 % (0.4 )% $ 755 $ 709 $ 622 6 % 14 % 6 % 14 % $ 781 $ 763 $ 755 2.3 % 1.1 % 2.3 % 1.1 % AndroGel United States $ 577 $ 675 $ 694 (14.5 )% (2.8 )% (14.5 )% (2.8 )% $ 163 $ 213 $ 244 (24 )% (13 )% (24 )% (13 )% $ 71 $ 116 $ 163 (38.6 )% (28.8 )% (38.6 )% (28.8 )% 537 657 718 (18 )% (9 )% (5 )% (5 )% 352 433 537 (18.8 )% (19.3 )% (21.1 )% (13.3 )% $ 700 $ 870 $ 962 (20 )% (10 )% (10 )% (7 )% $ 423 $ 549 $ 700 (22.9 )% (21.5 )% (24.7 )% (16.9 )% $ 694 $ 934 $ 1,035 (26 )% (10 )% (26 )% (10 )% $ 81 $ 83 $ 77 (3 )% 7 % (3 )% 7 % $ 78 $ 80 $ 81 (2.1 )% (1.0 )% (2.1 )% (1.0 )% 393 467 491 (16 )% (5 )% (4 )% (1 )% 332 348 393 (4.6 )% (11.4 )% (3.7 )% (6.9 )% $ 474 $ 550 $ 568 (14 )% (3 )% (4 )% — % $ 410 $ 428 $ 474 (4.1 )% (9.7 )% (3.4 )% (6.0 )% $ 12 $ — $ — n/m n/a n/m n/a $ 61 $ 37 $ 12 66.1 % >100.0 % 66.1 % >100.0 % 219 220 178 (1 )% 24 % 18 % 25 % 294 256 219 14.6 % 16.9 % 13.1 % 18.1 % $ 231 $ 220 $ 178 5 % 24 % 23 % 25 % $ 355 $ 293 $ 231 21.1 % 26.9 % 19.8 % 28.1 % $ 179 $ 328 $ 1,076 (45 )% (70 )% (45 )% (70 )% $ 1,223 $ 1,629 $ 1,666 (25 )% (2 )% (21 )% (1 )% $ 998 $ 1,217 $ 1,402 (18.0 )% (13.2 )% (18.2 )% (12.3 )% $ 22,859 $ 19,960 $ 18,790 15 % 6 % 22 % 8 % $ 28,216 $ 25,638 $ 22,859 10.1 % 12.2 % 9.8 % 13.5 % n/m—Not meaningful.n/a—Not applicable.20152017 Form 10-K | 33 3919 percent14% in both 20152017 and 2014, primarily as a result of16% in 2016. The sales increases in 2017 and 2016 were driven by market growth across therapeutic categories and geographies higher market share, approval of new indications, andas well as favorable pricing in certain geographies. The sales increase in 2016 was also driven by the approval of new indications. In the United States, HUMIRA revenuessales increased 29 percent18% in 20152017 and 25 percent24% in 2014,2016. The sales increase in 2017 was driven by prescription volume, favorable pricing, and market growth across all indications.indications and favorable pricing. The sales increase in 2016 was driven by market growth across all indications, higher market share and favorable pricing. Internationally, HUMIRA revenues increased 9 percent7% in 20152017 and 13 percent4% in 2014,2016, driven primarily by market growth across indications in certain geographies.indications. AbbVie continues to pursue several new indicationsstrategies intended to help further differentiate HUMIRA from competing products and add to the sustainability and future growth of HUMIRA.as well asand collaboration revenues related to AbbVie's 50 percent share of IMBRUVICA profit outside of the United States related to AbbVie's 50% share of IMBRUVICA profit. Net revenues for IMBRUVICA commenced following the completion of the Pharmacyclics acquisition of Pharmacyclics on May 26, 2015. AbbVie expectsGlobal IMBRUVICA will besales increased 40% in 2017 as a significant contributor to revenue growthresult of continued penetration of IMBRUVICA as a first-line treatment for patients with CLL as well as favorable pricing. The sales increase in 2016 was driven by market share gains following the FDA and EMA approval of IMBRUVICA as a first-line treatment for patients with CLL as well as having a full year of sales in 2016. AbbVie launched itsregimen, VIEKIRA PAK,sales decreased 16% in 2017 and 6% in 2016. The sales decrease in 2017 and 2016 was a result of market contraction, lower market share and price erosion of VIEKIRA. These factors were partially offset for 2017 by the United States following FDA approvallaunch of MAVYRET in mid-December 2014 and launched VIEKIRAX/EXVIERA incertain geographies during the EU in January 2015. In addition to growth in approved markets, international revenues continued to increase during 2015 as the product was approved in additional geographies. Net revenuessecond half of VIEKIRA PAK in 2014 reflect the shipment of launch quantities into the market to support full commercial launch in 2015.22 percent14% in 20152017 and 25 percent15% in 2014,2016, driven primarily by continued market growth and higher market share. Creon maintains market leadership in the pancreatic enzyme market. Synagis is a seasonal product with the majority of sales occurring in the first and fourth quarters. Net revenues increased 1 percent in 2015 and 9 percent in 2014. Revenues in 2015 reflected changes in demand in certain markets, as well as an unfavorable comparison to 2014 driven by a less severe respiratory syncytial virus season. Global Lupron net revenues increased 9 percent in 2015 primarily due to increased demand and favorable pricing in the United States. Lupron continues to hold a leadership position and maintains significant share of the market.declined 10 percentdecreased 25% in 20152017 and 7 percent17% in 20142016, primarily due to lower market share resulting from the impact of increasing competition in the HIV marketplace. AndroGel net revenues declined 26 percent in 2015 and 10 percent in 2014, primarily due to a continued decline in the overall U.S. testosterone replacement market and the entry of generic competition for the AndroGel 1% formulation in January 2015. The company expects the U.S. testosterone replacement market will continue to decline in 2016. Net revenues for Duodopa, AbbVie's therapy for advanced Parkinson's disease approved in Europe and other international markets, grew 23 percent in 2015. AbbVie's regulatory submission for Duopa in the United States was approved by the FDA in January 2015. AbbVie expects net revenues for Duopa in the United States willKaletra to continue to gradually increase during 2016 as the product gains acceptancedecline in the marketplace.AbbVie's consolidated lipid franchise, which included TriCor, Trilipix, Niaspan, SimcorDuodopa increased 20% in 2017 and Advicor, declined 45 percent28% in 20152016, primarily as a result of market penetration and 70 percentgeographic expansion. Percent change years ended December 31 (dollars in millions) 2017 2016 2015 2017 2016 Gross margin $ 21,176 $ 19,805 $ 18,359 7 % 8 % as a percent of net revenues 75 % 77 % 80 % 20142017 decreased from 2016 primarily due to an intangible asset impairment charge of $354 million in 2017, as well as the introductionunfavorable impacts of generic versionshigher intangible asset amortization and the IMBRUVICA profit sharing arrangement. These drivers were partially offset by lower amortization of these productsthe fair market value step-up of acquisition-date inventory of Pharmacyclics as well as favorable changes in the U.S. market. Generic competition began in November 2012 for TriCor, July 2013 for Trilipix,product mix and September 2013 for Niaspan. AbbVie has voluntarily withdrawn Simcor and Advicor from the market and discontinued distributionoperational efficiencies. December 31, 2015.40 |2015 Form 10-K All other net revenues declined 21 percent in 2016 decreased from 2015 primarily due to reduced demand driven by market and share declines and a reduction in price for several of AbbVie's mature on-market products.Gross Margin Percent
change years ended December 31 (in millions) 2015 2014 2013 2015 2014 $ 18,359 $ 15,534 $ 14,209 18 % 9 % 80 % 78 % 76 % The gross margin for 2015, 2014 and 2013 reflected the favorable impact of product mix across the product portfolio, including HUMIRA, operational efficiencies, and price increases, partially offset by the effect of unfavorable foreign exchange rates as well as unfavorable impacts of higher intangible asset amortization, the IMBRUVICA profit sharing arrangement and higher amortization of the lossfair market value step-up of exclusivity for the lipid franchise. Grossacquisition-date inventory of Pharmacyclics. Additionally, 2016 gross margin inincluded an intangible asset impairment charge of $39 million and 2015 also includesgross margin included milestone revenue of $40 million from aan oncology collaboration partner related the company's oncology program. Gross margin in 2014 also includes royalty income of $81 million relating to prior periods as a result of the settlement of a licensing arrangement and lower amortization expense for intangible assets,partner. These drivers were partially offset by a $37 million impairment charge for an intangible asset. |2017 Form 10-K Percent
change years ended December 31 (in millions) 2015 2014 2013 2015 2014 $ 6,387 $ 7,724 $ 5,352 (17 )% 44 % 28 % 39 % 28 % Percent change years ended December 31 (dollars in millions) 2017 2016 2015 2017 2016 Selling, general and administrative $ 6,275 $ 5,855 $ 6,387 7 % (8 )% as a percent of net revenues 22 % 23 % 28 % Selling, general and administrative (SG&A) expenses declined in 2015 compared to 2014, principally due to the absence of transaction-related costs totaling $1.7 billion incurred in 2014 in connection with the termination of the proposed combination with Shire, as further discussed in Note 5 of the Notes to Consolidated Financial Statements. 2014 also included a $129 million charge related to the Branded Prescription Drug Fee2017 decreased from 2016 due to the issuancecontinued leverage from revenue growth partially offset by litigation reserve charges of final rules which resulted$370 million in an additional year of expense in 2014. Refer to Note 13 for further information. Excluding these items, 2017 and new product launch expenses.increasedas a percentage of net revenues in both2016 decreased from 2015 due to continued leverage from revenue growth and 2014, reflecting increased selling and marketing support for new products, including the global launch of VIEKIRA, as well as spending relating to new indications and geographic expansion for HUMIRA and other growth brands.lower costs in 2016. SG&A expenses in 2015 also included costs associated with the separation from Abbott of $265 million, Pharmacyclics acquisition and integration costs of $294 million charges aggregating $165 million to increase the company'sand litigation reserves and restructuringreserve charges of $39$165 million. These increased costs were partially offset byAdditionally, SG&A expense in 2015 reflected marketing support for the impactglobal launch of favorable foreign exchange rates in 2015. Percent
change years ended December 31 (in millions) 2015 2014 2013 2015 2014 Percent change years ended December 31 (dollars in millions) 2017 2016 2015 2017 2016 $ 4,285 $ 3,297 $ 2,855 30 % 15 % $ 4,982 $ 4,366 $ 4,285 14 % 2 % 19 % 17 % 15 % 18 % 17 % 19 % $ 150 $ 352 $ 338 (57 )% 4 % $ 327 $ 200 $ 150 64 % 33 %
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charge recorded due to the achievement of aparty; (ii) development milestone under the collaboration with Infinity, the post-acquisition R&D expenses of Pharmacyclics,milestones decreased by $53 million; and (iii) 2015 results included restructuring charges of $32 million. R&D
R&D expenses in 2015commercialize medicines to treat Alzheimer’s disease and 2014 otherwise reflected added funding to support the company's emerging mid- and late-stage pipeline assets and the continued pursuit of additional HUMIRA indications. These increasesother neurodegenerative disorders. There were partially offset by the impact of favorable foreign exchange rates in 2015 and 2014.
no individually significant transactions or cash flows during 2016. Acquired IPR&D expensesexpense in 2015 included a charge of $100 million as a result of entering into an exclusive worldwide license agreement with C2N Diagnostics (C2N) to develop and commercialize anti-tau antibodies for the treatment of Alzheimer's disease and other neurological disorders. IPR&D expenses in 2014 included a charge of $275 million as a result of entering into a global collaboration with Infinity to develop and commercialize duvelisib, a treatment for patients with cancer. IPR&D expense in 2013 included a charge of $175 million as a result of entering into a global license agreement with Ablynx NV to develop and commercialize ALX-0061, a charge of $70 million as a result of entering into a global collaboration with Alvine Pharmaceuticals, Inc. to develop ALV003, a charge of $45 million as a result of entering into a global collaboration with Galapagos for cystic fibrosis therapies, and charges totaling $48 million as a result of entering into several other arrangements. Refer toSee Note 5 ofto the Notes to Consolidated Financial Statements for additional information related toregarding the company's collaborationsAlector and other arrangements.C
Other Operating Expenses2
Other operating expenses in 2014 included a $750 million charge related to an R&D collaboration agreement entered into in September 2014 with Calico to discover, develop and commercialize new therapies for patients with age-related diseases.
N agreements.
| years ended December 31 (in millions) | 2017 | 2016 | 2015 | |||||||||
| Interest expense | $ | 1,150 | $ | 1,047 | $ | 719 | ||||||
| Interest income | (146 | ) | (82 | ) | (33 | ) | ||||||
| Interest expense, net | $ | 1,004 | $ | 965 | $ | 686 | ||||||
| Net foreign exchange loss | $ | 348 | $ | 303 | $ | 193 | ||||||
| Other expense, net | 513 | 232 | 13 | |||||||||
2017 Form 10-K | 35 | ||
In 2014, AbbVie entered into certain undesignated forward contracts to hedge the then anticipated foreign currency cash outflows associated with the then proposed combination with Shire. company’s investment securities.
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collaborations.losses related to certain foreign operations. The effective income tax rate in 2015 included a tax benefit of $103 million from a reduction of state valuation allowances. The effective income tax rate in 2014 included state valuation allowances of $129 million and additional expenses of $129 million related to the Branded Prescription Drug Fee, which is non-deductible.
| years ended December 31 (in millions) | 2015 | 2014 | 2013 | 2017 | 2016 | 2015 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |||||||||||||
Cash flows provided by/(used in): | |||||||||||||||||||||
| Cash flows from: | |||||||||||||||||||||
Operating activities | $ | 7,535 | $ | 3,549 | $ | 6,267 | $ | 9,960 | $ | 7,041 | $ | 7,535 | |||||||||
Investing activities | $ | (12,936 | ) | $ | (926 | ) | $ | 879 | (274 | ) | (6,074 | ) | (12,936 | ) | |||||||
Financing activities | $ | 5,752 | $ | (3,293 | ) | $ | (3,442 | ) | (5,512 | ) | (3,928 | ) | 5,752 | ||||||||
| | | | | | | | | | | ||||||||||||
Cash
36 |2017 Form 10-K | ||
Cash providedoffset by operating activities also reflected AbbVie's voluntary contributions to its main domestic defined benefit plan of $150 million and $370 million in 2015 and 2014, respectively. AbbVie also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2015. AbbVie also paid $350 million to purchase a priority review voucher from United Therapeutics Corporation in 2015.income tax payments. Realized excess tax benefits associated with stock-based compensation totaled $71 million in 2015, 2014 and 2013 totaled $61 million, $56 million, and $38 million, respectively,2017 and were presented in the consolidated statements ofwithin operating cash flows as an outflowa result of the adoption of a new accounting pronouncement. Prior to the adoption of the new accounting pronouncement, realized excess benefits of $55 million in 2016 and $61 million in 2015 were presented within cash flows from financing activities. See Note 2 to the operating sectionConsolidated Financial Statements for additional information regarding the adoption of this new accounting pronouncement. Operating cash flows also reflected AbbVie's voluntary contributions, primarily to its principal domestic defined benefit plan of $150 million in 2017, 2016 and an inflow within the financing section.
2015. In 2018, AbbVie plans to make voluntary contributions to its various defined benefit plans in excess of $750 million.
In 2015 and 2014, the company issued and redeemed commercial paper. The balance of commercial paper outstanding was $400 million and $416 million atas of December 31, 20152017 and 2014, respectively.$377 million as of December 31, 2016. AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as needed.
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2015, AbbVie drew on these term facilities and used the proceeds to refinance its $4$4.0 billion of senior notes that matured in 2015. During 2015 in connection with the acquisition of Pharmacyclics, the company paid $86 million of costs relating to an $18 billion, 364-Day Bridge Term Loan Credit Agreement as well as $93 million of costs relating to the issuance of senior notes.
In addition to the ASR, the company repurchased2016 and approximately 46 million shares for $2.8 billion in the2015 . AbbVie cash-settled $285 million of its December 2016 open market purchases in 2015January 2017 and approximately 9 million shares for $550 million in the open market in 2014. AbbVie settledcash-settled $300 million of its December 2015 open market purchases in January 2016. PurchasesThe stock repurchase authorization permits purchases of AbbVie shares under this program may be made from time to time in open-market or private transactions at management's
2017 Form 10-K | 37 | ||
a Phase 3 enrollment milestone. $268 million of this milestone was included in financing cash flows and $37 million was included in operating cash flows.
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arrangements to mitigate credit risk, although the receivables included in such arrangements have historically not been a materialsignificant amount of total outstanding receivables.
| | Net receivables | Net receivables over one year past due | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 2015 | 2014 | 2015 | 2014 | |||||||||
| | | | | | | | | | | | | | |
Greece | $ | 53 | $ | 30 | $ | — | $ | — | |||||
Portugal | 27 | 27 | 3 | 7 | |||||||||
Italy | 211 | 176 | 4 | 16 | |||||||||
Spain | 234 | 213 | — | 10 | |||||||||
| | | | | | | | | | | | | | |
Total | $ | 525 | $ | 446 | $ | 7 | $ | 33 | |||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
2016. The company also continues to do business with foreign governments in certain oil-exporting countries whichthat have experienced a deterioration in economic conditions, including Venezuela and Saudi Arabia. Outstanding net governmental receivables related to Saudi Arabia were $108 million as of December 31, 2015. Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risk" for additional disclosures related to Venezuela. Due to the decline in the price of oil, liquidity issues in certain countriesRussia, which may result in delays in the collection of receivables. Outstanding governmental receivables related to Saudi Arabia, net of allowances for doubtful accounts, were $149 million as of December 31, 2017 and $122 million as of December 31, 2016. Outstanding governmental receivables related to Russia, net of allowances for doubtful accounts, were $152 million as of December 31, 2017 and $110 million as of December 31, 2016. Global economic conditions and customer-specific factors may require the company to periodically re-evaluate the collectability of its receivables and the company could potentially incur credit losses.
2017.
2016.
38 |2017 Form 10-K | ||
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believes it has sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support the company's growth objectives.
On April 7, 2015, following the announcement of the then proposed combination with Pharmacyclics, Moody's Investor Service confirmed its Baa1 senior unsecured long-term rating and Prime-2 short-term rating and revised its ratings outlook to "negative" from "stable". On March 5, 2015, Standard & Poor's Rating Services (S&P) affirmed AbbVie's "A" corporate credit rating and senior unsecured debt rating and its "A-1" commercial paper rating and revised its ratings outlook to "negative" from "stable".
2017. Unfavorable changes to the ratings may have an adverse impact on future financing arrangements; however, they would not affect the company's ability to draw on its credit facility and would not result in an acceleration of scheduled maturities of any of the company's outstanding debt.
2017 Form 10-K | 39 | ||
| (in millions) | Total | Less than one year | One to three years | Three to five years | More than five years | Total | Less than one year | One to three years | Three to five years | More than five years | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | |||||||||||||||||||
Short-term borrowings | $ | 406 | $ | 406 | $ | — | $ | — | $ | — | $ | 400 | $ | 400 | $ | — | $ | — | $ | — | |||||||||||||||
Long-term debt and capital lease obligations, including current portion | 31,539 | 2,025 | 10,049 | 3,778 | 15,687 | 37,612 | 6,026 | 5,469 | 5,938 | 20,179 | |||||||||||||||||||||||||
Interest on long-term debt(a) | 12,423 | 866 | 1,810 | 1,574 | 8,173 | 15,617 | 1,154 | 2,250 | 2,080 | 10,133 | |||||||||||||||||||||||||
Future minimum non-cancelable operating lease commitments | 1,010 | 119 | 208 | 164 | 519 | 957 | 143 | 235 | 151 | 428 | |||||||||||||||||||||||||
Purchase obligations and other(b) | 1,423 | 1,293 | 86 | 24 | 20 | 1,135 | 972 | 115 | 46 | 2 | |||||||||||||||||||||||||
Other long-term liabilities(c) | 880 | 240 | 171 | 77 | 392 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||
Other long-term liabilities(c) (d) (e) (f) | 10,605 | 1,135 | 1,610 | 1,331 | 6,529 | ||||||||||||||||||||||||||||||
Total | $ | 47,681 | $ | 4,949 | $ | 12,324 | $ | 5,617 | $ | 24,791 | $ | 66,326 | $ | 9,830 | $ | 9,679 | $ | 9,546 | $ | 37,271 | |||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||
(a)Includes estimated future interest payments on long-term debt securities and capital lease obligations. Interest payments on debt are calculated for future periods using interest rates in effect at the end of 2015. Projected interest payments include the related effects of interest rate swap agreements. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2015. Refer to Notes 9 and 10 for further discussion regarding the company's debt instruments and related interest rate agreements outstanding at December 31, 2015. Annual interest on capital lease obligations is not material.(b)Includes the company's significant unconditional purchase obligations. These commitments do not exceed the company's projected requirements and are made in the normal course of business.(c)Amounts less than one year includes a voluntary contribution of $150 million AbbVie made to its main domestic defined benefit plan subsequent to December 31, 2015. Amounts otherwise exclude pension and other post-employment benefits and related deferred compensation cash outflows. Timing of funding is uncertain and dependent on future movements in interest rates and investment returns, changes in laws and regulations, and other variables. Also included in this amount are components of other long-term liabilities including restructuring. Refer to Notes 8 and 11 for further information.
| (a) | Includes estimated future interest payments on long-term debt and capital lease obligations. Interest payments on debt are calculated for future periods using forecasted interest rates in effect at the end of 2017. Projected interest payments include the related effects of interest rate swap agreements. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2017. See Note 9 to the Consolidated Financial Statements for additional information regarding the company's debt instruments and Note 10 for additional information on the interest rate swap agreements outstanding at December 31, 2017. |
| (b) | Includes the company's significant unconditional purchase obligations. These commitments do not exceed the company's projected requirements and are made in the normal course of business. |
| (c) | Amounts less than one year includes voluntary contributions in excess of $750 million that AbbVie plans to make to its various defined benefit plans subsequent to December 31, 2017. Amounts otherwise exclude pension and other post-employment benefits and related deferred compensation cash outflows. Timing of funding is uncertain and dependent on future movements in interest rates and investment returns, changes in laws and regulations and other variables. Also included in this amount are components of other long-term liabilities including restructuring. See Note 8 to the Consolidated Financial Statements for additional information on restructuring and Note 11 for additional information on the pension and other post-employment benefit plans. |
| (d) | Excludes liabilities associated with the company's unrecognized tax benefits as it is not possible to reliably estimate the timing of the future cash outflows related to these liabilities. See Note 13 to the Consolidated Financial Statements for additional information on these unrecognized tax benefits. |
| (e) | Includes $4.5 billion of contingent consideration liabilities related to the acquisitions of Stemcentrx and BI compounds which are recorded at fair value on the consolidated balance sheet. Potential contingent consideration payments that exceed the fair value recorded on the consolidated balance sheet are not included in the table of contractual obligations. See Notes 5 and 10 to the Consolidated Financial Statements for additional information regarding these liabilities. |
| (f) | Includes a one-time transition tax liability on a mandatory deemed repatriation of previously untaxed earnings of foreign subsidiaries resulting from U.S. tax reform, enacted in 2017. The one-time transition tax is generally payable in eight annual installments. See Note 13 to the Consolidated Financial Statements for additional information regarding the provisional estimates of these tax liabilities. |
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period. However, if milestones for multiple products covered by these arrangements would happen to be reached in the same reporting period, the aggregate charge to expense could be material to the results of operations in that period. From a business perspective, the payments are viewed as positive because they signify that the product is successfully moving through development and is now generating or is more likely to generate future cash flows from product sales. It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. As a result, these potential payments are not included in the table of contractual obligations. Refer toSee Note 5 to the consolidated financial statementsConsolidated Financial Statements for further discussion ofadditional information on these collaboration arrangements.
40 |2017 Form 10-K | ||
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recorded as reductions to revenues in 2015.2017. Remaining rebate provisions charged against gross revenues are not significant in the determination of operating earnings.
| (in millions) | Medicaid and Medicare Rebates | Managed Care Rebates | Wholesaler Chargebacks | Medicaid and Medicare Rebates | Managed Care Rebates | Wholesaler Chargebacks | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |||||||||||||
Balance at December 31, 2012 | $ | 807 | $ | 496 | $ | 224 | |||||||||||||||
Provisions | 1,028 | 846 | 2,362 | ||||||||||||||||||
Payments | (1,168 | ) | (883 | ) | (2,374 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||||
Balance at December 31, 2013 | 667 | 459 | 212 | ||||||||||||||||||
Provisions | 1,015 | 970 | 2,825 | ||||||||||||||||||
Payments | (970 | ) | (953 | ) | (2,784 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||||
Balance at December 31, 2014 | 712 | 476 | 253 | $ | 712 | $ | 476 | $ | 253 | ||||||||||||
Provisions | 1,716 | 2,215 | 3,866 | 1,716 | 2,215 | 3,866 | |||||||||||||||
Payments | (1,396 | ) | (1,771 | ) | (3,756 | ) | (1,396 | ) | (1,771 | ) | (3,756 | ) | |||||||||
| | | | | | | | | | | | |||||||||||
Balance at December 31, 2015 | $ | 1,032 | $ | 920 | $ | 363 | 1,032 | 920 | 363 | ||||||||||||
| | | | | | | | | | | ||||||||||||
| | | | | | | | |||||||||||||||
| | | | | | | | | | | | |||||||||||
| Provisions | 2,606 | 3,146 | 3,987 | ||||||||||||||||||
| Payments | (2,471 | ) | (2,899 | ) | (3,967 | ) | |||||||||||||||
| Balance at December 31, 2016 | 1,167 | 1,167 | 383 | ||||||||||||||||||
| Provisions | 2,909 | 3,990 | 5,026 | ||||||||||||||||||
| Payments | (2,736 | ) | (3,962 | ) | (4,887 | ) | |||||||||||||||
| Balance at December 31, 2017 | $ | 1,340 | $ | 1,195 | $ | 522 | |||||||||||||||
Consolidated Financial Statements. point change in the assumed discount rate would have had the following effects on AbbVie's calculation of net periodic benefit costs in Defined benefit plans Service cost and interest cost Projected benefit obligation Other post-employment plans Service cost and interest cost Projected benefit obligation AbbVie’s total benefit obligations. Service cost and interest cost Projected benefit obligation The following table reflects the total foreign currency forward exchange contracts outstanding at December 31, Receive primarily U.S. dollars in exchange for the following currencies: Euro Japanese yen British pound All other currencies Total A 10% appreciation is believed to be a reasonably possible near-term change in foreign currencies. Venezuela were insignificant. the period sold. Consolidated Financial Statements Net revenues Cost of products sold Selling, general and administrative Research and development Acquired in-process research and development Other expense Total operating costs and expenses Operating earnings Interest expense, net Net foreign exchange loss Other expense (income), net Earnings before income tax expense Income tax expense Net earnings Per share data Basic earnings per share Diluted earnings per share Cash dividends declared per common share Weighted-average basic shares outstanding Weighted-average diluted shares outstanding The accompanying notes are an integral part of these consolidated financial statements. Net earnings Foreign currency translation adjustments, net of tax (benefit) expense of ($139) in 2015, ($158) in 2014, and $71 in 2013 Pension and post-employment benefits, net of tax expense (benefit) of $96 in 2015, ($351) in 2014, and $309 in 2013 Unrealized gains on marketable equity securities, net of tax expense of $22 in 2015, $1 in 2014, and $— in 2013 Hedging activities, net of tax (benefit) expense of ($6) in 2015, $8 in 2014, and $— in 2013 Other comprehensive (loss) income Comprehensive income The accompanying notes are an integral part of these consolidated financial statements. Assets Current assets Cash and equivalents Short-term investments Accounts and other receivables, net Inventories, net Deferred income taxes Prepaid expenses and other Total current assets Investments Property and equipment, net Intangible assets, net of accumulated amortization Goodwill Other assets Total assets Liabilities and Equity Current liabilities Short-term borrowings Current portion of long-term debt and lease obligations Accounts payable and accrued liabilities Total current liabilities Long-term debt and lease obligations Deferred income taxes Other long-term liabilities Commitments and contingencies Stockholders' equity Common stock, $0.01 par value, authorized 4,000,000,000 shares, issued 1,749,027,140 and 1,609,519,046 shares as of December 31, 2015 and 2014, respectively Common stock held in treasury, at cost, 139,134,205 and 18,129,715 shares as of December 31, 2015 and 2014, respectively Additional paid-in-capital Retained earnings Accumulated other comprehensive loss Total stockholders' equity Total liabilities and equity The accompanying notes are an integral part of these consolidated financial statements. Balance at December 31, 2012 Separation-related adjustments Reclassification of parent company net investment in connection with separation Issuance of common shares at separation Net earnings Other comprehensive income, net of tax Dividends declared Share repurchases Stock-based compensation plans and other Balance at December 31, 2013 Net earnings Other comprehensive loss, net of tax Dividends declared Share repurchases Stock-based compensation plans and other Balance at December 31, 2014 Net earnings Other comprehensive loss, net of tax Dividends declared Common shares issued to Pharrmacyclics Inc. stockholders Share repurchases Stock-based compensation plans and other Balance at December 31, 2015 The accompanying notes are an integral part of these consolidated financial statements. Cash flows from operating activities Net earnings Adjustments to reconcile net earnings to net cash from operating activities: Depreciation Amortization of intangible assets Stock-based compensation Upfront costs and milestones related to collaborations Other, net Changes in operating assets and liabilities, net of acquisitions: Accounts and other receivables Inventories Prepaid expenses and other assets Accounts payable and other liabilities Cash flows from operating activities Cash flows from investing activities Acquisition of Pharmacyclics, Inc., net of cash acquired Other acquisitions and investments Acquisitions of property and equipment Purchases of investment securities Sales and maturities of investment securities Other Cash flows from investing activities Cash flows from financing activities Net change in short-term borrowings Proceeds from issuance of long-term debt Repayments of long-term debt and capital leases Debt issuance cost Dividends paid Purchases of treasury stock Proceeds from the exercise of stock options Net transactions with Abbott Laboratories, excluding non-cash items Other, net Cash flows from financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year Cash and equivalents, end of year Other supplemental information Interest paid, net of portion capitalized Income taxes paid Supplemental schedule of non-cash investing and financing activities Issuance of common shares associated with the acquisition of Pharmacyclics, Inc. The accompanying notes are an integral part of these consolidated financial statements. As a result, the related assets and liabilities and results of operations Payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product. 2015. Realized gains and losses on sales of investments are computed using the first-in, first-out method adjusted for any other-than-temporary declines in fair value that were recorded in net earnings. $72 million at December 31, 2016. Finished goods Work-in-process Raw materials Inventories, net Land Buildings Equipment Construction in progress Property and equipment, gross Less accumulated depreciation Property and equipment, net 2016. AbbVie accrues for product liability claims on an undiscounted An impairment of indefinite-lived intangible assets value. earnings. earnings. Derivatives Cash flows related to net investment hedges are classified in the investing section of the consolidated statements of cash flows. In January 2016, the FASB issued ASU No. 2016-01,Financial Interest expense Interest income Interest expense, net Sales rebates Accounts payable Dividends payable Salaries, wages and commissions Royalty and license arrangements Other Accounts payable and accrued liabilities Pension and other post-employment benefits Liabilities for unrecognized tax benefits Other Other long-term liabilities For all periods presented, the two-class method was more dilutive. method: Fair value of AbbVie common stock issued to Pharmacyclics stockholders Cash consideration paid to Pharmacyclics stockholders Cash consideration paid to Pharmacyclics equity award holders Total consideration follows: Assets acquired and liabilities assumed Cash and equivalents Short-term investments Accounts and other receivables Inventories Other assets Intangible assets Definite-lived developed product rights Definite-lived license agreements Indefinite-lived research and development Accounts payable and accrued liabilities Deferred income taxes Other long-term liabilities Total identifiable net assets Goodwill Total assets acquired and liabilities assumed earnings. The related amortization was $58 million in 2017, $274 million in 2016 and $113 million in 2015. earnings. Net revenues Net earnings Basic earnings per share Diluted earnings per share AbbVie will co-fund development and commercialization and will share global profits equally. which was expensed to IPR&D in 2015. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Balance as of December 31, 2013 Additions Foreign currency translation and other adjustments Balance as of December 31, 2014 Additions Foreign currency translation and other adjustments Balance as of December 31, 2015 Definite-lived intangible assets Developed product rights License agreements Total definite-lived intangible assets Indefinite-lived research and development Total intangible assets, net Accrued balance at December 31, 2012 2013 restructuring charges Payments and other adjustments Accrued balance at December 31, 2013 2014 restructuring charges Payments and other adjustments Accrued balance at December 31, 2014 2015 restructuring charges Payments and other adjustments Accrued balance at December 31, 2015 Senior notes issued in 2012: Floating rate notes due 2015 1.2% notes due 2015 1.75% notes due 2017 2.0% notes due 2018 2.9% notes due 2022 4.4% notes due 2042 Senior notes issued in 2015: 1.8% notes due 2018 2.5% notes due 2020 3.2% notes due 2022 3.6% notes due 2025 4.5% notes due 2035 4.7% notes due 2045 Term loan facilities: Floating rate notes due 2016 Floating rate notes due 2018 Other Fair value hedges Unamortized bond discounts Unamortized deferred financing costs Total long-term debt and lease obligations Current portion Noncurrent portion Approximately $11.5 billion of the net proceeds ASR. 0.3% in 2015. 2016. 2016 2017 2018 2019 2020 Thereafter Total obligations and commitments Fair value hedges and unamortized bond discounts and deferred financing costs Total debt and lease obligations were insignificant. six months from the date of settlement. contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. In investment hedges. Foreign currency forward exchange contracts— Hedging instruments Others not designated as hedges Interest rate swaps designated as fair value hedges Total derivatives next 12 months. Foreign currency forward exchange contracts— Designated as cash flow hedges Not designated as hedges Interest rate swaps designated as fair value hedges Total Assets Cash and equivalents Time deposits Equity securities Interest rate hedges Foreign currency contracts Total assets Liabilities Interest rate hedges Foreign currency contracts Total liabilities Assets Cash and equivalents Time deposits Equity securities Foreign currency contracts Total assets Liabilities Interest rate hedges Foreign currency contracts Total liabilities 2017, a five percentage point increase/decrease in the assumed probability of success across all potential indications would have increased/decreased the value of the contingent consideration liabilities by approximately $390 million. The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs: Assets Investments Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges Assets Investments Total assets Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges Total liabilities Assets Investments Total assets Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges Total liabilities institution deposits. December 31, 2016. The company also continues to do business with foreign governments in certain oil-exporting countries 2016. $750 million. Projected benefit obligations Beginning of period Service cost Interest cost Employee contributions Plan amendments Actuarial (gain) loss Benefits paid Other, primarily foreign currency translation adjustments End of period Fair value of plan assets Beginning of period Actual (loss) return on plan assets Company contributions Employee contributions Benefits paid Other, primarily foreign currency translation adjustments End of period Funded status end of period Amounts recognized in the consolidated balance sheets Other non-current assets Accounts payable and accrued liabilities Other long-term liabilities Net obligation Actuarial losses, net Prior service cost Accumulated other comprehensive loss at December 31 plans. $2.5 billion. Defined benefit plans Actuarial (gain) loss Prior service cost Amortization of actuarial losses and prior service costs Foreign exchange (gain) loss Total pre-tax (gain) loss recognized in other comprehensive (income) loss Other post-employment plans Actuarial (gain) loss Prior service cost Amortization of actuarial losses and prior service costs Total pre-tax (gain) loss recognized in other comprehensive (income) loss Defined benefit plans Service cost Interest cost Expected return on plan assets Amortization of actuarial losses and prior service costs Net periodic benefit cost Other post-employment plans Service cost Interest cost Amortization of actuarial (gain) loss and prior service costs Net periodic benefit cost Defined benefit plans Discount rate Rate of compensation increases Other post-employment plans Discount rate 2018. Defined benefit plans Discount rate Expected long-term rate of return on plan assets Expected rate of change in compensation Other post-employment plans Discount rate Service cost and interest cost Projected benefit obligation Equities U.S. large cap(a) U.S. mid cap(b) International(c) Fixed income securities U.S. government securities(d) Corporate debt instruments(d) Non-U.S. government securities(d) Other(d) Absolute return funds(e) Real assets Other(f) Fair value of plan assets Equities U.S. large cap(a) U.S. mid cap(b) International(c) Fixed income securities U.S. government securities(d) Corporate debt instruments(d) Non-U.S. government securities(d) Other(d) Absolute return funds(e) Real assets Other(f) Fair value of plan assets Beginning of period Actual return on plan assets on hand at end of period Purchases, sales and settlements, net End of period The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities and lower return, less volatile fixed income securities. Investment allocations are established for each plan and are generally made across a range of markets, industry sectors, capitalization sizes and in the case of fixed income securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is plans. 2016 2017 2018 2019 2020 2021 to 2025 The assets: The exercise price is equal to at least 100% of the market value on the date of grant. The fair value 2015. Outstanding at beginning of period Granted Exercised Lapsed Outstanding at end of period Exercisable at end of period Outstanding at beginning of period Granted Vested Lapsed Outstanding at end of period April 13, 2018. Balance as of December 31, 2012 Other comprehensive income (loss) before reclassifications Net losses reclassified from accumulated other comprehensive loss Net current-period other comprehensive income (loss) Separation-related adjustments Balance as of December 31, 2013 Other comprehensive (loss) income before reclassifications Net losses reclassified from accumulated other comprehensive loss Net current-period other comprehensive (loss) income Balance as of December 31, 2014 Other comprehensive income before reclassifications Net losses (gains) reclassified from accumulated other comprehensive loss Net current-period other comprehensive (loss) income Balance as of December 31, 2015 Pension and post-employment benefits Amortization of actuarial losses and other(a) Less tax benefit Total reclassifications, net of tax Hedging activities (Gains) losses on designated cash flow hedges(b) Less tax expense (benefit) Total reclassifications, net of tax In addition to common stock, AbbVie's authorized capital includes 200 million shares of preferred stock, par value $0.01. As of December 31, Domestic Foreign Total earnings before income tax expense Current Domestic Foreign Total current taxes Deferred Domestic Foreign Total deferred taxes Total income tax expense Statutory tax rate State taxes, net of federal benefit Effect of foreign operations U.S. tax credits Branded prescription drug fee Valuation allowances All other, net Effective tax rate Deferred tax assets Compensation and employee benefits Accruals and reserves Chargebacks and rebates Deferred revenue Depreciation Net operating losses and other credit carryforwards Other Total deferred tax assets Valuation allowances Total net deferred tax assets Deferred tax liabilities Excess of book basis over tax basis of intangible assets Excess of book basis over tax basis in investments Total deferred tax liabilities Net deferred tax (liabilities) assets consolidated balance sheets. Balance as of January 1 Increase due to current year tax positions Increase due to prior year tax positions Decrease due to prior year tax positions Lapse of statutes of limitations Separation-related adjustments Balance as of December 31 penalties of $120 million at December 31, 2017, $112 million at December 31, 2016 and $83 million at December 31, 2015. of its business, but were discontinued prior to the distribution, as well as assumed or retained liabilities, and will indemnify Abbott for any liability arising out of or resulting from such assumed legal matters. injunctive relief, restitution, civil penalties and attorneys’ fees. seeks monetary damages and attorneys' fees. In July 2017, a jury in the United States District Court for the Northern District of Illinois reached a verdict in the first case to be tried. The jury found for AbbVie on the plaintiff's strict liability and negligence claims and for the plaintiff on the plaintiff's fraud claim. The jury awarded no compensatory damages, but did award plaintiffs $150 million in punitive damages. In December 2017, the court vacated the jury’s verdict and punitive damage award on the fraud claim and ordered a new trial on that claim. In a second case, a jury in the United States District Court for the Northern District of Illinois reached a verdict for AbbVie in August 2017 on all claims, which is the subject of post-trial proceedings. In another case, a jury in the United States District Court for the Northern District of Illinois reached a verdict for AbbVie in October 2017 on strict liability but for the plaintiff on remaining claims and awarded $140,000 in compensatory damages and $140 million in punitive damages, which is the subject of post-trial proceedings. In a separate case, a jury in the United States District Court for the Northern District of Illinois reached a verdict for AbbVie in January 2018 on all claims. omissions in connection with its proposed transaction with Shire. Similar lawsuits were filed between July and September 2017 against AbbVie and in some HUMIRA IMBRUVICA VIEKIRA Creon Synagis Lupron Synthroid Kaletra AndroGel Sevoflurane Duodopa Dyslipidemia products All other Total net revenues United States Germany United Kingdom Spain Japan France Canada Italy Brazil The Netherlands All other countries Total net revenues First Quarter Net revenues Gross margin Net earnings(a) Basic earnings per share Diluted earnings per share Cash dividends declared per common share Second Quarter Net revenues Gross margin Net earnings(b) Basic earnings per share Diluted earnings per share Cash dividends declared per common share Third Quarter Net revenues Gross margin Net earnings(c) Basic earnings per share Diluted earnings per share Cash dividends declared per common share Fourth Quarter Net revenues(d) Gross margin(d) Net earnings (loss)(e) Basic earnings (loss) per share Diluted earnings (loss) per share Cash dividends declared per common share In our opinion, the financial statements Procedures; Internal Control Over Financial Reporting Changes in internal control over financial reporting. There were no 2017. Registrant." Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total "filed" under the Securities Exchange Act of 1934. AbbVie will furnish copies of any of the above exhibits to a stockholder upon written request to the Secretary, AbbVie Inc., 1 North Waukegan Road, North Chicago, Illinois 60064. 41 Allowances for cash$898$1.3 billion in 2017, $964 million $610 millionin 2016 and $748$898 million in 2015, 2014 and 2013, respectively, are recorded as a reduction to revenue in the same period the related product is sold. The reserve for cash discounts is readily determinable because the company's experience of payment history is fairly consistent. Product returns can be reliably estimated based on the company's historical return experience.consolidated financial statements., duration) in calculating the benefit obligations by applying the specificcorresponding individual spot rates along the yield curve. Beginning in 2016, AbbVie will also reflectreflected the plans' specific cash flows and applyapplied them to the specificcorresponding individual spot rates along the yield curve in calculating the service cost and interest cost portions of expense. For other countries, AbbVie reviews various indices such as corporate bond and government bond benchmarks to estimate the discount rate. AbbVie's assumed discount rate hasrates have a significant effect on the amounts reported for defined benefit pension and other post-employment plans as of December 31, 2015, and will be used in the calculation of net periodic benefit cost in 2016.2017. A 50 basis48 |2015 Form 10-K20162018 and projected benefit obligations as of December 31, 2015: 50 basis point 50 basis point (in millions) (brackets denote a reduction) Increase Decrease Increase Decrease $ (45 ) $ 51 Service and interest cost $ (64 ) $ 72 $ (409 ) $ 461 (572 ) 652 $ (5 ) $ 6 Service and interest cost $ (9 ) $ 11 $ (46 ) $ 52 (77 ) 89 costs forcosts. Historically, AbbVie estimated these service and interest cost components of this expense utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In late 2015, AbbVie Pension Plan and its primary other post-employment benefit planelected to utilize a full yield curve approach in the United States as well as certain international definedestimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit plans and other post-employment benefit plans. Based on current economic conditions,obligation to the relevant projected cash flows. AbbVie elected to make this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. AbbVie accounted for this change prospectively as a change in accounting estimate that is expected to reduce AbbVie'sinseparable from a change in accounting principle. This change reduced AbbVie’s net periodic benefit cost by approximately $41 million in 2016 as a result2016. This change had no effect on the 2015 expense and did not affect the measurement of this change. Refer to Note 11 for further information regarding this change.20152017 and will be used in the calculation of net periodic benefit cost in 2016.2018. A 1one percentage point change in assumed expected long-term rate of return on plan assets would have increasedincrease or decreaseddecrease the net period benefit cost of these plans in 20162018 by $45$54 million.theeach plan. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans as of |2017 Form 10-K20152017 and will be used in the calculation of net periodic benefit cost in 2016.2018. A 1one percentage point change in assumed health care cost trend rates would have the following effects on AbbVie's calculation of net periodic benefit costs in 20162018 and the projected benefit obligation as of December 31, 2015:2017: One percentage
point (in millions) (brackets denote a reduction) Increase Decrease $ 20 $ (15 ) $ 114 $ (90 ) One percentage point (in millions) (brackets denote a reduction) Increase Decrease Service and interest cost $ 31 $ (24 ) Projected benefit obligation 183 (140 ) 2015 Form 10-K | 49Refer toSee Note 14 to the Consolidated Financial Statements for furtheradditional information. Loss contingency provisions are recorded for probable losses at management's best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount within a probable range is recorded. Accordingly, AbbVie is often initially unable to develop a best estimate of loss and therefore, the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected.life.life, or discontinuation, at which point the intangible asset will be written off. IPR&D acquired in transactions that are not business combinations is expensed immediately, unless deemed to have an alternative future use. Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life.which relate to IPR&D, are reviewed for impairment annually or when an event occurs that could result in an impairment. Refer toSee Note 2 to the consolidated financial statementsConsolidated Financial Statements for further information. 4350 |2015 Form 10-KRecent Accounting PronouncementsContingent In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,ConsiderationSummary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). amendments in ASU 2014-09 supersede most current revenue recognition requirements. The core principalfair value measurements 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 thecontingent consideration to which the entity expects to be entitled in exchange for those goods or services. AbbVie can apply the amendments using one of the following two methods: (i) retrospectively to each prior reporting period presented, or (ii) modified retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015, the FASB issued ASU No. 2015-4,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year for all entities. Accordingly, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. AbbVie is currently assessing the timing of its adoption and the impact of adopting this guidance on its consolidated financial statements and the implementation approach to be used. In April 2015, the FASB issued ASU No. 2015-03,Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted on a retrospective basis. AbbVie elected to early adopt this new standard, effective in the three months ended June 30, 2015. As a result, AbbVie reclassified approximately $7 million and $27 million of net deferred financing costs as of December 31, 2014 that were previously classified as prepaid expenses and other current assets and other long-term assets, respectively, to long-term debt and lease obligations (current and non-current). Total debt issuance costs classified as a reduction of long-term debt and lease obligations (current and non-current) were $117 million as of December 31, 2015. In September 2015, the FASB issued ASU No. 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This standard requires that an acquirer recognize adjustments to provisional amounts thatliabilities are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Entities are currently required to retrospectively apply adjustments made to provisional amounts recognized in a business combination. This standard is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance is to be applied prospectively to measurement period adjustments that occur after the effective date of the guidance with earlier application permitted for financial statements that have not been issued. AbbVie elected to early adopt the standard, effective in the year ended December 31, 2015. The impact of this adoption was not material. In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The standard requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Entities are currently required to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The amendments, which require non-current presentation only (by jurisdiction), are effective for financial statements issued for annual periods beginning after December 15, 2016 with earlier application permitteddetermined as of the beginning of an interim or annual reporting period. The guidance is to be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. AbbVie elected to early adopt this standardacquisition date based on a prospective basis, effective as of December 31, 2015 in order to simplifysignificant unobservable inputs, including the presentation of deferred tax assets and liabilities. Prior periods were not retrospectively adjusted.2015 Form 10-K | 51 In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires several targeted changes including that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. Amendments are to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This standard is effective for fiscal years starting after December 15, 2017, including interim periods within those fiscal years. The standard does not permit early adoption with the exception of certain targeted provisions. AbbVie is currently assessing the impactdiscount rate, estimated probabilities and timing of adopting this guidanceachieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired products still in development. Contingent consideration liabilities are revalued to fair value at each subsequent reporting date until the related contingency is resolved. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones and estimated future sales. Significant judgment is employed in determining the appropriateness of these inputs. Changes to the inputs described above could have a material impact on its consolidatedthe company's financial statements.52 |2015 Form 10-K
position and results of operations in any given period. At December 31, 2017, a 50 basis point increase/decrease in the assumed discount rate would have decreased/increased the value of the contingent consideration liabilities by approximately $170 million. Additionally, at December 31, 2017, a five percentage point increase/decrease in the assumed probability of success across all potential indications would have increased/decreased the value of the contingent consideration liabilities by approximately $390 million. |2017 Form 10-KITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRefer toSee Note 10 entitled "Financial Instruments and Fair Value Measures" ofto the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" for furtheradditional information regarding the company's financial instruments and hedging strategies.Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated 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) in AbbVie's consolidated balance sheets. 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 not exceeding twelve months. At December 31, 2015 and 2014, AbbVie held $1.5 billion and $1.4 billion, respectively, in notional amounts of such contracts. AbbVie enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. The contracts, which are not designated as hedges, are marked-to-market, and resulting gains or losses are reflected in net foreign exchange on AbbVie's consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. At December 31, 2015 and 2014, AbbVie held notional amounts of $6.8 billion and $6.8 billion, respectively, of such foreign currency forward exchange contracts.20152017 and 2014: 2015 2014 2017 2016 (in millions) Contract
amount Weighted
average
exchange
rate Fair and
carrying
value
receivable/
(payable) Contract
amount Weighted
average
exchange
rate Fair and
carrying
value
receivable/
(payable) $ 5,880 1.103 $ 34 $ 6,342 1.263 $ 114 $ 6,366 1.175 $ (88 ) $ 5,544 1.078 $ 102 853 120.9 (2 ) 333 116.9 6 940 112.4 2 935 111.6 39 163 1.496 1 563 1.618 21 760 1.310 (22 ) 611 1.303 35 1,387 N/A 8 930 N/A 7 1,877 n/a (18 ) 1,693 n/a 11 $ 8,283 $ 41 $ 8,168 $ 148 $ 9,943 $ (126 ) $ 8,783 $ 187 10 percent10% 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 $822 million$1.0 billion at December 31, 2015.2017. If realized, this appreciation would negatively affect earnings over the remaining life of the contracts, which would be offset bycontracts. However, gains on the underlying hedged items. A 10 percent appreciation is believed to be a reasonably possible near-term change in foreign currencies. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and stockholders' equity volatility relating to foreign exchange.2015 Form 10-K | 53company'scompany’s Venezuela operations is the U.S. dollar due to the hyperinflationary status of the Venezuelan economy. Currency restrictions enacted in Venezuela require approval from the Venezuelan government to exchange Venezuelan bolivars (VEF) for U.S. dollars and require such exchange to be made at the official exchange rate established by the government. InDuring the first quarter of 2014, the Venezuelan government expanded the number2016, in consideration of exchange mechanisms to three rates of exchange. As of December 31, 2015, these weredeclining economic conditions in Venezuela and a decline in transactions settled at the official rate, of 6.3; the Supplementary System for the Administration of Foreign Currency (SICAD) rate of approximately 13.5; and the Foreign Exchange Marginal System (SIMADI) rate of approximately 200. In the consolidated financial statements as of and for the year ended December 31, 2015, the company used the official rate of 6.3 VEF per U.S. dollar, and reported $317 million of net monetary assets and $210 million of net revenues denominated in the Venezuelan bolivar. On February 17, 2016, the Venezuelan government announcedAbbVie determined that it plans to devalue the official rate of 6.3 to 10 VEF to U.S. dollars, and eliminate the SICAD rate of 13.5 VEF to U.S. dollars. The devaluation of the Venezuelan bolivar will result in a charge to AbbVie's results of operations in the first quarter of 2016. If AbbVie'sits net monetary assets denominated in the Venezuelan bolivar had been converted(VEF) were no longer expected to be settled at athe official rate of 10 VEF per U.S. dollar, but rather at the Divisa Complementaria (DICOM) rate. Therefore, during the first quarter of 2016, AbbVie recorded a charge of $298 million to U.S. dollars at December 31, 2015, the company would have reported a devaluationnet foreign exchange loss of $117 million in 2015. If AbbVie'sto revalue its bolivar-denominated net monetary assets denominatedusing the DICOM rate then in the Venezuelan bolivar had been converted at the SIMADI rateeffect of 200 atapproximately 270 VEF per U.S. dollar. As of December 31, 2015, the company would have reported a devaluation loss of $307 million2017, AbbVie’s net monetary assets in 2015. The company cannot predict whether there will be further devaluations of the Venezuelan currency or whether the use of the official rate will continue to be supported by evolving facts and circumstances, which could result in a significant charge to AbbVie's results of operations at that time. 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. At December 31, 2015 and 2014, AbbVie had interest rate hedge contracts totaling $11.0 billion and $8.0 billion, respectively. the interest rates of 100-basis100 basis points would decreaseadversely impact the fair value of ourAbbVie's interest rate swap contracts by approximately $464$509 million at December 31, 2015.2017. If realized, the fair value reduction would affect earnings over the remaining life of the contracts. The company estimates that an increase of 100-basis100 basis points in long-term interest rates would decrease the fair value of long-term debt by $1.9$2.2 billion at December 31, 2015.2017. A 100-basis100 basis point change is believed to be a reasonably possible near-term change in interest rates. 45Sensitive Investments AbbVie holds equityRisk other pharmaceutical and biotechnology companies that are traded on public stock exchanges. The fair value as a result of theseinterest rate fluctuations and other market factors. It is AbbVie’s policy to mitigate market price risk by maintaining a diversified portfolio that limits the amount of exposure to a particular issuer and security type while placing limits on the amount of time to maturity. AbbVie’s investment policy limits investments was approximately $111 million and $82 million asto investment grade credit ratings. The company estimates that an increase in interest rates of December 31, 2015 and 2014, respectively. AbbVie monitors these investments for other than temporary declines in market value, and charges impairment losses to net earnings when an other than temporary decline in value occurs. A hypothetical 20 percent decrease in the share prices of these investments100 basis points would decrease the fair value of these investmentsthe portfolio by $22approximately $34 million atas of December 31, 2015. A 20 percent decrease is believed2017. If the portfolio were to be a reasonably possible near-term changeliquidated, the fair value reduction would affect the income statement in share prices.approximately $33 million and $63$48 million as of December 31, 20152017 and 2014, respectively.$42 million as of December 31, 2016. AbbVie monitors these investments for other than temporary declines in market value and charges impairment losses to net earnings when an other than temporary decline in estimated value occurs. In 2017 and 2016, impairment charges recorded were insignificant. In 2015, AbbVie recorded impairment charges totaling $36 million related to certain of the company's investments in non-publicly traded equity securities.54 |2015 Form 10-K |2017 Form 10-KPage 103 472015 Form 10-K | 55AbbVie Inc. and Subsidiariesyears ended December 31 (in millions, except per share data) 2017 2016 2015 Net revenues $ 28,216 $ 25,638 $ 22,859 Cost of products sold 7,040 5,833 4,500 Selling, general and administrative 6,275 5,855 6,387 Research and development 4,982 4,366 4,285 Acquired in-process research and development 327 200 150 Total operating costs and expenses 18,624 16,254 15,322 Operating earnings 9,592 9,384 7,537 Interest expense, net 1,004 965 686 Net foreign exchange loss 348 303 193 Other expense, net 513 232 13 Earnings before income tax expense 7,727 7,884 6,645 Income tax expense 2,418 1,931 1,501 Net earnings $ 5,309 $ 5,953 $ 5,144 Per share data Basic earnings per share $ 3.31 $ 3.65 $ 3.15 Diluted earnings per share $ 3.30 $ 3.63 $ 3.13 Cash dividends declared per common share $ 2.63 $ 2.35 $ 2.10 Weighted-average basic shares outstanding 1,596 1,622 1,625 Weighted-average diluted shares outstanding 1,603 1,631 1,637 Consolidated Statements of Earningsyears ended December 31 (in millions, except per share data) 2015 2014 2013 $ 22,859 $ 19,960 $ 18,790
4,500
4,426
4,581 6,387 7,724 5,352 4,285 3,297 2,855 150 352 338 — 750 — 15,322 16,549 13,126 7,537 3,411 5,664
686
391
278 193 678 55 13 (27 ) (1 ) 6,645 2,369 5,332 1,501 595 1,204 $ 5,144 $ 1,774 $ 4,128 $ 3.15 $ 1.11 $ 2.58 $ 3.13 $ 1.10 $ 2.56 $ 2.10 $ 1.75 $ 2.00 (a)
1,625
1,595
1,589 1,637 1,610 1,604 (a)On January 4, 2013, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings and was recorded as a reduction of additional paid-in capital.56 |2015 Form 10-KAbbVie Inc. and Subsidiaries48 |2017 Form 10-KConsolidated Statements of Comprehensive Incomeyears ended December 31 (in millions) 2017 2016 2015 Net earnings $ 5,309 $ 5,953 $ 5,144 Foreign currency translation adjustments, net of tax expense (benefit) of $34 in 2017, $(31) in 2016 and $(139) in 2015 996 (165 ) (667 ) Net investment hedging activities, net of tax expense (benefit) of $(194) in 2017, $79 in 2016 and $— in 2015 (343 ) 140 — Pension and post-employment benefits, net of tax expense (benefit) of $(94) in 2017, $(75) in 2016 and $96 in 2015 (406 ) (135 ) 230 Marketable security activities, net of tax expense (benefit) of $(8) in 2017, $(11) in 2016 and $22 in 2015 (46 ) (1 ) 44 Cash flow hedging activities, net of tax expense (benefit) of $(26) in 2017, $18 in 2016 and $(6) in 2015 (342 ) 136 (137 ) Other comprehensive loss (141 ) (25 ) (530 ) Comprehensive income $ 5,168 $ 5,928 $ 4,614 years ended December 31 (in millions) 2015 2014 2013 $ 5,144 $ 1,774 $ 4,128
(667
)
(1,073
)
48 230 (781 ) 598 44 1 1 (137 ) 264 (77 ) (530 ) (1,589 ) 570 $ 4,614 $ 185 $ 4,698 Consolidated Balance Sheetsas of December 31 (in millions, except share data) 2017 2016 Assets Current assets Cash and equivalents $ 9,303 $ 5,100 Short-term investments 486 1,323 Accounts receivable, net 5,088 4,758 Inventories 1,605 1,444 Prepaid expenses and other 4,741 3,562 Total current assets 21,223 16,187 Investments 2,090 1,783 Property and equipment, net 2,803 2,604 Intangible assets, net 27,559 28,897 Goodwill 15,785 15,416 Other assets 1,326 1,212 Total assets $ 70,786 $ 66,099 Liabilities and Equity Current liabilities Short-term borrowings $ 400 $ 377 Current portion of long-term debt and lease obligations 6,015 25 Accounts payable and accrued liabilities 10,226 9,379 Total current liabilities 16,641 9,781 Long-term debt and lease obligations 30,953 36,440 Deferred income taxes 2,490 6,890 Other long-term liabilities 15,605 8,352 Commitments and contingencies Stockholders�� equity Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,768,738,550 shares issued as of December 31, 2017 and 1,754,900,486 as of December 31, 2016 18 18 Common stock held in treasury, at cost, 176,607,525 shares as of December 31, 2017 and 162,387,762 as of December 31, 2016 (11,923 ) (10,852 ) Additional paid-in-capital 14,270 13,678 Retained earnings 5,459 4,378 Accumulated other comprehensive loss (2,727 ) (2,586 ) Total stockholders’ equity 5,097 4,636 Total liabilities and equity $ 70,786 $ 66,099 as of December 31 (in millions, except share data) 2015 2014 $ 8,399 $ 8,348 8 26 4,730 3,735 1,719 1,124 — 896 1,458 1,952 16,314 16,081
145
92 2,565 2,485 19,709 1,513 13,168 5,862 1,149 1,480 $ 53,050 $ 27,513
$ 406 $ 425 2,025 4,014 8,463 6,954 10,894 11,393
29,240
10,538 5,276 159 3,695 3,681
—
—
17 16 (8,839 ) (972 ) 13,080 4,194 2,248 535 (2,561 ) (2,031 ) 3,945 1,742
$
53,050
$
27,513 58 |2015 Form 10-KAbbVie Inc. and Subsidiaries50 |2017 Form 10-KConsolidated Statements of Equityyears ended December 31 (in millions) Total Balance at December 31, 2014 1,591 $ 16 $ (972 ) $ 4,194 $ 535 $ (2,031 ) $ 1,742 Net earnings — — — — 5,144 — 5,144 Other comprehensive loss, net of tax — — — — — (530 ) (530 ) Dividends declared — — — — (3,431 ) — (3,431 ) Common shares issued to Pharmacyclics stockholders 128 1 — 8,404 — — 8,405 Purchases of treasury stock (119 ) — (7,886 ) — — — (7,886 ) Stock-based compensation plans and other 10 — 19 482 — — 501 Balance at December 31, 2015 1,610 17 (8,839 ) 13,080 2,248 (2,561 ) 3,945 Net earnings — — — — 5,953 — 5,953 Other comprehensive loss, net of tax — — — — — (25 ) (25 ) Dividends declared — — — — (3,823 ) — (3,823 ) Common shares issued to Stemcentrx stockholders 63 — 3,958 (35 ) — — 3,923 Purchases of treasury stock (94 ) — (6,018 ) — — — (6,018 ) Stock-based compensation plans and other 14 1 47 633 — — 681 Balance at December 31, 2016 1,593 18 (10,852 ) 13,678 4,378 (2,586 ) 4,636 Net earnings — — — — 5,309 — 5,309 Other comprehensive loss, net of tax — — — — — (141 ) (141 ) Dividends declared — — — — (4,221 ) — (4,221 ) Purchases of treasury stock (15 ) — (1,125 ) — — — (1,125 ) Stock-based compensation plans and other 14 — 54 592 (7 ) — 639 Balance at December 31, 2017 1,592 $ 18 $ (11,923 ) $ 14,270 $ 5,459 $ (2,727 ) $ 5,097 years ended December 31 (in millions) Common
shares
outstanding Common
stock Treasury
stock Additional
paid-in
capital Retained
earnings Accumulated
other
comprehensive
loss Net parent
company
investment Total — $ — $ — $ — $ — $ (350 ) $ 3,713 $ 3,363 — — — (1,316 ) — (662 ) 707 (1,271 ) — — — 4,420 — — (4,420 ) — 1,577 16 — (16 ) — — — — — — — — 4,128 — — 4,128 — — — — — 570 — 570 — — — — (2,561 ) — — (2,561 ) (4 ) — (223 ) — — — — (223 ) 14 — (97 ) 583 — — — 486 1,587 16 (320 ) 3,671 1,567 (442 ) — 4,492 — — — — 1,774 — — 1,774 — — — — — (1,589 ) — (1,589 ) — — — — (2,806 ) — — (2,806 ) (9 ) — (550 ) — — — — (550 ) 13 — (102 ) 523 — — — 421 1,591 16 (972 ) 4,194 535 (2,031 ) — 1,742 — — — — 5,144 — — 5,144 — — — — — (530 ) — (530 ) — — — — (3,431 ) — — (3,431 ) 128 1 — 8,404 — — — 8,405 (119 ) — (7,774 ) — — — — (7,774 ) 10 — (93 ) 482 — — — 389 1,610 $ 17 $ (8,839 ) $ 13,080 $ 2,248 $ (2,561 ) $ — $ 3,945 Consolidated Statements of Cash Flowsyears ended December 31 (in millions) (brackets denote cash outflows) 2017 2016 2015 Cash flows from operating activities Net earnings $ 5,309 $ 5,953 $ 5,144 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation 425 425 417 Amortization of intangible assets 1,076 764 419 Change in fair value of contingent consideration liabilities 626 228 — Stock-based compensation 365 353 282 Upfront costs and milestones related to collaborations 470 280 280 Devaluation loss related to Venezuela — 298 — Intangible asset impairment 354 39 — Impacts related to U.S. tax reform 1,242 — — Other, net 84 390 489 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (391 ) (71 ) (1,076 ) Inventories 93 (38 ) (434 ) Prepaid expenses and other assets (118 ) (393 ) 511 Accounts payable and other liabilities 425 (1,187 ) 1,503 Cash flows from operating activities 9,960 7,041 7,535 Cash flows from investing activities Acquisition of businesses, net of cash acquired — (2,495 ) (11,488 ) Other acquisitions and investments (308 ) (262 ) (964 ) Acquisitions of property and equipment (529 ) (479 ) (532 ) Purchases of investment securities (2,230 ) (5,315 ) (851 ) Sales and maturities of investment securities 2,793 2,359 899 Other — 118 — Cash flows from investing activities (274 ) (6,074 ) (12,936 ) Cash flows from financing activities Net change in short-term borrowings 22 (29 ) (19 ) Proceeds from issuance of long-term debt — 11,627 20,660 Repayments of long-term debt and lease obligations (25 ) (6,010 ) (4,018 ) Debt issuance costs — (69 ) (182 ) Dividends paid (4,107 ) (3,717 ) (3,294 ) Purchases of treasury stock (1,410 ) (6,033 ) (7,586 ) Proceeds from the exercise of stock options 254 268 155 Payments of contingent consideration liabilities (268 ) — — Other, net 22 35 36 Cash flows from financing activities (5,512 ) (3,928 ) 5,752 Effect of exchange rate changes on cash and equivalents 29 (338 ) (300 ) Net change in cash and equivalents 4,203 (3,299 ) 51 Cash and equivalents, beginning of year 5,100 8,399 8,348 Cash and equivalents, end of year $ 9,303 $ 5,100 $ 8,399 Other supplemental information Interest paid, net of portion capitalized $ 1,099 $ 986 $ 536 Income taxes paid 1,696 3,563 1,108 Supplemental schedule of non-cash investing and financing activities Issuance of common shares associated with acquisitions of businesses — 3,923 8,405 years ended December 31 (in millions) (brackets denote cash outflows) 2015 2014 2013 $ 5,144 $ 1,774 $ 4,128 417 383 388 419 403 509 282 241 212 280 1,102 338 489 434 34 (1,076 ) (172 ) 681 (434 ) (203 ) (56 ) 511 (220 ) 459 1,503 (193 ) (426 ) 7,535 3,549 (a) 6,267
(11,488 ) — — (964 ) (622 ) (405 ) (532 ) (612 ) (491 ) (851 ) (1,169 ) (930 ) 880 1,477 2,705 19 — — (12,936 ) (926 ) 879
(19 ) 12 (601 ) 20,660 — — (4,018 ) (17 ) — (182 ) (141 ) — (3,294 ) (2,661 ) (2,555 ) (7,567 ) (652 ) (320 ) 142 225 347 — — (247 ) 30 (59 ) (66 ) 5,752 (3,293 ) (3,442 )
(300
)
(577
)
(10
) �� 51 (1,247 ) 3,694 8,348 9,595 5,901 $ 8,399 $ 8,348 $ 9,595 $ 536 $ 419 $ 283 $ 1,108 $ 498 $ 1,305 $ 8,405 $ — $ — (a)Cash flows from operating activities included the impact of transaction and financing-related and other costs incurred in connection with the terminated proposed combination with Shire plc. Refer to Note 5 for additional information.60 |2015 Form 10-KAbbVie Inc. and Subsidiaries52 |2017 Form 10-KNotes to Consolidated Financial StatementsNote 1 Background and Basis of Presentation100 percent100% of the outstanding common stock of AbbVie to Abbott's shareholders. AbbVie's common stock began trading "regular-way" under the ticker symbol "ABBV" on the New York Stock Exchange on January 2, 2013. During 2013, separation-related adjustments totaling $1.3 billion were recorded in stockholders' equity. Separation-related adjustments to additional paid-in capital principally reflected dividends to AbbVie shareholders that were declared from pre-separation earnings during the first quarter of 2013 and the transfer of certain pension plan liabilities and assets from Abbott to AbbVie upon the legal split of those plans in 2013. In addition, because AbbVie's historical financial statements prior to January 1, 2013 were derived from Abbott's records, separation-related adjustments also included an adjustment to accumulated other comprehensive loss to reflect the appropriate opening balances associated with currency translation adjustments related to AbbVie's legal entities at the separation date. Refer to Note 11 for further information regarding the separation of the pension plans. In connection with the separation, AbbVie and Abbott entered into transition services agreements covering certain corporate support and back office services that AbbVie historically received from Abbott. Such services included information technology, accounts payable, payroll, receivables collection, treasury and other financial functions, as well as order entry, warehousing, engineering support, quality assurance support and other administrative services. These agreements facilitated the separation by allowing AbbVie to operate independently prior to establishing stand-alone back office functions across its organization. The transition services agreements had original terms of up to 24 months, with an option for a one-year extension. The majority of these transaction service agreements expired without extension at December 31, 2014. With certain limited exceptions, the remaining transition services agreements terminated on or prior to December 31, 2015. During the years ended December 31, 2015, 2014, and 2013, AbbVie incurred separation-related expenses of $270 million $445 million, and $254 million, respectively, of separation-related expenses,in 2015, which were principally classified in selling, general and administrative expenses (SG&A) in the consolidated statements of earnings. These charges principally related to information technology, legal and regulatory fees.AbbVie'sAbbVie’s operations, the legal transfer of AbbVie'sAbbVie’s assets (net of liabilities) did not occur with the separation of AbbVie on January 1, 2013 due to the time required to transfer marketing authorizations and satisfy other regulatory requirements in certain countries. Under the terms of the separation agreement with Abbott, AbbVie iswas responsible for the business activities conducted by Abbott on its behalf and iswas subject to the risks and entitled to the benefits generated by these operations and assets.2015 Form 10-K | 61have beenwere reported in AbbVie'sAbbVie’s consolidated financial statements as of and for the years ended December 31, 2015, 2014, and 2013. Net revenues related to these operations for 2015, 2014, and 2013 totaled approximately $213 million, $282 million, and $738 million, respectively. With the exception of Venezuela, allstatements. All of these operations have beenwere transferred to AbbVie as of December 31, 2016. Net revenues related to these operations were insignificant in 2016 and were $213 million in 2015.Note 2 Summary of Significant Accounting PoliciesGAAPgenerally accepted accounting principles (GAAP) and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for rebates, pension and other post-employment benefits, income taxes, litigation, valuation of goodwill and intangible assets, and goodwill,contingent consideration liabilities, financial instruments and inventory and accounts receivable exposures. as of and for the years ended December 31, 2015 and 2014 include the accounts of AbbVie and all of its subsidiaries in which a controlling interest is maintained. Controlling interest is determined by majority ownership interest and the absence of substantive third-party participating rights or, in the case of variable interest entities, where AbbVie is determined to be the primary beneficiary. Investments in companies over which AbbVie has a significant influence but not a controlling interest are accounted for using the equity method with AbbVie's share of earnings or losses reported in other expense, (income), net in the consolidated statements of earnings. All other investments are generally accounted for using the cost method. Intercompany balances and transactions are eliminated.and sales incentives to customers, and returns and other adjustments are provided for in the period the related revenues are recorded. Rebate amounts are typically based upon the volume of purchases using contractual or statutory prices, which may vary by product and by payer. For each type of rebate, the factors used in the calculations of the accrual for that rebate include the identification of the products subject to the 53not material.insignificant. Historical data is readily available and reliable and is used for estimating the amount of the reduction in gross revenues. Revenue from the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer's normal requirements are recorded when the conditions noted above are met. In those situations, management records a returns reserve for such revenue, if necessary. Sales of product rights for marketable products are recorded as revenue upon disposition of the rights.expensescosts are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development collaborations for pre-commercialization milestones, the milestone payment obligations are expensed when the milestone results are achieved.62 |2015 Form 10-Kexpensesexpense in the consolidated statements of earnings when the milestone is achieved. Milestone payments made to the partner subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the estimated useful life of the related asset. Royalties are expensed to cost of products sold in the consolidated statements of earnings when incurred.expenses in the consolidated statements of earnings. Advertising expenses were $846 million in 2017, $764 million in 2016 and $704 million $665 million, and $626 million in 2015, 2014, and 2013, respectively.includeutilize various actuarial assumptions, including discount rates, assumed asset rates of return on assets, compensation increases, turnover rates and health care cost trend rates. AbbVie reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. Actuarial gains and losses are deferred in accumulated other comprehensive loss (AOCI), net of tax and gains are amortized over the remaining service attribution periods of the employees under the corridor method, in accordance with the rules for accounting for post-employment benefits.method. Differences between the expected long-term return on plan assets and the actual annual return are amortized to net periodic benefit cost over a five-year period.amountamounts of assets and liabilities and their respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized.time deposits and money market funds and time deposits with original maturities at the time of purchase of three months or less.2015 Form 10-K | 63 Short-term investmentsandmarketable debt securities, held-to-maturity debt securities and equity securities. Investments in marketable equity securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses, net of tax, included in accumulated other comprehensive loss (AOCI) in AbbVie'sAOCI on the consolidated balance sheets. Investments in equity securities that are not traded on public stock exchanges and held-to-maturity debt securities are recorded at cost. |2017 Form 10-Kreviews the carrying valueperiodically assesses its investment securities for other-than-temporary impairment losses. This evaluation is based on a number of investments each quarter to determine whether an other than temporary decline in fair value exists. AbbVie considers factors, affecting the investee, factors affecting the industry the investee operates in and general equity market trends. The company considersincluding the length of time an investment'sand the extent to which the fair value has been below the cost basis and adverse conditions related specifically to the near-term prospects for recovery.security, including any changes to the credit rating of the security, intent to sell, or whether AbbVie will more likely than not be required to sell the security before recovery of its amortized cost basis. AbbVie also considers industry factors and general market trends. When AbbVie determines that an other than temporary decline has occurred, a cost basis investment is written down with a charge to other expense (income), net in the consolidated statements of earnings and an available-for-sale investment's unrealized loss is reclassified from AOCI to other expense (income), net in the consolidated statements of earnings.against grossfor doubtful accounts receivable reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. The allowance for doubtful accounts was $78 million and $74$58 million at December 31, 20152017 and 2014, respectively.net, consistconsisted of the following:as of December 31 (in millions) 2015 2014 $ 469 $ 341 1,081 629 169 154 $ 1,719 $ 1,124 as of December 31 (in millions) 2017 2016 Finished goods $ 610 $ 223 Work-in-process 822 1,080 Raw materials 173 141 Inventories $ 1,605 $ 1,444 Inventories, net as of December 31, 2015 included $356 million acquired through the acquisition of Pharmacyclics, Inc. (Pharmacyclics) on May 26, 2015. Refer to Note 5 for additional information.as of December 31 (in millions) 2015 2014 2017 2016 $ 46 $ 48 $ 48 $ 46 1,284 1,228 1,428 1,344 5,656 5,324 5,991 5,726 348 505 604 410 7,334 7,105 8,071 7,526 (4,769 ) (4,620 ) (5,268 ) (4,922 ) $ 2,565 $ 2,485 $ 2,803 $ 2,604 64 |2015 Form 10-Kyears and five to 20 years for equipment. Leaseholdyears. Buildings include leasehold improvements which are amortized over the life of the related facility lease (including any renewal periods, if appropriate) or the asset, whichever is shorter. Depreciation expense was $417 million, $383 million, and $388 million in 2015, 2014, and 2013, respectively.The estimated useful life for equipment ranges from 2 to 25 years. Equipment includes certain computer software and software development costs incurred in connection with developing or obtaining software for internal use and is amortized over three3 to 10 years. Depreciation expense was $425 million in 2017, $425 million in 2016 and $417 million in 2015. Assets underrelated to capital leases included in propertywere insignificant at December 31, 2017 and equipment in the consolidated balance sheets are not material.basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information.basis. The liabilities are evaluated quarterly and adjusted if necessary as additional information becomes available. Receivables for insurance recoveries if any, for product liability claims, if any, are recorded as assets on an undiscounted basis when it is probable that a recovery will be realized. 55 Resultsesults of operations of acquired companies are included in AbbVie's results of operations beginning on the respective acquisition dates. Assetsdates and that assets acquired and liabilities assumed are recognized at fair value as of the date of acquisition at their respective fair values.date. Any excess of the fair value of consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill. Contingent consideration isliabilities are recognized at the estimated fair value on the acquisition date, which is determined by utilizing a probability weighted discounted cash flow model.date. Subsequent changes to the fair value of contingent paymentsconsideration liabilities are recognized in other expense (income), net in the consolidated statements of earnings. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value.value during a period of time generally not to exceed twelve months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.lives.lives using the estimated pattern of economic benefit. AbbVie reviews the recoverability of definite-lived intangible assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. AbbVie first compares the projected undiscounted cash flows to be generated by the asset to its carrying value. If the undiscounted cash flows of an intangible asset are less than the carrying value, of an intangible asset, the intangible asset is written down to its fair value, which is usually the discounted cash flow amount, and a loss is recorded equal to the excess of the asset's net carrying value over its fair value. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest level for which cash flows are largely independent of the cash flows of other assets and liabilities.wouldcould occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Indefinite-lived2015 Form 10-K | 65 which consist of capitalized IPR&D, would occur if the fair value of the IPR&D intangible asset is less than the carrying amount.test,tests, the company uses an estimated future cash flow approach that requires significant judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, future foreign currency exchange rates, the selection of an appropriate discount rate, asset groupings and other assumptions and estimates. The estimates and assumptions used are consistent with the company's business plans and a market participant's views of a company and similar companies. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and potentially result in different impacts to the company's results of operations. Actual results may differ from the company's estimates. Based upon the company's most recent annual impairment test performed in the third quarter of 2015, the company concluded goodwill was not impaired. In 2015 and 2013, no intangible impairment charges were recorded. In 2014, AbbVie recorded an impairment charge of $37 million related to certain on-market product rights in Japan due to increased generic competition. The charge was included in cost of products sold in the consolidated statements of earnings. The in an asset acquisition are expensed as IPR&D in the consolidated statements of earnings unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical products. TheIn a business combination, the fair value of IPR&D projects acquired in a business combination are capitalized and accounted for as indefinite-lived intangible assets until the underlying project receives regulatory approval, at which point the intangible asset will be accounted for as a definite-lived intangible asset, or discontinuation, at which point the intangible asset will be written off. DevelopmentR&D costs incurred after the acquisition are expensed as incurred. Indefinite- and definite-lived assets are subject to impairment reviews as discussed previously.period endperiod-end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive (loss) income (OCI) in the consolidated statements of comprehensive 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 net foreign exchange loss in the consolidated statements of earnings and is immaterial for all years presented. |2017 Form 10-Kin AbbVie'son the consolidated 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.66 |2015 Form 10-Khedgehedged 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 AOCI 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. GainsIf a hedged forecasted transaction becomes probable of not occurring, any gains or losses are immediately reclassified from AOCI 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 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. including those that are not designated as ahedges are adjusted to fair value through current earnings.May 2014,January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The standard provides clarifying guidance to assist in the evaluation of whether transactions are treated as business combinations or asset acquisitions. AbbVie elected to early adopt the changes prospectively in the first quarter of 2017.Costs—ContractsCosts-Contracts with Customers (Subtopic 340-40). The amendments in this standard supersede most current revenue recognition requirements. The core principalprinciple 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. AbbVie can apply the amendments using one of the following two methods: (i) retrospectively to each prior reporting period presented, or (ii) modified retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015,AbbVie will adopt the FASB issued ASU No. 2015-4,Revenue from Contracts with Customers (Topic 606): Deferralstandard effective the first quarter of 2018 and apply the amendments using the modified retrospective method. The company has completed its assessment of the Effective Date, which deferred the effective date of ASU 2014-09 by one year for all entities. Accordingly, this standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. AbbVie is currently assessing the timing of its adoption and the impact of adopting this guidance on its consolidated financial statements and the implementation approach to be used. In April 2015, the FASB issued ASU No. 2015-03,Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted on a retrospective basis. AbbVie elected to early adopt this new standard effective in the three months ended June 30, 2015. As a result, AbbVie reclassified approximately $7 million and $27 million of net deferred financing costs as of December 31, 20142017. AbbVie does not expect significant changes to the amounts or timing of revenue recognition for product sales, which is its primary revenue stream. However, the adoption of the new standard will require a cumulative-effect adjustment to retained earnings on January 1, 2018 of approximately $120 million, net of tax, primarily related to certain deferred license revenues that were previously classified as prepaid expenses and other current assets and other long-term assets, respectively, to long-term debt and lease obligations (current and non-current). Total debt issuance costs classified as a reduction of long-term debt and lease obligations (current and non-current) were $117 million as of December 31, 2015.2015 Form 10-K | 67 In September 2015, the FASB issued ASU No. 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Entities are currently required to retrospectively apply adjustments made to provisional amounts recognized in a business combination. This standard is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance isoriginally expected to be applied prospectively to measurement period adjustments that occur after the effective date of the guidance with earlier application permitted for financial statements that have not been issued. AbbVie elected torecognized through early adopt the standard, effective in the year ended December 31, 2015. The impact of this adoption was not material.2020. In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Entities are currently required to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The amendments, which require non-current presentation only (by jurisdiction), are effective for financial statements issued for annual periods beginning after December 15, 2016 with earlier application permitted as of the beginning of an interim or annual reporting period. The guidance is to be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. AbbVie elected to early adopt this standard on a prospective basis, effective as of December 31, 2015 in order to simplify the presentation of deferred tax assets and liabilities. Prior periods were not retrospectively adjusted.Instruments—OverallInstruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires several targeted changes including that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income.earnings. These provisions will not impact the accounting for AbbVie's investments in debt securities. The new guidance also changes certain disclosure requirements and other aspects of current USU.S. GAAP. Amendments are to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This standard iswill be effective for fiscal yearsAbbVie starting after December 15, 2017, including interim periods within those fiscal years.with the 57does not permitoutlines a comprehensive lease accounting model that supersedes the current lease guidance and requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new standard must be adopted using the modified retrospective approach and will be effective for AbbVie starting with the first quarter of 2019, with early adoption permitted. AbbVie will adopt the standard effective in the first quarter of 2019 and is currently assessing the impact of adopting this guidance on its consolidated financial statements.exceptionfirst quarter of 2020. Early adoption beginning in the first quarter of 2019 is permitted. With certain targeted provisions.exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact to retained earnings as of the beginning of the fiscal year of adoption. AbbVie is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements. |2017 Form 10-KNote 3 Supplemental Financial Informationyears ended December 31 (in millions) 2015 2014 2013 $ 719 $ 429 $ 299 (33 ) (38 ) (21 ) $ 686 $ 391 $ 278 years ended December 31 (in millions) 2017 2016 2015 Interest expense $ 1,150 $ 1,047 $ 719 Interest income (146 ) (82 ) (33 ) Interest expense, net $ 1,004 $ 965 $ 686 Interest expense, net in 2015 included $86 million of bridge financing-related costs incurred in connection with the acquisition of Pharmacyclics. Refer to Note 5 for additional information. Interest expense, net in 2014 included $141 million of financing related fees incurred in connection with the terminated proposed combination with Shire plc, a company incorporated in Jersey (Shire).Other Expense (Income), Net Other expense (income), net, includes income or expense from the resolution of certain contractual agreements, impairments of equity securities, and gains and losses on the sale of equity securities. Other68 |2015 Form 10-Kexpense, net in 2015 primarily consisted of impairments of certain equity securities. Other income, net in 2014 primarily consisted of income of $34 million from the resolution of a contractual agreement.as of December 31 (in millions) 2015 2014 $ 2,355 $ 1,384 1,597 1,401 924 791 632 623 411 821 2,544 1,934 $ 8,463 $ 6,954 Other Long-Term Liabilitiesas of December 31 (in millions) 2015 2014 $ 1,949 $ 2,220 902 471 844 990 $ 3,695 $ 3,681 as of December 31 (in millions) 2017 2016 Sales rebates $ 3,069 $ 2,887 Accounts payable 1,474 1,407 Dividends payable 1,143 1,028 Salaries, wages and commissions 763 644 Royalty and license arrangements 514 434 Other 3,263 2,979 Accounts payable and accrued liabilities $ 10,226 $ 9,379 as of December 31 (in millions) 2017 2016 Contingent consideration liabilities $ 4,266 $ 3,941 Pension and other post-employment benefits 2,740 2,085 Liabilities for unrecognized tax benefits 2,683 1,166 Income taxes payable 4,675 — Other 1,241 1,160 Other long-term liabilities $ 15,605 $ 8,352 Note 4 Earnings Per ShareThe two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. In addition, participating securities may include certain performance-based awards that may otherwise be excluded from the calculation of EPS under the treasury-stock method. AbbVie's forfeitable restricted stock units (RSUs) and restricted stock awards (RSAs), including most performance-based awards, participate in dividends on the same basis as common shares and such dividends are nonforfeitable to the holder once declared. As a result, these forfeitable RSUs and RSAs meet the definition of a participating security. As such, 59dilutive effectimpact of unvested RSUs and RSAs of approximately 4 million, 4 million, and 5 million shares for 2015, 2014 and 2013, respectively, were excluded from the denominator for the calculation of diluted EPS. These awards otherwise would have been included in the calculation of EPS under the treasury stock method. Additionally, all earnings (distributed and undistributed) allocable to participating securities, including performance-based awards not otherwise included in the calculation of EPS under the treasury stock method, were excluded from the numerator for the calculation of basic and diluted earnings per share under the two-class method. Earnings allocable to participating securities for 2015, 2014, and 2013 were $26 million, $9 million, and $26 million, respectively. Years ended December 31, (in millions, except per share information) 2017 2016 2015 Basic EPS Net earnings $ 5,309 $ 5,953 $ 5,144 Earnings allocated to participating securities 26 30 26 Earnings available to common shareholders $ 5,283 $ 5,923 $ 5,118 Weighted-average basic shares outstanding 1,596 1,622 1,625 Basic earnings per share $ 3.31 $ 3.65 $ 3.15 Diluted EPS Net earnings $ 5,309 $ 5,953 $ 5,144 Earnings allocated to participating securities 26 30 26 Earnings available to common shareholders $ 5,283 $ 5,923 $ 5,118 Weighted-average shares of common stock outstanding 1,596 1,622 1,625 Effect of dilutive securities 7 9 12 Weighted-average diluted shares outstanding 1,603 1,631 1,637 Diluted earnings per share $ 3.30 $ 3.63 $ 3.13 a $5.0 billionan accelerated share repurchase agreement (ASR) with Morgan Stanley & Co. LLC (Morgan Stanley) on May 26, 2015, pursuant to which AbbVie paid $5.0 billion for an initial delivery of 68 million shares of AbbVie's common stock. The initial delivery of shares represented approximately 90 percent of the total shares expected to be delivered under the ASR. Morgan Stanley subsequently delivered an additional 5 million shares of AbbVie's common2015 Form 10-K | 69stock to AbbViethird party financial institutions in final settlement of the ASR in August2016 and 2015. For purposes of calculating EPS, AbbVie reflected the ASR as a repurchase of AbbVie common stock. The number of commonstock in the relevant periods.that were excluded from the computation of earnings per common shareEPS because the effect would have been antidilutive were not materialantidilutive. The number of common shares excluded was insignificant for all periods presented.Note 5 Licensing, Acquisitions and Other Arrangements(in millions) Cash $ 1,883 Fair value of AbbVie common stock 3,923 Contingent consideration 620 Total consideration $ 6,426 |2017 Form 10-K(in millions) Assets acquired and liabilities assumed Accounts receivable $ 1 Prepaid expenses and other 7 Property and equipment 17 Intangible assets - Indefinite-lived research and development 6,100 Accounts payable and accrued liabilities (31 ) Deferred income taxes (1,933 ) Other long-term liabilities (7 ) Total identifiable net assets 4,154 Goodwill 2,272 Total assets acquired and liabilities assumed $ 6,426 Years ended December 31, (in millions, except per share information) 2016 2015 Net revenues $ 25,641 $ 22,869 Net earnings 5,907 4,894 Basic earnings per share $ 3.58 $ 2.90 Diluted earnings per share $ 3.56 $ 2.88 61(in millions) Cash $ 595 Deferred consideration payable 18 Contingent consideration 3,365 Total consideration $ 3,978 (in millions) Assets acquired Identifiable intangible assets - Indefinite-lived research and development $ 3,890 Goodwill 88 Total assets acquired $ 3,978 through a tender offer for approximately $20.8 billion, including cash consideration of $12.4 billion and equity consideration of $8.4 billion. Pharmacyclics is a biopharmaceutical company that develops and commercializes novel therapies for people impacted by cancer. Pharmacyclics markets IMBRUVICA®IMBRUVICA (ibrutinib), a Bruton's tyrosine kinase (BTK) inhibitor, targeting B-cell malignancies. Each outstanding Pharmacyclics share was exchanged for (i) $152.25 in cash and $109.00 in fair market value of AbbVie common stock, (ii) $261.25 in cash, or (iii) $261.25 in fair market value of AbbVie common stock, at the election of each holder, subject to the election and proration of the consideration at 58 percent cash and 42 percent AbbVie common stock. The total consideration for the acquisition of Pharmacyclics was approximately $20.8 billion, consisting of cash and approximately 128 million shares of AbbVie common stock, and is summarized as follows:(in millions) $ 8,405 11,749 616 $ 20,770 |2017 Form 10-KThis method requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as ofThe total consideration for the acquisition date. The valuation of assets acquiredPharmacyclics consisted of cash and liabilities assumed in the acquisition has not yet been finalizedapproximately 128 million shares of AbbVie common stock and is summarized as of December 31, 2015. As a result, AbbVie recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. The completion of the valuation will occur no later than one year from the acquisition date and may result in significant changes to the recognized assets and liabilities.70 |2015 Form 10-K(in millions) Cash $ 12,365 Fair value of AbbVie common stock 8,405 Total consideration $ 20,770 preliminarythe fair values of assets acquired and liabilities assumed as of the May 26, 2015 acquisition date:(in millions) $ 877 $ 877 11 11 106 Accounts receivable 106 492 492 212 212 4,590 4,590 6,780 6,780 7,180 7,180 (381 ) (381 ) (6,453 ) (6,453 ) (254 ) (254 ) 13,160 13,160 7,610 7,610 $ 20,770 $ 20,770 adjustment to inventories of $445 million is being amortized tofor acquired inventory was included in cost of products sold whenand R&D in the inventory is sold to customers, which is expected to be a periodconsolidated statements of approximately 18 months from the acquisition date.relatewere related to the IMBRUVICA developed product rights, IPR&D in the United States related tofor additional IMBRUVICA indications for IMBRUVICA, and the contractual rights to IMBRUVICA profits and losses outside the United States as a result of the collaboration agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson. Refer toSee Note 6 for additional information regarding the collaboration with Janssen. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of 12 years using the estimated pattern of economic benefit. The estimated fair value of the IPR&D and identifiable intangible assets was determined using the "income approach,approach." which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, R&D costs, selling and marketing costs, and working capital/contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset's life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream, as well as other factors. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Specifically, the2015 Form 10-K | 71 for 2015 included net revenues of $774 million and a pre-taxan operating loss of $519 million associated with the acquisition.Pharmacyclics' operations. The operating loss included $346 million of acquisition-related compensation expense, $261 million of inventory step-up and intangible asset amortization and $100 million of transaction and integration costs. Of these costs, $294 million was recorded within SG&A expenses, $152 million within R&D expenses,expense and $261 million within cost of products sold in the 2015 consolidated statement of earnings for 2015. 63and 2014 as if the acquisition of Pharmacyclics had occurred on January 1, 2014:years ended December 31 (in millions, except per share data) 2015 2014 year ended December 31 (in millions, except per share information) 2015 $ 23,215 $ 20,690 $ 23,215 $ 5,345 $ 812 5,345 $ 3.18 $ 0.47 $ 3.18 $ 3.16 $ 0.47 $ 3.16 current preliminary fair values of the identifiable intangible assets acquired; the incremental cost of products sold related to the fair value adjustments associated with the acquisition-date inventory; the additional interest expense associated with the issuance of debt to finance the acquisition; and the reclassification of acquisition, integration and financing-related costs incurred during the year ended December 31, 2015 to the year ended December 31, 2014. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2014. In addition, the unaudited pro forma financial information is not a projection of the future results of operations of the combined company nor does it reflect the expected realization of any cost savings or synergies associated with the acquisition.acquisition of Pharmacyclics,acquisitions above, cash outflows related to other acquisitions and investments totaled $308 million in 2017, $262 million in 2016 and $964 million $622 million, and $405 million in 2015, 2014, and 2013, respectively.2015. AbbVie recorded IPR&D charges of $327 million in 2017, $200 million in 2016 and $150 million $352 million, and $338 million in 2015, 2014, and 2013, respectively. In 2014, AbbVie also recorded other operating expenses of $750 million related to the collaboration with Calico Life Sciences LLC (Calico).2015. Significant arrangements impacting 2015, 2014,2017, 2016 and 2013,2015, some of which require contingent milestone payments, are summarized below.addition to the significant arrangements described below,October 2017, AbbVie entered into severala global strategic collaboration with Alector, Inc. (Alector) to develop and commercialize medicines to treat Alzheimer’s disease and other arrangements resulting in chargesneurodegenerative disorders. AbbVie and Alector have agreed to research a portfolio of antibody targets and AbbVie has an option to global development and commercial rights to two targets. The terms of the arrangement included an initial upfront payment of $205 million, which was expensed to IPR&D in the fourth quarter of $50 million in 2015, $77 million in 2014,2017. Alector will conduct exploratory research, drug discovery and $48 million in 2013. In connection withdevelopment for lead programs up to the other individually insignificant arrangements entered into in 2015,conclusion of the proof of concept studies. If the option is exercised, AbbVie will lead development and commercialization activities and could make additional payments to Alector of up to $1.2 billion$986 million upon the achievement of certain development and regulatory milestones. Alector and commercial milestones.72 |2015 Form 10-KUpon the achievement of certain development, regulatory, and commercial milestones, AbbVie could makemade additional payments of up to $685 million, as well as royalties on net sales.Calico Life Sciences LLC In September 2014, AbbVie and Calico entered into a novel R&D collaboration agreement to discover, develop and commercialize new therapies for patients with age-related diseases, including neurodegeneration and cancer. In 2014, AbbVie recorded $750$35 million in other operating expense in the consolidated statement of earnings related to its commitments under the agreement ofboth 2016 and 2017, which $250 million was paid in 2014 and $500 million was paid in early 2015. Calico is responsible for research and early development during the first five years and will continue to advance collaboration projects through Phase 2a for a ten year period. AbbVie will have the option to exclusively license collaboration compounds after completion of Phase 2a. AbbVie will support Calico in its early R&D efforts and, upon option exercise, would be responsible for all late-stage development and commercial activities. Collaboration costs and profits will be shared equally by both companies post option exercise.Infinity Pharmaceuticals, Inc. In September 2014, AbbVie entered into a global collaboration agreement with Infinity Pharmaceuticals, Inc. (Infinity) to develop and commercialize duvelisib (IPI-145) for the treatment of patients with cancer. As part of the agreement, AbbVie made an initial upfront payment of $275 million, which was expensed to IPR&D in the third quarter of 2014. In 2015, AbbVie made an additional payment of $130 million, which waswere recorded in R&D expense, in the consolidated statement of earnings, due to the achievement of a development milestonemilestones under the collaborationlicense agreement. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $400 million. In the United States, the companies will jointly commercialize duvelisib and will share equally in any potential profits. Outside the United States, AbbVie will be responsible for the commercialization of duvelisib, and Infinity is eligible to receive tiered double-digit$615 million, as well as royalties on net product sales.Ablynx NVrevenues.September 2013,addition to the significant arrangements described above, AbbVie entered into a global collaboration agreement with Ablynx NV to develop and commercialize the anti-IL-6R Nanobody, ALX-0061, for the treatment of inflammatory diseases including rheumatoid arthritis and systemic lupus erythematosus,several other arrangements resulting in a chargecharges to IPR&D of $175 million. Upon$122 million in 2017, $200 million in 2016 and $50 million in 2015. In connection with the other individually insignificant early stage arrangements entered into in 2017, AbbVie could make additional payments of up to $2.4 billion upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $665 million, as well as royalties on net sales.Galapagos NV In September 2013, AbbVie recorded a charge to IPR&D of $45 million as a result of entering into a global collaboration with Galapagos NV (Galapagos) to discover, develop and commercialize cystic fibrosis therapies. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $360 million, as well as royalties on net sales.Alvine Pharmaceuticals, Inc. In May 2013, AbbVie entered into a global collaboration with Alvine Pharmaceuticals, Inc. to develop ALV003, a novel oral treatment for patients with celiac disease. As part of the agreement, AbbVie made an initial upfront payment of $70 million, which was expensed to IPR&D in the second quarter of 2013. As of December 31, 2015, AbbVie will not make any additional payments pursuant to this arrangement.201564 |2017 Form 10-K| 73United Therapeutics Corporationpriority review voucher (PRV)PRV from United Therapeutics Corporation.a third party. The PRV entitles AbbVie to receive an FDA priority review of a single New Drug Application or Biologics License Application, which reduces the target review time and could lead to an expedited approval. In exchange for the PRV, AbbVie made a payment of $350 million, which was recorded in R&D expensesexpense in the consolidated statement of earnings and as an operating cash outflow in the consolidated statement of cash flows for 2015. AbbVie intends to use the PRV for an existing R&D project.Termination of Proposed Combination with Shire On October 15, 2014, AbbVie's board of directors withdrew its previous recommendation to AbbVie stockholders in favor of a proposed combination with Shire, and recommended stockholders vote against the proposed combination. On October 20, 2014, AbbVie and Shire mutually agreed to terminate the proposed combination. In 2014, the company incurred transaction and financing-related costs totaling $1.8 billion, of which $1.7 billion was recorded in SG&A expenses and $141 million was recorded in interest expense, net in the consolidated statement of earnings. Included in SG&A expenses was a break fee of $1.6 billion, which was tax deductible, paid by AbbVie to Shire in October 2014 as a result of the termination of the proposed combination. In addition, the company recorded $666 million of net foreign exchange losses primarily due to undesignated forward contracts that were entered into to hedge anticipated foreign currency cash outflows associated with the terminated proposed combination with Shire and the exit of certain foreign currency positions. The forward contracts were settled in 2014. In the first quarter of 2015, AbbVie recorded additional foreign exchange losses of $170 million to reflect the completed liquidation of its remaining foreign currency positions. Refer to Note 10 for further information regarding these forward contracts entered into in anticipation of the proposed combination with Shire.Note 6 Collaboration with Janssen Biotech, Inc.in general, Janssen is responsible for approximately 60 percent60% of collaboration development costs and AbbVie is responsible for the remaining 40 percent40% of collaboration development costs.JanssenSales of IMBRUVICA are included in AbbVie's net revenues. Janssen's share of profits is responsible for and has exclusive rights to commercialize IMBRUVICA outside the United States. While both parties have co-exclusive rights to commercialize theincluded in AbbVie's cost of products in the United States, AbbVie is the principal in the end customer product sales. Operating expenses forsold. Other costs incurred under the collaboration are reported in their respective expense line items, net of any payments due or reimbursements due from Janssen. Revenues and profit share costs related to sales of IMBRUVICA inJanssen's share.areJanssen is responsible for and has exclusive rights to commercialize IMBRUVICA. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in net revenues and cost of products sold, respectively. Amounts payable to AbbVie by Janssen for IMBRUVICA sales outside the United States are included inAbbVie's net revenues.74 |2015 Form 10-K Janssen's share of the pre-tax profits in the United States Other costs incurred under the collaboration was $306 million for 2015 and was recorded within costare reported in their respective expense line items, net of products sold inJanssen's share.consolidated statement of earnings. For 2015, AbbVie's share of pre-tax profits outside the United Statesprofit and cost sharing expenses under the collaboration were $95 millionrelationship between Janssen and $159 million, respectively. At December 31, 2015, AbbVie's receivable from Janssen was $45 million and AbbVie's payable to Janssen was $134 million, which were classified in accounts and other receivables, net and accounts payable and accrued liabilities, respectively, in AbbVie's consolidated balance sheet.years ended December 31 (in millions) 2017 2016 2015 United States - Janssen's share of profits (included in cost of products sold) $ 1,001 $ 735 $ 306 International - AbbVie's share of profits (included in net revenues) 429 252 95 Global - AbbVie's share of other costs (included in respective line items) 288 262 159 65Note 7 Goodwill and Intangible AssetsAbbVie's goodwill:(in millions) $ 6,277 — (415 ) 5,862 7,610 (304 ) $ 13,168 (in millions) Balance as of December 31, 2015 $ 13,168 Additions (see Note 5) 2,360 Foreign currency translation (112 ) Balance as of December 31, 2016 15,416 Foreign currency translation 369 Balance as of December 31, 2017 $ 15,785 Goodwill additions in 2015 related to the acquisition of Pharmacyclics. Refer to Note 5 for additional information regarding this acquisition. 2015.2017. As of December 31, 2015,2017, there were no accumulated goodwill impairment losses. Future impairment tests for goodwill will be performed annually in the third quarter, or earlier if impairment indicators of impairment exist.AbbVie's intangible assets: 2015 2014 2017 2016 as of December 31 (in millions) Gross
carrying
amount Accumulated
amortization Net
carrying
amount Gross
carrying
amount Accumulated
amortization Net
carrying
amount $ 9,103 $ (3,944 ) $ 5,159 $ 4,546 $ (3,706 ) $ 840 $ 16,138 $ (4,982 ) $ 11,156 $ 16,464 $ (4,256 ) $ 12,208 8,000 (1,023 ) 6,977 1,097 (869 ) 228 7,822 (1,409 ) 6,413 7,809 (1,110 ) 6,699 17,103 (4,967 ) 12,136 5,643 (4,575 ) 1,068 23,960 (6,391 ) 17,569 24,273 (5,366 ) 18,907 7,573 — 7,573 445 — 445 9,990 — 9,990 9,990 — 9,990 $ 24,676 $ (4,967 ) $ 19,709 $ 6,088 $ (4,575 ) $ 1,513 $ 33,950 $ (6,391 ) $ 27,559 $ 34,263 $ (5,366 ) $ 28,897 Intangible with finite useful lives are amortized over their estimated useful lives, which range between 32 to 16 years with an average of 12 years and 11 years for developed product rights and 11 years for license agreements, respectively. Additionsagreements. Amortization expense was $1.1 billion in 2017, $764 million in 2016 and $419 million in 2015 were primarily due to the acquisition of Pharmacyclics and those amounts will be amortized using the estimated pattern of economic benefit. Refer to Note 5 for additional information regarding this acquisition. Additions in 2014 are primarily related to the acquisition of $80 million of amortizable intangible assets under license agreements for on-market product rights in the United States with an average amortization period of 10 years.2015 Form 10-K | 75 Amortization expense for 2015, 2014, and 2013 was $419 million, $403 million, and $509 million, respectively, and is included in cost of products sold in the consolidated statements of earnings. The anticipated annual amortization expense for definite liveddefinite-lived intangible assets recorded as of December 31, 20152017 is $655 million in 2016, $740 million inas follows:(in billions) 2018 2019 2020 2021 2022 Anticipated annual amortization expense $ 1.3 $ 1.5 $ 1.7 $ 1.9 $ 2.1 $894 million in 2018, $1.0 billion in 2019 and $1.1 billion in 2020. In the third quarter of 2014, an impairment charge of $37$354 million was recorded related to ZINBRYTA that reduced both the gross carrying amount and net carrying amount of the underlying intangible assets due to lower expected future cash flows for the product. In 2016, an impairment charge of $39 million was recorded related to certain on-marketdeveloped product rights in Japanthe United States due to increased generic competition.a decline in the market for the product. In 2015, no intangible asset impairment charges were recorded. The charge was2017 and 2016 impairment charges were based on a discounted cash flow analysisanalyses and waswere included in cost of products sold in the consolidated statementstatements of earnings. The indefinite-livedThe indefinite-livedIndefinite-lived intangible assets as of December 31, 2014 relate to IPR&D acquired in a business combination. The increase in 2015 was primarily due2017 and 2016 related to the acquisitionacquisitions of Pharmacyclics.Stemcentrx and BI compounds. See Note 5 for additional information. The latest impairment assessment of indefinite-lived intangible assets not subject to amortization was completed in the third quarter of 2015.2017. No impairment charges were recorded in 2017, 2016 and 2015. Impairment charges recorded in 2014 related to indefinite-lived intangible assets were not material. Future impairment tests for indefinite-lived intangible assets will be performed annually in the third quarter, or earlier if impairment indicators of impairment exist. |2017 Form 10-KNote 8 Restructuring Plans2015, 20142017, 2016 and 2013,2015, no such plans were individually material.significant. Restructuring charges recorded were $86 million in 2015, 20142017, $52 million in 2016 and 2013 were $138 million $23 million, $83 million, respectively,in 2015 and were primarily related to employee severance and contractual obligations. These charges were recorded in cost of products sold, R&D expenses,expense and SG&A expenses in the consolidated statements of earnings based on classification of the affected employees or operations.2015, 20142017, 2016 and 2013:(in millions) $ 233 76 (118 ) 191 16 (85 ) 122 126 (100 ) $ 148 Payments and other adjustments for 2013 included a $23 million reversal of a previously recorded restructuring reserve due to the company's re-evaluation of a prior year decision to exit a manufacturing facility.76 |2015 Form 10-K(in millions) Accrued balance at December 31, 2014 $ 122 2015 restructuring charges 126 Payments and other adjustments (100 ) Accrued balance at December 31, 2015 148 2016 restructuring charges 52 Payments and other adjustments (113 ) Accrued balance at December 31, 2016 87 2017 restructuring charges 86 Payments and other adjustments (87 ) Accrued balance at December 31, 2017 $ 86 67Note 9 Debt, Credit Facilities, and Commitments and Contingenciesis a summary of AbbVie'stable summarizes long-term debt:as of December 31 (in millions) Effective
interest rate
in 2015(a) 2015 Effective
interest rate
in 2014(a) 2014 1.13 % $ — 1.09 % $ 500 1.29 % — 1.31 % 3,500 1.86 % 4,000 1.86 % 4,000 2.15 % 1,000 2.15 % 1,000 2.97 % 3,100 2.97 % 3,100 4.46 % 2,600 4.46 % 2,600 1.92 % 3,000 — — 2.65 % 3,750 — — 3.28 % 1,000 — — 3.66 % 3,750 — — 4.58 % 2,500 — — 4.73 % 2,700 — — 1.23 % 2,000 — — 1.38 % 2,000 — — — 139 — 115 — (72 ) — (180 ) — (85 ) — (49 ) — (117 ) — (34 ) 31,265 14,552 2,025 4,014 $ 29,240 $ 10,538 as of December 31 (dollars in millions) 2017 2016 Senior notes issued in 2012 2.00% notes due 2018 2.15 % 1,000 2.15 % 1,000 2.90% notes due 2022 2.97 % 3,100 2.97 % 3,100 4.40% notes due 2042 4.46 % 2,600 4.46 % 2,600 Senior notes issued in 2015 1.80% notes due 2018 1.92 % 3,000 1.92 % 3,000 2.50% notes due 2020 2.65 % 3,750 2.65 % 3,750 3.20% notes due 2022 3.28 % 1,000 3.28 % 1,000 3.60% notes due 2025 3.66 % 3,750 3.66 % 3,750 4.50% notes due 2035 4.58 % 2,500 4.58 % 2,500 4.70% notes due 2045 4.73 % 2,700 4.73 % 2,700 Senior notes issued in 2016 2.30% notes due 2021 2.40 % 1,800 2.40 % 1,800 2.85% notes due 2023 2.91 % 1,000 2.91 % 1,000 3.20% notes due 2026 3.28 % 2,000 3.28 % 2,000 4.30% notes due 2036 4.37 % 1,000 4.37 % 1,000 4.45% notes due 2046 4.50 % 2,000 4.50 % 2,000 Senior Euro notes issued in 2016 0.38% notes due 2019 (€1,400 principal) 0.55 % 1,673 0.55 % 1,464 1.38% notes due 2024 (€1,450 principal) 1.46 % 1,733 1.46 % 1,516 2.13% notes due 2028 (€750 principal) 2.18 % 896 2.18 % 784 Term loan facilities Floating rate notes due 2018 2.26 % 2,000 1.64 % 2,000 Other 110 113 Fair value hedges (401 ) (338 ) Unamortized bond discounts (97 ) (110 ) Unamortized deferred financing costs (146 ) (164 ) Total long-term debt and lease obligations 36,968 36,465 Current portion 6,015 25 Noncurrent portion $ 30,953 $ 36,440 (a)(a) Excludes the effect of any related interest rate swaps. effectcompany issued €3.6 billion aggregate principal amount of anyunsecured senior Euro notes. These senior notes rank equally with all other unsecured and unsubordinated indebtedness of the company. AbbVie may redeem the senior notes prior to maturity at a redemption price equal to the principal amount of the senior notes redeemed plus a make-whole premium. AbbVie may redeem the senior notes at par between one and three months prior to maturity. In connection with the offering, debt issuance costs totaled $17 million and debt discounts incurred totaled $9 million and are being amortized over the respective terms of the senior notes to interest expense, net in the consolidated statements of earnings. The company used the proceeds to redeem $4.0 billion aggregate principal amount of 1.75% senior notes that were due to mature in November 2017. As a result of this redemption, the company incurred a charge of $39 million ($25 million after tax) related to the make-whole premium, write-off of unamortized debt issuance costs and other expenses. The charge was recorded in interest rate swaps.expense, net in the consolidated statement of earnings. On |2017 Form 10-K 25, 2015, AbbVie entered into a $2$2.0 billion three-year term loan credit agreement and a $2$2.0 billion 364-day term loan credit agreement (collectively, the term loan facilities). In November 2015, AbbVie drew on these term loan facilities and used the proceeds to refinance its $4$4.0 billion of senior notes that matured in November 2015. In connection with the May 2016 unsecured senior notes issuance, AbbVie repaid the 364-day term loan credit agreement. The borrowings under the term loan facilities bear interest at variable rates which will adjustare adjusted based on AbbVie's public debt ratings. The term loan facilities may be prepaid without penalty upon prior notice and contain customary covenants, all of which the company was in compliance with as of December 31, 2015.1.8%1.80% notes due 2018, AbbVie may redeem the senior notes at par between one and six months prior to maturity. Debt issuance costs incurred in connection with the offering totaled $93 million and are being amortized over the respective terms of the senior notes to interest expense, net in the consolidated statements of earnings. The senior notes contain customary covenants, all of which the company was in compliance with as of December 31, 2015.2015 Form 10-K | 77 from the issuance of the senior notes were used to finance the acquisition of Pharmacyclics and approximately $5.0 billion of the net proceeds were used to finance thean ASR with Morgan Stanley. Refer to Notesa third party financial institution. See Note 5 and 12 for additional information related to the acquisition of Pharmacyclics and Note 12 for additional information related to the ASR, respectively.$18$18.0 billion 364-Day Bridge Term Loan Credit Agreement (the bridge loan)loan in support of the then planned acquisition of Pharmacyclics. No amounts were drawn under the bridge loan, which was terminated as a result of the company's May 2015 issuance of the senior notes.notes issuance. Interest expense, net in 2015 includeincluded $86 million of costs related to the bridge loan.$10.7$6.7 billion aggregate principal amount of unsecured senior notes which were issued in 2012. AbbVie may redeem all of the senior notes of each series, at any time, andor some of the senior notes of each series, from time to time, at a redemption price equal to the principal amount of the senior notes redeemed plus a make-whole premium.2015,2017, the company was in compliance with its senior note covenants and term loan covenants. At20152017 and 2014, short-term borrowings included $400$377 million and $416 million, respectively, of commercial paper borrowings.at December 31, 2016. The weighted-average interest rate on short-termcommercial paper borrowings was 0.3 percent1.3% in 2017, 0.6% in 2016 and 0.2 percent for 2015 and 2014, respectively.2019 and replaced a $2.0 billion five-year revolving credit facility.2019. The revolving credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At December 31, 2015,2017, the company was in compliance with all its credit facility covenants. Commitment fees under AbbVie's revolving credit facilities were not materialinsignificant in 2015, 20142017, 2016 and 2013.2015. No amounts were outstanding under the credit facility as of December 31, 20152017 and December 31, 2014. 69 and debt maturities and future minimum lease payments for capital lease obligations as of December 31, 2015:2017:as of and for the years ended December 31 (in millions) Operating
leases Debt maturities
and capital leases $ 119 $ 2,025 111 4,024 97 6,025 86 18 78 3,760 519 15,687 1,010 31,539 — (274 ) $ 1,010 $ 31,265 as of and for the years ending December 31 (in millions) 2018 $ 143 $ 6,026 2019 126 1,698 2020 109 3,771 2021 85 1,836 2022 66 4,102 Thereafter 428 20,179 Total obligations and commitments 957 37,612 Fair value hedges, unamortized bond discounts and deferred financing costs (644 ) Total long-term debt and lease obligations $ 957 $ 36,968 2015, $115 million in 2014, and $107 million in 2013.2015. AbbVie's operating leases generally include renewal options and provide for the company to pay taxes, maintenance, insurance and other operating costs of the leased property. As of December 31, 2015,2017, annual future minimum lease payments for capital lease obligations are not material.78 |2015 Form 10-K Debt maturities and capital leases in 2016 include the $2.0 billion floating rate notes due in 2016 drawn under the 364-day term loan credit agreement.entities and no activities that included non-exchange-traded contracts accounted for at fair value.entities. In the ordinary course of business, AbbVie has periodically entered into third-party agreements, such as the assignment of product rights, which have resulted in AbbVie becoming secondarily liable for obligations for which AbbVie had previously been primarily liable. Based upon past experience, the likelihood of payments under these agreements is remote. AbbVie periodically acquires a business or product rights in which AbbVie agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain future events.Note 10 Financial Instruments and Fair Value MeasuresThe company'sAbbVie's hedging policy attempts to manage these risks to an acceptable level based on the company's judgment of the appropriate trade-off between risk, opportunity and costs. The company uses derivative and nonderivative instruments to reduce its exposure to foreign currency exchange rates. The company isAbbVie also exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in interest rates. The company periodically enters into interest rate swaps, based on judgment, to manage interest costs in which the company agrees to exchange, at specified intervals, the difference between fixed and 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.$1.5 billion and $1.4$2.2 billion at December 31, 20152017 and $2.2 billion at December 31, 2014, respectively,2016, are designated as cash flow hedges and are recorded at fair value. Resulting gains or losses are reflected in OCI.The durations of these forward exchange contracts were generally less than eighteen months. Accumulated gains and losses as of December 31, 20152017 will be reclassified from AOCI and included in cost of products sold at the time the products are sold, generally not exceeding twelve months. |2017 Form 10-KAtThese contracts had notional amounts totaling $7.7 billion at December 31, 20152017 and $6.6 billion at December 31, 2014, AbbVie held notional amounts of $6.8 billion and $6.8 billion, respectively, of such undesignated2016.contracts.2014,the fourth quarter of 2016, the company entered into undesignatedissued €3.6 billion aggregate principal amount of senior Euro notes and designated the principal amounts of this foreign denominated debt as net investment hedges. Concurrently, the company settled foreign currency forward exchange contracts with a totalaggregate notional amountamounts of $16.9€3.5 billion to hedge anticipated foreign currency cash outflows associated with the terminated proposed combination with Shire. A large portion of these contractsthat were originally due to mature in the2015 Form 10-K | 79first quarter of 2015 but weredesignated as net settled in the fourth quarter of 2014. In 2014, the company realized $490 million in net foreign exchange losses associated with the Shire-related forward exchange contracts.$11.0 billion and $8.0$11.8 billion at December 31, 20152017 and $11.8 billion at December 31, 2014, respectively.2016. The effect of the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie recordedrecords the contracts at fair value and adjustedadjusts the carrying amount of the fixed-rate debt by an offsetting amount.inon the consolidated balance sheets: Fair value—Derivatives in asset position Fair value—Derivatives in liability position as of December 31 (in millions) 2015 2014 Balance sheet caption 2015 2014 Balance sheet caption $ 33 $ 141 Prepaid expenses and other $ — $ — Accounts payable and accrued liabilities 28 70 Prepaid expenses and other 21 63 Accounts payable and accrued liabilities 9 — Prepaid expenses and other 81 180 Other long-term liabilities $ 70 $ 211 $ 102 $ 243 as of December 31 (in millions) Balance sheet caption 2017 2016 Balance sheet caption 2017 2016 Foreign currency forward exchange contracts Designated as cash flow hedges Prepaid expenses and other $ 1 $ 170 Accounts payable and accrued liabilities $ 120 $ 5 Not designated as hedges Prepaid expenses and other 22 55 Accounts payable and accrued liabilities 29 33 Interest rate swaps designated as fair value hedges Prepaid expenses and other — — Accounts payable and accrued liabilities 8 — Interest rate swaps designated as fair value hedges Other assets — — Other long-term liabilities 393 338 Total derivatives $ 23 $ 225 $ 550 $ 376 unrealized gains/following table presents the pre-tax amounts of gains (losses) for the effective portions of thefrom derivative instruments designated as cash flow hedges recognized in OCI were $122 million, $193 million and ($77) million for 2015, 2014, and 2013, respectively. other comprehensive loss: 2017 2016 2015 years ended December 31 (in millions) Net Investment Hedges Total Net Investment Hedges Total Cash Flow
HedgesNet Investment Hedges Total Foreign currency forward exchange contracts $ (250 ) $ — $ (250 ) $ 174 $ 118 $ 292 $ 122 $ — $ 122 not significantinsignificant for anyall periods presented. Assuming market rates remain constant through contract maturities, the company expects to transfer pre-tax unrealized losses of $174 million into cost of products sold for foreign currency cash flow hedges during the years presented. 71in the consolidated statements of earnings ofderivative instrument net gains/gains (losses) recognized in the consolidated statements of earnings, for derivative instruments, including the effective portions of the net gains/gains (losses) reclassified out of AOCI into net earnings for 2015, 2014, and 2013, respectively.earnings. See Note 12 for the amount of net gains/gains (losses) reclassified out of AOCI.years ended December 31 (in millions) 2015 2014 2013 Statement of earnings caption $ 265 $ (79 ) $ — Cost of products sold (155 ) (523 ) 81 Net foreign exchange loss 108 252 (351 ) Interest expense, net $ 218 $ (350 ) $ (270 ) years ended December 31 (in millions) Statement of earnings caption 2017 2016 2015 Foreign currency forward exchange contracts Designated as cash flow hedges Cost of products sold $ 118 $ 20 $ 265 Not designated as hedges Net foreign exchange loss (96 ) 6 (155 ) Non-designated treasury rate lock agreements Other expense, net — (12 ) — Interest rate swaps designated as fair value hedges Interest expense, net (63 ) (266 ) 108 Total $ (41 ) $ (252 ) $ 218 gain/gain (loss) related to outstanding interest rate swaps designated as fair value hedges is recognized in interest expense, net in the consolidated statements of earnings and directly offsets the (loss)/gain on the underlying hedged item, the fixed-rate debt, resulting in no net impact to interest expense, net for all periods presented.80 |2015 Form 10-K under the accounting standard for fair value measurements consists of the following three levels:•••arewere carried at fair value on a recurring basis inon the consolidated balance sheet as of December 31, 2015:2017: Basis of fair value measurement 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) Total $ 8,399 $ 798 $ 7,601 $ — $ 9,303 $ 849 $ 8,454 $ — 8 — 8 — Debt securities 2,524 — 2,524 — 111 111 — — 4 4 — — 9 — 9 — 61 — 61 — 23 — 23 — $ 8,588 $ 909 $ 7,679 $ — $ 11,854 $ 853 $ 11,001 $ — $ 81 $ — $ 81 $ — $ 401 $ — $ 401 $ — 21 — 21 — 149 — 149 — Contingent consideration 4,534 — — 4,534 $ 102 $ — $ 102 $ — $ 5,084 $ — $ 550 $ 4,534 201572 |2017 Form 10-K| 81arewere carried at fair value on a recurring basis inon the consolidated balance sheet as of December 31, 2014:2016: Basis of fair value measurement 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) Total $ 8,348 $ 1,214 $ 7,134 $ — $ 5,100 $ 1,191 $ 3,909 $ — 9 — 9 — 1,014 — 1,014 — Debt securities 1,974 — 1,974 — 13 13 — — 76 76 — — 211 — 211 — 225 — 225 — $ 8,581 $ 1,227 $ 7,354 $ — $ 8,389 $ 1,267 $ 7,122 $ — ��� $ 180 $ — $ 180 $ — $ 338 $ — $ 338 $ — 63 — 63 — 38 — 38 — 4,213 — — 4,213 $ 243 $ — $ 243 $ — $ 4,589 $ — $ 376 $ 4,213 The fair values for time deposits included in cash and equivalents and short-term investments are determined based on a discounted cash flow analysis reflecting quoted market rates for the same or similar instruments. arewere determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company arewere valued using publicized spot curves for interest rate hedges and publicized forward curves for foreign currency contracts. Cumulative net unrealized holding gains The fair value measurements of the contingent consideration liabilities were determined based on available-for-sale equity securities totaled $47 millionsignificant unobservable inputs, including the discount rate, estimated probabilities and $3 milliontiming of achieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired products still in development. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones and estimated future sales. Significant judgment is employed in determining the appropriateness of these inputs. Changes to the inputs described above could have a material impact on the company's financial position and results of operations in any given period. At December 31, 2017, a 50 basis point increase/decrease in the assumed discount rate would have decreased/increased the value of the contingent consideration liabilities by approximately $170 million. Additionally, at December 31, 2015 and December 31, 2014, respectively. 2017 2016 Beginning balance $ 4,213 $ — Additions (See Note 5) — 3,985 Change in fair value recognized in net earnings 626 228 Milestone payments (305 ) — Ending balance $ 4,534 $ 4,213 73is required to recognizecarries at fair value on the consolidated balance sheets, the company has certain financial instruments that are recognizedcarried at historical cost or some basis other than fair value. The carryingbook values, andapproximate fair values of certain financial instruments are summarized in the table below: Book values Approximate
fair values as of December 31 (in millions) 2015 2014 2015 2014 $ 34 $ 95 $ 37 $ 145 $ 406 $ 425 $ 406 $ 425 $ 2,025 $ 4,014 $ 2,016 $ 4,026 $ 29,312 $ 10,718 $ 29,143 $ 10,803 82 |2015 Form 10-K The following table summarizes theand bases used to measure the approximate fair values of thecertain financial instruments as of December 31, 2015: 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) $ 37 $ — $ — $ 37 $ 37 $ — $ — $ 37 $ 406 $ — $ 406 $ — 2,016 — 2,016 — 29,143 27,061 2,082 — $ 31,565 $ 27,061 $ 4,504 $ — Basis of fair value measurement (in millions) Book Value Assets Investments $ 48 $ 48 $ — $ — $ 48 Total assets $ 48 $ 48 $ — $ — $ 48 Liabilities Short-term borrowings $ 400 $ 400 $ — $ 400 $ — Current portion of long-term debt and lease obligations, excluding fair value hedges 6,023 6,034 4,004 2,030 — Long-term debt and lease obligations, excluding fair value hedges 31,346 32,846 32,763 83 — Total liabilities $ 37,769 $ 39,280 $ 36,767 $ 2,513 $ — following table summarizes thebook values, approximate fair values and bases used to measure the approximate fair values of thecertain financial instruments as of December 31, 2014:2016 are shown in the table below: 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) $ 145 $ 68 $ 13 $ 64 $ 145 $ 68 $ 13 $ 64 $ 425 $ — $ 425 $ — 4,026 4,005 21 — 10,803 10,710 93 — $ 15,254 $ 14,715 $ 539 $ — Basis of fair value measurement (in millions) Book Value Assets Investments $ 42 $ 42 $ — $ 5 $ 37 Total assets $ 42 $ 42 $ — $ 5 $ 37 Liabilities Short-term borrowings $ 377 $ 377 $ — $ 377 $ — Current portion of long-term debt and lease obligations, excluding fair value hedges 25 25 — 25 — Long-term debt and lease obligations, excluding fair value hedges 36,778 36,664 34,589 2,075 — Total liabilities $ 37,180 $ 37,066 $ 34,589 $ 2,477 $ — and held-to-maturity debt securities. To determine the fair values of other cost method investments,for which the company takes into consideration recent transactions as well as theand financial information of the investee, which represents a Level 3 basis of fair value measurement. The fair value of held-to-maturity debt securities was estimated based upon the quoted market prices for the same or similar debt instruments. The fair values of short-term and current borrowings approximate the carrying values due to the short maturities of these instruments.201574 |2017 Form 10-K| 83 Amortized Cost Gross unrealized Fair Value (in millions) Gains Losses Asset backed securities $ 930 $ 1 $ (3 ) $ 928 Corporate debt securities 1,451 4 (2 ) 1,453 Other debt securities 144 — (1 ) 143 Equity securities 4 2 (2 ) 4 Total $ 2,529 $ 7 $ (8 ) $ 2,528 Amortized Cost Gross unrealized Fair Value (in millions) Gains Losses Asset backed securities $ 891 $ 1 $ (4 ) $ 888 Corporate debt securities 961 1 (2 ) 960 Other debt securities 127 — (1 ) 126 Equity securities 18 60 (2 ) 76 Total $ 1,997 $ 62 $ (9 ) $ 2,050 and money market funds and diversifiesdebt securities to diversify the concentration of cash among different financial institutions. The company has established credit exposure limits and monitors concentrations of credit risk associated with deposits with financial institutions. Credit exposure limits have been established to limit a concentration with any single issuer or institution.Currency restrictions enacted in Venezuela require approval from the Venezuelan government to exchange Venezuelan bolivars (VEF) for U.S. dollars and require such exchange to be made at the official exchange rate established by the government. InDuring the first quarter of 2014, the Venezuelan government expanded the number2016, in consideration of exchange mechanisms to three rates of exchange. As of December 31, 2015, these weredeclining economic conditions in Venezuela and a decline in transactions settled at the official rate, of 6.3; the Supplementary System for the Administration of Foreign Currency (SICAD) rate of approximately 13.5; and the Foreign Exchange Marginal System (SIMADI) rate of approximately 200. In the consolidated financial statements as of and for the year ended December 31, 2015, the company used the official rate of 6.3 VEF per U.S. dollar, and reported $317 million of net monetary assets and $210 million of net revenues denominated in the Venezuelan bolivar. On February 17, 2016, the Venezuelan government announcedAbbVie determined that it plans to devalue the official rate of 6.3 to 10 VEF to U.S. dollars, and eliminate the SICAD rate of 13.5 VEF to U.S. dollars. The devaluation of the Venezuelan bolivar will result in a charge to AbbVie's results of operations in the first quarter of 2016. If AbbVie'sits net monetary assets denominated in the Venezuelan bolivar had been converted(VEF) were no longer expected to be settled at athe official rate of 10 VEF per U.S. dollar, but rather at the Divisa Complementaria (DICOM) rate. Therefore, during the first quarter of 2016, AbbVie recorded a charge of $298 million to U.S. dollars at December 31, 2015, the company would have reported a devaluationnet foreign exchange loss of $117 million in 2015. If AbbVie'sto revalue its bolivar-denominated net monetary assets denominatedusing the DICOM rate then in the Venezuelan bolivar had been converted at the SIMADI rateeffect of 200 atapproximately 270 VEF per U.S. dollar. As of December 31, 2015, the company would2017 and 2016, AbbVie’s net monetary assets in Venezuela were insignificant.reported a devaluation losshistorically experienced challenges in credit and economic conditions. Substantially all of $307AbbVie’s trade receivables in Greece, Portugal, Italy and Spain are with government health systems. Outstanding governmental receivables in these countries, net of allowances for doubtful accounts, totaled $255 million in 2015. The company cannot predict whether there will be further devaluationsas of the Venezuelan currency or whether the useDecember 31, 2017 and the official rate will continue to be supported by evolving facts and circumstances, which could result in a significant charge to AbbVie's results of operations at that time.including Venezuela and Saudi Arabia, whichthat have experienced a deterioration in economic conditions. Due to the decline in the price of oil, liquidity issues in certain countriesconditions, including Saudi Arabia and Russia, which may result in delays in the collection of receivables. Three Outstanding governmental receivables related to Saudi Arabia, net of allowances for doubtful accounts, were $149 million as of December 31, 2017 and $122 million at December 31, 2016. Outstanding governmental receivables related to Russia, net of allowances for doubtful accounts, were $152 million as of December 31, 2017 and $110 million as of December 31, 2016. Global economic conditions and customer-specific factors may require the company to periodically re-evaluate the collectability of its receivables and the company could potentially incur credit losses. 7551 percent and 49 percent of total net accounts receivable56% as of December 31, 20152017 and 51% as of December 31, 2014, respectively,2016, and substantially all of AbbVie's net revenues in the United States arewere to these three wholesalers. In addition, net governmental receivables outstanding in Greece, Portugal, Italy and Spain totaled $525 million at December 31, 2015 and $446 million at December 31, 2014.61 percent, 63 percent, and 57 percent65% of AbbVie's total net revenues in 2015, 2014,2017, 63% in 2016 and 2013, respectively.Note 11 Post-Employment Benefitsinon the consolidated balance sheets as of December 31, 20152017 and 2014.employees who were eligible to participate in the Abbott pension plan on December 31, 2012 automatically became eligible for the AbbVie Pension Plan. During the first quarter of 2013, the AbbVie Pension Plan assumed the obligations and related assets for AbbVie employees from Abbott. AbbVie made voluntary contributions of84 |2015 Form 10-K$150 million, $370 million, and $145 $150 million in 2015, 2014,2017, 2016 and 2013 respectively,2015 to this plan. In 2018, AbbVie also made aplans to make voluntary contributioncontributions to its various defined benefit plans in excess of $150 million to this plan subsequent to December 31, 2015.in the table below pertains tofor the global AbbVie-sponsored defined benefit and other post-employment plans: Defined
benefit plans Other
post-employment
plans as of and for the years ended December 31 (in millions) 2015 2014 2015 2014 $ 5,681 $ 4,484 $ 538 $ 403 227 173 25 22 219 217 23 22 2 1 — — — 1 — (13 ) (467 ) 1,108 (17 ) 111 (158 ) (163 ) (11 ) (8 ) (117 ) (140 ) (1 ) 1 5,387 5,681 557 538 4,173 3,666 — — (25 ) 282 — — 217 430 11 8 2 1 — — (158 ) (163 ) (11 ) (8 ) (35 ) (43 ) — — 4,174 4,173 — — $ (1,213 ) $ (1,508 ) $ (557 ) $ (538 ) $ 214 $ 210 $ — $ — (24 ) (26 ) (11 ) (10 ) (1,403 ) (1,692 ) (546 ) (528 ) $ (1,213 ) $ (1,508 ) $ (557 ) $ (538 ) $ 1,939 $ 2,216 $ 154 $ 181 16 19 (45 ) (53 ) $ 1,955 $ 2,235 $ 109 $ 128 as of and for the years ended December 31 (in millions) 2017 2016 2017 2016 Projected benefit obligations Beginning of period $ 5,829 $ 5,387 $ 627 $ 557 Service cost 236 210 26 25 Interest cost 204 201 24 24 Employee contributions 2 1 — — Actuarial loss 714 313 149 33 Benefits paid (173 ) (163 ) (15 ) (12 ) Other, primarily foreign currency translation adjustments 173 (120 ) 2 — End of period 6,985 5,829 813 627 Fair value of plan assets Beginning of period 4,572 4,174 — — Actual return on plan assets 684 383 — — Company contributions 246 273 15 12 Employee contributions 2 1 — — Benefits paid (173 ) (163 ) (15 ) (12 ) Other, primarily foreign currency translation adjustments 68 (96 ) — — End of period 5,399 4,572 — — Funded status, end of period $ (1,586 ) $ (1,257 ) $ (813 ) $ (627 ) Amounts recognized on the consolidated balance sheets Other assets $ 388 $ 240 $ — $ — Accounts payable and accrued liabilities (32 ) (25 ) (15 ) (14 ) Other long-term liabilities (1,942 ) (1,472 ) (798 ) (613 ) Net obligation $ (1,586 ) $ (1,257 ) $ (813 ) $ (627 ) Actuarial loss, net $ 2,471 $ 2,118 $ 320 $ 179 Prior service cost (credit) 12 14 (29 ) (37 ) Accumulated other comprehensive loss $ 2,483 $ 2,132 $ 291 $ 142 |2017 Form 10-K$1.5 billion and $1.4$2.0 billion at December 31, 20152017 and 2014, respectively,$1.7 billion at December 31, 2016, related to international defined benefit plans, a number of which generally are not funded as permitted by local regulations. Benefit payments under those plans are funded from company assets. AbbVie considered the release of the new mortality tables and projection scales by the Society of Actuaries in 2014 and determined they were an improvement of the estimate of future mortality and opted to change to the new tables in determining the funded status as of December 31, 2014. In 2015, the Society of Actuaries released an improvement scale that adjusted the previously issued 2014 scale which AbbVie determined was appropriate to utilize in determining the funded status as of December 31, 2015.$4.8 billion and $5.0$6.3 billion at December 31, 20152017 and 2014, respectively.$5.3 billion at December 31, 2016. For those plans reflected in the table above in which the ABO exceeded plan assets at December 31, 2015,2017, the ABO was $3.8 billion, the PBO was $4.4 billion and aggregate plan assets were $3.1 billion, $3.6 billion and $2.2 billion, respectively.2015 Form 10-K | 85Accumulated Other Comprehensive Loss and Other Comprehensive (Loss) Income The defined benefit and other post-employment plans' actuarial (gains) or losses and prior service costs or (credits) not yet recognized in net periodic benefit cost are included in AOCI, net of tax, and will be amortized to net periodic benefit cost in future periods. (loss) income:loss:years ended December 31 (in millions) 2015 2014 2013 $ (117 ) $ 1,127 $ (715 ) — 1 15 (127 ) (68 ) (114 ) (37 ) (41 ) 2 $ (281 ) $ 1,019 $ (812 ) $ (17 ) $ 111 $ (42 ) — (13 ) (53 ) (2 ) 3 — $ (19 ) $ 101 $ (95 ) years ended December 31 (in millions) 2017 2016 2015 Defined benefit plans Actuarial loss (gain) $ 412 $ 284 $ (117 ) Amortization of actuarial loss and prior service cost (107 ) (85 ) (127 ) Foreign exchange gain (loss) 46 (22 ) (37 ) Total pre-tax loss (gain) recognized in other comprehensive loss $ 351 $ 177 $ (281 ) Other post-employment plans Actuarial loss (gain) $ 149 $ 33 $ (17 ) Amortization of actuarial loss and prior service cost (credit) — — (2 ) Total pre-tax loss (gain) recognized in other comprehensive loss $ 149 $ 33 $ (19 ) 20152017 that is expected to be recognized in net periodic benefit cost in 20162018 is $87$149 million for defined benefit plans and $1$14 million for other post-employment plans.years ended December 31 (in millions) 2015 2014 2013 $ 227 $ 173 $ 184 219 217 196 (325 ) (302 ) (259 ) 127 68 114 $ 248 $ 156 $ 235 $ 25 $ 22 $ 23 23 22 19 2 (2 ) (1 ) $ 50 $ 42 $ 41 years ended December 31 (in millions) 2017 2016 2015 Defined benefit plans Service cost $ 236 $ 210 $ 227 Interest cost 204 201 219 Expected return on plan assets (382 ) (354 ) (325 ) Amortization of actuarial loss and prior service cost 107 85 127 Net periodic benefit cost $ 165 $ 142 $ 248 Other post-employment plans Service cost $ 26 $ 25 $ 25 Interest cost 24 24 23 Amortization of actuarial loss and prior service cost — — 2 Net periodic benefit cost $ 50 $ 49 $ 50 as of December 31 2015 2014 2017 2016 4.4 % 3.9 % 3.4 % 3.9 % 4.4 % 4.4 % 4.5 % 4.4 % 4.9 % 4.5 % 3.9 % 4.7 % 7720152017 measurement date benefit obligations will be used in the calculation of net periodic benefit cost in 2016.86 |2015 Form 10-Kyears ended December 31 2015 2014 2013 2017 2016 2015 3.9 % 4.9 % 4.3 % Discount rate for determining service cost 3.9 % 4.4 % 3.9 % Discount rate for determining interest cost 3.7 % 4.0 % 3.9 % 7.8 % 7.9 % 8.2 % 7.8 % 7.9 % 7.8 % 4.4 % 5.0 % 5.0 % 4.4 % 4.4 % 4.4 % 4.5 % 5.3 % 4.5 % Discount rate for determining service cost 4.9 % 5.1 % 4.5 % Discount rate for determining interest cost 4.1 % 4.3 % 4.5 % costs for the AbbVie Pension Plan and its primary other post-employment benefit plan in the United States as well as certain international defined benefit plans and other post-employment benefit plans.costs. Historically, AbbVie estimated these service and interest cost components of this expense utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In late 2015, AbbVie elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. AbbVie elected to make this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. AbbVie has accounted for this change prospectively as a change in accounting estimate that is inseparable from a change in accounting principle. Based on current economic conditions, thisThis change is expected to reducereduced AbbVie's net periodic benefit cost by approximately $41 million in 2016. This change had no effect on the 2015 expense and willdid not affect the measurement of AbbVie's total benefit obligations asobligations.change in service cost and interest cost will be completely offset in the actuarial (gain) loss reported. For 2015, for purposes of measuringDecember 31, 2017 post-retirement health care obligations as of the measurement date,remeasurement, the company assumed a 7.3 percent7.7% pre-65 (8.3 percent(9.5% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent4.5% in 20642050 and remain at that level thereafter. For purposes of measuring the 2017 post-retirement health care costs, the company assumed a 7.5 percent6.8% pre-65 (7.3 percent(7.8% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent4.5% for 2064 and remain at that level thereafter.2015,2017, a 1one percentage point change in assumed health care cost trend rates would have the following effects: One percentage
point year ended December 31, 2015 (in millions) (brackets denote a reduction) Increase Decrease $ 12 $ (9 ) $ 116 $ (90 ) One percentage point year ended December 31, 2017 (in millions) (brackets denote a reduction) Increase Decrease Service cost and interest cost $ 11 $ (9 ) Projected benefit obligation 183 (140 ) 201578 |2017 Form 10-K| 87 Basis of fair value measurement Basis of fair value measurement as of December 31 (in millions) 2015 Quoted prices in
active markets for
identical assets
(Level 1) Significant other
observable
inputs
(Level 2) Significant
unobservable
inputs
(Level 3) 2017 $ 1,041 $ 542 $ 499 $ — $ 597 $ 597 $ — $ — 260 35 225 — 74 74 — — 688 100 588 — 63 63 — — 178 15 163 — 110 6 104 — 440 124 297 19 238 132 106 — 182 33 149 — 59 25 34 — 156 122 34 — 265 260 5 — 1,097 2 498 597 262 4 258 — 39 8 7 24 7 7 — — 93 93 — — 40 40 — — Total $ 1,715 $ 1,208 $ 507 $ — Total assets measured at NAV 3,684 $ 4,174 $ 1,074 $ 2,460 $ 640 $ 5,399 Basis of fair value measurement Basis of fair value measurement as of December 31 (in millions) 2014 Quoted prices in
active markets for
identical assets
(Level 1) Significant other
observable
inputs
(Level 2) Significant
unobservable
inputs
(Level 3) 2016 $ 1,314 $ 588 $ 726 $ — $ 519 $ 519 $ — $ — 267 67 200 — 63 63 — — 608 137 471 — 97 97 — — 216 — 216 — 94 — 94 — 326 101 225 — 243 162 81 — 425 201 224 — 32 30 2 37 29 8 — 184 179 5 — 848 3 371 474 228 3 225 — 53 7 46 — 31 31 — — 79 79 — — 61 61 — — Total $ 1,552 $ 1,145 $ 407 $ — Total assets measured at NAV 3,020 $ 4,173 $ 1,212 $ 2,487 $ 474 $ 4,572 (a)A mix of pooled index funds and actively managed equity accounts that are benchmarked to various large cap indices.(b)A mix of pooled index funds and actively managed equity accounts that are benchmarked to various mid cap indices.(c)A mix of pooled index funds and actively managed equity accounts that are benchmarked to various non-US equity indices in both developed and emerging markets.(d)Securities held by actively managed accounts, pooled index funds, and mutual funds.(e)Funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies, and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets.(f)Investments in cash and cash equivalents.(a) A mix of index funds and actively managed equity accounts that are benchmarked to various large cap indices. (b) A mix of index funds and actively managed equity accounts that are benchmarked to various mid cap indices. 88 2015 Form 10-K(c) A mix of index funds and actively managed equity accounts that are benchmarked to various non-U.S. equity indices in both developed and emerging markets. (d) Securities held by actively managed accounts, index funds and mutual funds. (e) Primarily funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets. (f) Investments in cash and cash equivalents. that are valued usingand registered investment companies having quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment companyFixed income securities that are valued using significant other observable inputs are quoted at prices obtained from independent financial service industry-recognized vendors. Investments held in pooled investment funds, common collective trusts or limited partnerships are valued at the net asset value (NAV) practical expedient to estimate fair value. The NAV is provided by the fund administrator. The NAVadministrator and is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator. The following table summarizes the change in the value of plan assets that are measured using significant unobservable inputs (Level 3):as of and for the years ended December 31 (in millions) 2015 2014 $ 474 $ 411 5 21 161 42 $ 640 $ 474 35 percent35% in equity securities, 20 percent20% in fixed income securities and 45 percent45% in asset allocation strategies and other holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension Plan or of any other plans' assets. plans' expected return on plan assets assumption as shown above,for each plan is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolios.portfolio. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.Defined Benefit and Other Post-Employment Plan Paymentsyears ended December 31 (in millions) Defined
benefit plans Other
post-employment
plans $ 168 $ 11 $ 177 $ 14 $ 188 $ 17 $ 199 $ 20 $ 212 $ 19 $ 1,295 $ 133 abovefollowing table reflectssummarizes total benefit payments expected to be paid to plan participants which includesincluding payments funded from both plan and company assets as well as paid from the plans.Otheryears ending December 31 (in millions) 2018 $ 192 $ 16 2019 206 19 2020 218 20 2021 232 22 2022 246 24 2023 to 2027 1,474 153 $67 million in 2014, and $62 million in 2013 related to this plan. AbbVie provides certain other post-employment benefits, primarily salary continuation arrangements, to qualifying employees and accrues for the related cost over the service lives of the employees.201580 |2017 Form 10-K| 89Note 12 Equity Stock-based expense was $282 million, $241 million, and $212 million in 2015, 2014, and 2013, respectively, and is principally classified in SG&A for all periods presented, with the remainder classified in R&D expenses and cost of products sold. The related tax benefit recognized in 2015, 2014, and 2013 was $89 million, $73 million, and $68 million, respectively. Compensation expense for stock-based awards is measured based on the grant date fair value of the awards as of the date the stock-based awards are granted and adjusted to the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for stock-based awards is amortized over theirthe service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. For stock-based awards granted to retirement-eligible employees, compensation expense is recognized immediately at the grant date because the employee is able to retain the award without continuing to provide service.eligible. Retirement eligible employees generally are generally those thatwho are age 55 or older and have at least ten years of service. Priorseparation, AbbVie employees participated in Abbott's incentive stock program. The AbbVie 2013 Incentive Stock Program, adopted at the time of separation, facilitated the assumption of certain awards granted under Abbott's incentive stock program and authorizes the post-separation grant of several different forms of benefits, including nonqualified stock options, RSAs, RSUs, and performance-based RSAs and RSUs. Under the AbbVie 2013 Incentive Stock Program, 100 million shares of common stock were reserved for issuance with respect to post-separation awards for participants. In connection with the separation, outstanding Abbott employee stock options, RSAs and RSUs previously issued under Abbott's incentive stock program were adjusted and converted into new Abbott and AbbVie stock-based awards using a formula designed to preserve the intrinsic value and fair value of the awards immediately priorpursuant to the separation. Upon2013 ISP and is summarized as follows: Years ended December 31, (in millions) 2017 2016 2015 Cost of products sold $ 23 $ 22 $ 21 Research and development 159 193 111 Selling, general and administrative 183 181 150 Pre-tax compensation expense 365 396 282 Tax benefit 73 104 89 After-tax compensation expense $ 292 $ 292 $ 193 separation on January 1, 2013, holders of Abbott stock options, RSAs and RSUs generally received one AbbVie stock-based awardyear ended December 31, 2016 also included the post-combination impact related to Stemcentrx options. See Note 5 for each Abbott stock-based award outstanding. These adjusted awards retainedadditional information related to the vesting schedule and expiration date of the original awards. No AbbVie awards have been granted to Abbott employees other than in connection with the separation. In 2015, 2014, and 2013,Stemcentrx acquisition.and recordedtotaled $71 million in additional paid-in capital totaled2017, $55 million in 2016 and $61 million $56 million, and $38 million, respectively, and were presentedin 2015. Beginning in 2017, all excess tax benefits associated with stock-based awards are recognized in the consolidated statementsstatement of cash flowsearnings when the awards vest or settle, rather than in stockholders' equity as an outflow in operating activities and an inflow in financing activities.Stock Options The exercise price for options granted is at least equal to 100 percenta result of the fair value onadoption of a new accounting pronouncement. See Note 2 for additional information regarding the dateadoption of grant. this new accounting pronouncement.90 |2015 Form 10-K of stock options is determined using the Black-Scholes model. The weighted-average grant-date fair values of stock options granted were $9.80 in 2017, $9.29 in 2016 and $9.96 $9.83, and $6.87 in 2015, 2014, and 2013, respectively. Stock-based compensation expense attributable to options during each of the years presented was not material. 812015:2017:year ended December 31
(options in thousands, aggregate intrinsic value in millions) Options Weighted-
average
exercise price Weighted-
average
remaining
life (in years) Aggregate
intrinsic value 28,280 $ 28.53 3.3 $ 1,044 1,207 58.83 (5,871 ) 26.31 (47 ) 27.50 23,569 $ 30.64 3.0 $ 674 21,091 $ 28.16 2.4 $ 656 (options in thousands, aggregate intrinsic value in millions) Options Outstanding at December 31, 2016 15,962 $ 33.63 3.7 $ 463 Granted 1,241 61.36 Exercised (8,836 ) 30.06 Lapsed (51 ) 32.58 Outstanding at December 31, 2017 8,316 $ 41.69 5.1 $ 458 Exercisable at December 31, 2017 5,661 $ 35.51 3.6 $ 346 The aggregate intrinsic value in the table above represents the difference between the exercise price and the company's closing share price on the last day of trading in 2015. 2015, 20142017, $325 million in 2016 and 2013 was $216 million $253 million, and $229 million respectively.in 2015. The total fair value of options vested during 20152017 was $10$32 million.RSAs & RSUs RSAs and RSUs generally vest On June 1, 2016, AbbVie issued stock options for 1.1 million AbbVie shares to holders of unvested Stemcentrx options as a result of the conversion of such options in one-third increments over three years. Upon vesting,connection with the recipient receives one share of common stockStemcentrx acquisition. These options were fair-valued using a lattice valuation model. See Note 5 for each vested award. AbbVie grants performance-based RSAs and RSUsadditional information related to selected executives and other key employees with vesting primarily contingent upon AbbVie achieving a minimum return on equity. The fair value of RSAs and RSUs (including performance-based awards) is determined based on the number of shares granted and the quoted price of AbbVie's common stock on the date of grant. For purposes of determining compensation expense, AbbVie periodically evaluates whether the performance goals will be achieved. If such goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The following table summarizes AbbVie RSA and RSU activity (including performance-based awards) for both AbbVie and Abbott employees for 2015:year ended December 31 (share units in thousands) Share units Weighted-average
grant date fair value 12,815 $ 40.98 6,052 60.85 (5,702 ) 37.46 (675 ) 51.11 12,490 $ 51.66 The fair market value of RSAs and RSUs vested in 2015, 2014 and 2013 was $335 million, $338 million and $285 million, respectively.2015, $2392017, $14 million of unrecognized compensation cost related to RSAs and RSUsstock options is expected to be recognized as expense over approximately the next two years.201582 |2017 Form 10-K| 91(share units in thousands) Share units Outstanding at December 31, 2016 10,715 $ 56.47 Granted 6,109 61.89 Vested (5,532 ) 56.34 Forfeited (610 ) 59.50 Outstanding at December 31, 2017 10,682 $ 59.47 On February 13, May 15, August 14 and November 16, 2015, AbbVie paidof $0.49, $0.51, $0.51declared for the years ended December 31, 2017 and $0.51 per share of common stock, respectively, which were declared by the board of directors on October 20, 2014 and2016:2017 2016 Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share 10/27/17 02/15/18 $0.71 10/28/16 02/15/17 $0.64 09/08/17 11/15/17 $0.64 09/09/16 11/15/16 $0.57 06/22/17 08/15/17 $0.64 06/16/16 08/15/16 $0.57 02/16/17 05/15/17 $0.64 02/18/16 05/16/16 $0.57 19, June 18, and September 11, 2015 respectively. The dividends declared on October 20, 2014 and February 19, 2015, represented an increase of nearly 17 percent and approximately 4 percent, respectively, over the previous quarterly rates of $0.42 per share and $0.49 per share, respectively. On October 30, 2015, the company15, 2018, AbbVie announced that its board of directors declared an increase in the company's quarterly cash dividend from $0.51$0.71 per share to $0.57$0.96 per share beginning with the dividend payable on February 16, 2016May 15, 2018 to stockholders of record as of January 15, 2016. This reflects an increase of approximately 12 percent over the previous quarterly rate. On February 14, May 15, August 15, and November 17, 2014, AbbVie paid quarterly cash dividends of $0.40, $0.42, $0.42 and $0.42 per share of common stock, respectively, which were declared by the board of directors on December 12, 2013 and February 20, June 19, and September 19, 2014, respectively. On February 15, 2013, AbbVie's board of directors authorized a $1.5 billion stock repurchase program. On October 20, 2014, AbbVie's board of directors authorized a new $5.0 billion stock repurchase program, which was effective immediately and superseded the previous authorization. currentcompany's stock repurchase authorization permits purchases of AbbVie shares from time to time in open marketopen-market or private transactions at management's discretion depending on the company's cash flows, net debt level and market conditions.management’s discretion. The program has no time limit and can be discontinued at any time. In March 2015, the board of directors authorized a $5.0 billion increase to the existing stock repurchase program in anticipation of executing an accelerated share repurchase agreement in connection with the acquisition of Pharmacyclics. On May 26, 2015, AbbVie entered into and executed the $5.0 billion ASR with Morgan Stanley. Pursuant to the terms of ASR, Morgan Stanley made an initial delivery of approximately 68 million shares of AbbVie's common stock on May 27, 2015, which represented approximately 90 percent of the total shares expected to be delivered under the ASR. Morgan Stanley subsequently delivered an additional 5 million shares of AbbVie's common stock to AbbVie in final settlement of the ASR in 2015. AbbVie recorded the aggregate $5.0 billion purchase price as a reduction to common stock held in treasury in the consolidated balance sheet as of December 31, 2015. In addition to the ASR, AbbVie repurchased approximately 46 million shares, 9 million shares, and 4 million shares for $2.8 billion, $550 million, and $223 million in 2015, 2014 and 2013, respectively, in the open market. AbbVie settled $300 million of its 2015 open market purchases in 2016. Shares repurchased under these programs are recorded at acquisition cost, including related expenses and are available for general corporate purposes. AbbVie's board of directors authorized increases to its existing stock repurchase program of $4.0 billion in April 2016 in anticipation of executing an ASR in connection with the Stemcentrx acquisition and of $5.0 billion in March 2015 in anticipation of executing an ASR in connection with the Pharmacyclics acquisition. The following table shows details about AbbVie’s ASR transactions:(shares in millions, repurchase amounts in billions) Execution date Purchase amount Initial delivery of shares Final delivery of shares Related acquisition 05/26/15 $5.0 68.1 5.0 Pharmacyclics 06/01/16 3.8 54.4 5.4 Stemcentrx $1.9$4.0 billion as of December 31, 2015.2017.92 2015 Form 10-K2015, 20142017, 2016 and 2013:2015:(in millions) (brackets denote losses) Foreign
currency
translation
adjustments Pension
and post-
employment
benefits Unrealized
gains
(losses) on
marketable
equity
securities Hedging
activities Total $ 181 $ (511 ) $ 1 $ (21 ) $ (350 ) 48 519 1 (77 ) 491 — 79 — — 79 48 598 1 (77 ) 570 241 (914 ) — 11 (662 ) 470 (827 ) 2 (87 ) (442 ) (1,073 ) (827 ) 1 187 (1,712 ) — 46 — 77 123 (1,073 ) (781 ) 1 264 (1,589 ) (603 ) (1,608 ) 3 177 (2,031 ) (667 ) 147 48 122 (350 ) — 83 (4 ) (259 ) (180 ) (667 ) 230 44 (137 ) (530 ) $ (1,270 ) $ (1,378 ) $ 47 $ 40 $ (2,561 ) (in millions) (brackets denote losses) Marketable security activities Total Balance as of December 31, 2014 $ (603 ) $ — $ (1,608 ) $ 3 $ 177 $ (2,031 ) (667 ) — 147 48 122 (350 ) Net losses (gains) reclassified from accumulated other comprehensive loss — — 83 (4 ) (259 ) (180 ) (667 ) — 230 44 (137 ) (530 ) Balance as of December 31, 2015 (1,270 ) — (1,378 ) 47 40 (2,561 ) (165 ) 140 (194 ) 7 160 (52 ) Net losses (gains) reclassified from accumulated other comprehensive loss — — 59 (8 ) (24 ) 27 (165 ) 140 (135 ) (1 ) 136 (25 ) Balance as of December 31, 2016 (1,435 ) 140 (1,513 ) 46 176 (2,586 ) 680 (343 ) (480 ) 29 (230 ) (344 ) 316 — 74 (75 ) (112 ) 203 996 (343 ) (406 ) (46 ) (342 ) (141 ) Balance as of December 31, 2017 $ (439 ) $ (203 ) $ (1,919 ) $ — $ (166 ) $ (2,727 ) 2014 includes2017 also included foreign currency translation adjustments totaling a gain of $680 million, which was principally due to the impact of the strengthening of the Euro on the translation of the company’s Euro-denominated assets. Other comprehensive loss in 2016 included foreign currency translation adjustments totaling a loss of $1.1 billion,$165 million, which was principally driven by (i)due to the impact of the substantial weakening of the Euro in 2014 on the translation of the company'scompany’s Euro-denominated assets, and (ii) the weakening of foreign currencies in combination with an increased concentration of cash denominated in foreign currencies accumulated in anticipation of the terminated proposed combination with Shire plc.assets. Other comprehensive loss in 2015 includesincluded foreign currency translation adjustments totaling a loss of $667 million, which was principally driven by the impact of the continued weakening of the Euro on the translation of the company's Euro-denominated assets.201584 |2017 Form 10-K| 93years ended December 31 (in millions) (brackets denote gains) 2015 2014 2013 $ 129 $ 66 $ 114 (46 ) (20 ) (35 ) $ 83 $ 46 $ 79
$ (265 ) $ 79 $ — 6 (2 ) — $ (259 ) $ 77 $ — years ended December 31 (in millions) (brackets denote gains) 2017 2016 2015 Pension and post-employment benefits $ 107 $ 85 $ 129 Tax benefit (33 ) (26 ) (46 ) Total reclassifications, net of tax $ 74 $ 59 $ 83 Cash flow hedging activities $ (118 ) $ (20 ) $ (265 ) Tax expense (benefit) 6 (4 ) 6 Total reclassifications, net of tax $ (112 ) $ (24 ) $ (259 ) (a) (b) (a)Amounts are included in the computation of net periodic benefit cost (see Note 11).(b)Amounts are included in cost of products sold (see Note 10).Other2015,2017, no shares of preferred stock were issued or outstanding.Note 13 Income Taxesyears ended December 31 (in millions) 2015 2014 2013 $ (1,038 ) $ (3,245 ) $ (581 ) 7,683 5,614 5,913 $ 6,645 $ 2,369 $ 5,332 years ended December 31 (in millions) 2017 2016 2015 Domestic $ (2,678 ) $ (1,651 ) $ (1,038 ) Foreign 10,405 9,535 7,683 Total earnings before income tax expense $ 7,727 $ 7,884 $ 6,645 The domestic loss before income taxes in 2014 was driven by transaction and financing-related costs associated with the terminated proposed combination with Shire. Refer to Note 5 for further information.years ended December 31 (in millions) 2015 2014 2013 $ 1,036 $ 634 $ 226 313 341 354 $ 1,349 $ 975 $ 580 $ 141 $ (301 ) $ 678 11 (79 ) (54 ) $ 152 $ (380 ) $ 624 $ 1,501 $ 595 $ 1,204 years ended December 31 (in millions) 2017 2016 2015 Current Domestic $ 6,204 $ 2,229 $ 1,036 Foreign 376 498 313 Total current taxes $ 6,580 $ 2,727 $ 1,349 Deferred Domestic $ (4,898 ) $ (792 ) $ 141 Foreign 736 (4 ) 11 Total deferred taxes $ (4,162 ) $ (796 ) $ 152 Total income tax expense $ 2,418 $ 1,931 $ 1,501 94 2015 Form 10-Kyears ended December 31 2015 2014 2013 35.0 % 35.0 % 35.0 % 0.1 — 0.3 (9.4 ) (11.3 ) (11.5 ) (4.5 ) (8.9 ) (2.7 ) 0.7 3.7 0.4 (1.6 ) 3.6 0.1 2.3 3.0 1.0 22.6 % 25.1 % 22.6 % years ended December 31 2017 2016 2015 Statutory tax rate 35.0 % 35.0 % 35.0 % Effect of foreign operations (12.2 ) (10.3 ) (9.4 ) U.S. tax credits (4.0 ) (4.4 ) (4.5 ) Impacts related to U.S. tax reform 12.0 — — Tax law change related to foreign currency — 2.4 — All other, net 0.5 1.8 1.5 Effective tax rate 31.3 % 24.5 % 22.6 % 2015, 20142017, 2016 and 20132015 differed from the statutory tax rate principally due to changes in enacted tax rates and laws, the benefit from foreign operations which reflects the impact of lower income tax rates in locations outside the United States, tax exemptions and incentives in Puerto Rico and other foreign tax jurisdictions, and business development activities together withand the cost of repatriation decisions. The effective tax rates for these periods also reflected the benefit from U.S. tax credits principally related to research and development credits, the orphan drug tax credit and Puerto Rico excise tax credits. The research and development credits for 2015 and 2014 were due to legislation enacted in the fourth quarter of each year that retroactively extended the credit. The Puerto Rico excise tax credits relate to legislation enacted by Puerto Rico that assesses an excise tax beginning in 2011 on certain products manufactured in Puerto Rico. The tax is levied on gross inventory purchases from entities in Puerto Rico and is included in cost of products sold in the consolidated statements of earnings. The majority of the tax is creditable for U.S. income tax purposes. The effective tax rate in 2014 included additional expenses of $129 million related to the Branded Prescription Drug Fee, which is non-deductible, and state valuation allowances of $129 million. On July 28, 2014, the Internal Revenue Service issued final rules and regulations for the Branded Prescription Drug Fee, an annual non-tax-deductible fee payable to the federal government under the Affordable Care Act based on an allocation of a company's market share for branded prescription drugs sold to certain government programs in the prior year. The final rules accelerated the expense recognition criteria for the fee obligation from the year in which the fee is paid, to the year in which the market share used to allocate the fee is determined. This change required AbbVie and other industry participants to recognize an additional year of expense in 2014. The effective income tax rate in 2015, 2014 and 2013 reflects income tax expenses relating to current earnings outside the United States that are not deemed indefinitely reinvested.201586 |2017 Form 10-K| 95as of December 31 (in millions) 2015 2014 2017 2016 $ 584 $ 627 $ 556 $ 718 368 376 315 425 472 297 305 473 372 382 219 391 45 53 282 125 208 151 316 292 429 289 2,439 2,152 2,032 2,447 (70 ) (172 ) (108 ) (76 ) 2,369 1,980 1,924 2,371 (4,459 ) (331 ) (3,762 ) (5,487 ) (2,958 ) (326 ) (181 ) (3,367 ) Other (203 ) (182 ) (7,417 ) (657 ) (4,146 ) (9,036 ) $ (5,048 ) $ 1,323 Net deferred tax liabilities $ (2,222 ) $ (6,665 ) increasesdecreases in the deferred tax assets and liabilities arewere primarily due to the acquisitionenactment of Pharmacyclicsthe U.S. tax reform that reduced the U.S. federal corporate tax rate from 35% to 21% and created a territorial tax system, which will generally allow repatriation of future foreign sourced earnings without incurring additional U.S. taxes. The Act also created a minimum tax on certain foreign sourced earnings. The taxability of the foreign sourced earnings and the applicable tax rates are dependent on future events. While the company is still evaluating its accounting policy for the minimum tax on foreign sourced earnings, the provisional estimates of the tax effects of the Act were reported on the basis that the minimum tax will be recognized in which AbbVie recordedtax expense in the excessyear it is incurred as a period expense.book basis over tax basis of intangible assets and investments. Gross federalDecember 31, 2017, gross state net operating losslosses were $1.2 billion and tax credit carryforwards as of December 31, 2015 were $293 million and $147 million, respectively, and are available for use through 2035. Gross state net operating loss and tax credit carryforwards as of December 31, 2015 were $1.3 billion and $152 million, respectively.$228 million. The state tax carryforwards expire between 20172018 and 2035.2038. As of December 31, 2015,2017, foreign net operating loss carryforwards were $232$209 million. Foreign net operating loss carryforwards of $177$155 million expire between 2018 and 2023,2027 and the remaining do not have an expiration period. As of December 31, 2015 and 2014, the$70$108 million as of December 31, 2017 and $172$76 million respectively,as of December 31, 2016. These were principally related to state net operating losses and credit carryforwards that are not expected to be realized. Deferredhave not been providedreceivable were $2.1 billion as of December 31, 2017 and $347 million as of December 31, 2016 and were included in prepaid expenses and other on approximately $25 billion of the undistributed earnings of foreign subsidiaries as these earnings have been indefinitely reinvested for continued use in foreign operations. Due to the complexities in tax laws and assumptions that would have to be made, it is not practicable to estimate the amount of income taxes that would be due if these earnings were distributed.years ended December 31 (in millions) 2015 2014 2013 $ 421 $ 247 $ 1,140 187 115 195 369 67 — (15 ) (6 ) — (8 ) (2 ) — — — (1,088 ) $ 954 $ 421 $ 247 years ended December 31 (in millions) 2017 2016 2015 Beginning balance $ 1,168 $ 954 $ 421 Increase due to current year tax positions 1,768 118 187 Increase due to prior year tax positions 16 111 369 Decrease due to prior year tax positions (2 ) (7 ) (15 ) Settlements (233 ) — — Lapse of statutes of limitations (16 ) (8 ) (8 ) Ending balance $ 2,701 $ 1,168 $ 954 96 2015 Form 10-K The table above reflects the 2013 reduction of $1.1 billion relating to tax periods prior to the separation for which Abbott is the primary obligor. However, under U.S. Treasury Regulations, each member of a consolidated group is severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Accordingly, with respect to periods in which AbbVie was included in Abbott's consolidated group, AbbVie could be liable to the U.S. government for any U.S. federal income tax liability incurred by the consolidated group, to the extent not discharged by any other member. However, if any such liability were imposed, AbbVie would be entitled to be indemnified by Abbott pursuant to the tax sharing agreement.$901 million$2.6 billion in 2017 and $389 million$1.1 billion in 2015 and 2014, respectively.2016. Of the unrecognized tax benefits recorded in the table above as of December 31, 2015,2017, AbbVie would be indemnified for approximately $107$85 million. The “Increases due to current year tax positions” in the table above includes amounts related to federal, state and international tax items, including a provisional estimate of the remeasurement of unrecognized tax benefits related to earnings of foreign subsidiaries following the enactment of U.S. tax reform in 2017. The "Increase due to prior year tax positions" in the table above includes amounts relating to federal, state and international items as well as prior positions acquired through business development activities during the year. Uncertain tax positions are generally included as a long-term liability on the consolidated balance sheets.expense. In 2015, 2014, and 2013,expense in the consolidated statements of earnings. AbbVie recognized gross income tax expense of $24 million in 2017, $35 million in 2016 and $13 million $10 million, and $3 million, respectively,in 2015, for interest and penalties related to income tax matters. At December 31, 2015, 2014, and 2013, AbbVie had $83 million, $25 million, and $15 million accruedan accrual for the payment of gross interest and penalties.$15$31 million. All significant federal, state, local and international matters have been concluded for years through 2005.2008. The company believes adequate provision has been made for all income tax uncertainties.Note 14 Legal Proceedings and Contingenciesmanagement'smanagement’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount within a probable range is recorded. The recorded accrual balance for litigation was approximately $445 million as of December 31, 2017 and approximately $225 million at December 31, 2015 was $166 million and at December 31, 2014 was not significant.2016. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to predict the outcome of all proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on AbbVie'sAbbVie’s consolidated financial position, results of operations or cash flows.2015 Form 10-K | 97, MDL No. 2084. These cases, brought by private plaintiffs and the Federal Trade Commission (FTC), generally allege Solvay's 2006 patent litigation involving AndroGel was sham litigation and the 2006 patent litigation settlement agreementagreements and related agreements with three generic companies violate federal and state antitrust laws and state consumer protection and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys' fees. MDL No. 2084 includes:These cases include: (a) four individual plaintiff lawsuits; (b) sixthree purported class actions; and (c) Federal Trade Commission v. Watson Pharmaceuticals,Actavis, Inc. et al. Following the district court's dismissal of all plaintiffs' claims, appellate proceedings led to the reinstatement of the claims regarding the patent litigation settlement,settlements, which are proceeding in discovery in the district court. The Attorney General of the State of Alaska has served AbbVie with a Civil Investigative Demand, primarily seeking documents that AbbVie produced in these lawsuits. In November 2007, GlaxoSmithKline plc (GSK) filed a lawsuit against Abbott in the United States District Court for the Northern District of California alleging that Abbott violated federal antitrust and various state laws in connection with the 2003 Norvir re-pricing. In March 2011, a jury found that Abbott did not violate antitrust laws, but breached its license agreement with GSK. In January 2014, the United States Court of Appeals for the Ninth Circuit reversed this verdict and remanded the case for a new trial due to the alleged improper exclusion of a potential juror. The case was returned to the district court in California, but after GSK dismissed its federal antitrust claims, the case was transferred in April 2015 to the United States District Court for the Middle District of North Carolina, where pre-trial proceedings are pending. AbbVie assumed the liability for and control of this proceeding in connection with its separation from Abbott. |2017 Form 10-Kthreefour individual plaintiff lawsuits and two consolidated purported class actions: one brought by three named direct purchasers of Niaspan and the other brought by ten named end-payorend-payer purchasers of Niaspan. The cases are consolidated for pre-trial proceedings in the United States District Court for the Eastern District of Pennsylvania under the MDL Rules asIn re: Niaspan Antitrust Litigation,, MDL No. 2460. The office of the Attorney General ofIn October 2016, the State of Alaska has served AbbVie withCalifornia filed a Civil Investigative Demand, primarilylawsuit regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking documents that AbbVie produced in this lawsuit. The office of the Attorney General of the State of Alaska has served AbbVie with a Civil Investigative Demand, primarily seeking documents that AbbVie produced in this lawsuit.stateState antitrust and unfair trade practices laws. The lawsuit98 |2015 Form 10-K In August 2015, the court dismissed the case as time-barred. The state's appeal of that dismissal is pending. In August 2013, a putative class action lawsuit,Sidney Hillman Health Center of Rochester, et al. v. AbbVie Inc., et al., was filed against AbbVie in the United States District Court for the Northern District of Illinois by three healthcare benefit providers alleging violations of Federal Racketeer Influenced and Corrupt Organizations (RICO) statutes and state deceptive business practice and unjust enrichment laws in connection with reimbursements for certain uses of Depakote from 1998 to 2012. Plaintiffs seek monetary damages and/or equitable relief and attorneys' fees.payorspayers who paid for TRTs, including AndroGel. The claims asserted include violations of the federal RICO Act and state consumer fraud and deceptive trade practices laws. The complaint seeks monetary damages and injunctive relief. A similar lawsuit,Allied Services Division Welfare Fund v. AbbVie Inc., et al., was filed in the same court in October 2015 on behalf of the same putative class members and a putative class of consumers.2,5004,300 claims are consolidated for pre-trial purposes in the United States District Court for the Northern District of Illinois under the MDL Rules asIn re: Testosterone Replacement Therapy Products Liability Litigation,, MDL No. 2545. Approximately 170210 claims are pending in various state courts. Plaintiffs generally seek compensatory and punitive damages.715635 claims are pending in the United States District Court for the Southern District of Illinois, and the rest are pending in various other federal and state courts. Plaintiffs generally seek compensatory and punitive damages. The complaint seeks monetary damagesinjunctive relief. 89December 2014,May 2017, a shareholder derivative lawsuit,Plumbers & Steamfitters Local 60 Pension Plans Ellis v. J.P. Morgan Securities LLC,Gonzalez, et al., was filed in Delaware Chancery Court, alleging that AbbVie's directors breached their fiduciary duties in connection with statements made regarding the approval and termination of AbbVie's proposed transaction with Shire.Shire transaction. The lawsuit seeks monetaryunspecified compensatory damages for AbbVie, among other relief.2015 Form 10-K | 99Note 15 Segment and Geographic Area Informationyears ended December 31 (in millions) 2015 2014 2013 2017 2016 2015 $ 14,012 $ 12,543 $ 10,659 $ 18,427 $ 16,078 $ 14,012 754 — — 2,573 1,832 754 1,639 48 — HCV 1,274 1,522 1,639 Lupron 829 821 826 632 516 412 831 730 632 740 835 827 738 730 740 826 778 785 755 709 622 781 763 755 AndroGel 577 675 694 700 870 962 423 549 700 694 934 1,035 474 550 568 410 428 474 231 220 178 355 293 231 179 328 1,076 1,223 1,629 1,666 998 1,217 1,402 $ 22,859 $ 19,960 $ 18,790 $ 28,216 $ 25,638 $ 22,859 |2017 Form 10-Kyears ended December 31 (in millions) 2015 2014 2013 2017 2016 2015 $ 13,561 $ 10,845 $ 10,181 $ 18,251 $ 15,947 $ 13,561 1,082 1,035 911 1,157 1,104 1,082 688 722 606 807 776 688 618 534 543 599 581 625 764 770 599 597 584 540 730 713 597 551 551 538 659 624 551 Spain 521 589 618 452 432 404 475 523 452 376 435 439 410 355 376 334 345 332 362 352 334 4,001 3,896 3,671 4,080 3,885 4,001 $ 22,859 $ 19,960 $ 18,790 $ 28,216 $ 25,638 $ 22,859 includeprimarily net property and equipment, of $2.6 billion and $2.5 billionby geographic area were as of December 31, 2015 and 2014, of which $1.9 billion and $1.8 billion, respectively, was located in the United States and Puerto Rico and $513 million and $551 million, respectively, was located in Europe.follows:as of December 31 (in millions) 2017 2016 United States and Puerto Rico $ 1,862 $ 1,822 Europe 621 504 All other 320 278 Total long-lived assets $ 2,803 $ 2,604 100 2015 Form 10-KNote 16 Quarterly Financial Data (unaudited)(in millions except per share data) 2015 2014 2017 2016 $ 5,040 $ 4,563 $ 6,538 $ 5,958 $ 4,098 $ 3,463 4,922 4,589 $ 1,022 $ 980 1,711 1,354 $ 0.64 $ 0.61 $ 1.07 $ 0.83 $ 0.63 $ 0.61 $ 1.06 $ 0.83 $ 0.51 $ 0.42 $ 0.64 $ 0.57
$ 5,475 $ 4,926 $ 6,944 $ 6,452 $ 4,559 $ 3,813 5,416 5,047 $ 1,366 $ 1,098 1,915 1,610 $ 0.84 $ 0.69 $ 1.20 $ 0.99 $ 0.83 $ 0.68 $ 1.19 $ 0.98 $ 0.51 $ 0.42 $ 0.64 $ 0.57
$ 5,944 $ 5,019 $ 6,995 $ 6,432 $ 4,777 $ 3,925 5,379 4,928 $ 1,239 $ 506 1,631 1,598 $ 0.75 $ 0.32 $ 1.02 $ 0.97 $ 0.74 $ 0.31 $ 1.01 $ 0.97 $ 0.51 $ 0.42 $ 0.64 $ 0.57
$ 6,400 $ 5,452 $ 4,925 $ 4,333 $ 1,517 $ (810 ) $ 0.93 $ (0.51 )(f) $ 0.92 $ (0.51 )(f) Net revenues $ 7,739 $ 6,796 Gross margin 5,459 5,241 52 1,391 Basic earnings per share $ 0.03 $ 0.86 Diluted earnings per share $ 0.03 $ 0.85 $ 0.57 $ 0.49 $ 0.71 $ 0.64 (a)(a) (b) (c) (d) |2017 Form 10-KResults for the first quarterremeasurement of 2015 included after-tax foreign exchange losses of $170 millionnet deferred tax liabilities and other related to the liquidation in 2015 of remaining foreign currency positions related to the terminated proposed combination with Shire in 2014, a $100 million after-tax charge as a result of entering into an exclusive worldwide license agreement with C2N andimpacts. Additional after-tax costs of $41 million incurred in connection with the with the acquisition of Pharmacyclics.(b)Secondthat impacted fourth quarter results in 2017 included $244 millionfor 2015 included after-tax costs totaling $215an intangible asset impairment charge, $221 million incurred in connection with the acquisition and integration of Pharmacyclics. In 2014, second quarter results included an after-tax for a charge of $40to increase litigation reserves, $205 million related to a regulatory milestone made to a collaboration partner for regulatory milestones related to the company's HCV program.(c)Results for the third quarter of 2015 included a $350 million after-tax charge related to the purchase of a rare pediatric disease PRV from United Therapeutics Corporation, after after-tax costs totaling $85 million incurred in connection with the acquisition and integration of Pharmacyclics, and an $83 million after-tax charge due to the achievement of a development milestone under the global collaboration with Infinity. In 2014, third quarter results included a $173 million after-tax charge as a result of entering into a global strategic collaboration with Infinity, a $250Alector, Inc. and $79 million after-tax charge related to the change in fair value of contingent consideration liabilities. These costs were partially offset by an after-tax benefit of $91 million due to a research and development collaboration agreement with Calico, and transaction and financing-related2015 Form 10-K | 101and other costs aggregating $172 million after-tax that were incurred in connection with the terminated proposed combination with Shire. Refer to Note 5 for further information relating to the termination of the proposed combination with Shire and the collaborations with Calico and Infinity.
contingent consideration liabilities.(d)Net revenues and gross margin in 2015 included milestone revenue of $40 million from a collaboration partner related the company's oncology program. Net revenues and gross margin in 2014 include royalty income of $81 million relating to prior periods as a result of the settlement of a licensing arrangement.(e)for 2015in 2016 included after-tax costs totaling $68$187 million incurred associated with a tax law change for regulations issued in connection with the acquisition and integration of Pharmacyclics and after-tax charges of $101 million to increase the company's litigation reserves. For 2014, results for the fourth quarter included after-tax transaction and financing-related and other costs incurred in connection with the terminated proposed combination with Shire aggregating $1.6 billion and a $500 million after-tax charge related to the research and development collaboration agreement with Calico.(f)Basic loss per share for the fourth quarter of 2014 was calculated under2016 that revised the treasury-stock methodtreatment of foreign currency translation gains and losses for certain operations as it was more dilutive. Approximately 36well as after-tax costs totaling $85 million common shares were excluded from related to the computationchange in fair value of diluted (loss) per share assuming dilution because the effect would have been anti-dilutive.102 2015 Form 10-Kand Shareholders of AbbVie Inc.20152017 and 2014,2016, and the related consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are2017, and the responsibility ofrelated notes (collectively referred to as the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)“financial statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. referred to above present fairly, in all material respects, the consolidated financial position of AbbVie Inc. and subsidiariesthe Company at December 31, 20152017 and 2014,2016, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2015,2017, in conformity with U.S. generally accepted accounting principles.AbbVie Inc. and subsidiaries'the Company's internal control over financial reporting as of December 31, 2015,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 201616, 2018 expressed an unqualified opinion thereon. |2017 Form 10-K None.ITEM 9A. CONTROLS AND PROCEDURESProceduresInternal Control Over Financial Reporting Management's annual report on internal control over financial reporting. Management's report on internal control over financial reporting is included on page 105 hereof. The report of AbbVie's independent registered public accounting firm related to its assessment of the effectiveness of internal control over financial reporting is included on page 106 hereof. As part of its separation from Abbott, in 2014 AbbVie began a phased global implementation of a new enterprise resource planning system, related technology infrastructure and transaction processing services to replace the information technology infrastructure and transactional services provided to AbbVie by Abbott under various transition services agreements. These initiatives, which were completed in 2015, included modifications to the design and operation of controls over financial reporting. AbbVie reviewed these controls for design effectiveness prior to the implementation of each phase. other changes in AbbVie's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, AbbVie's internal control over financial reporting during the quarter ended December 31, 2015.Limitationslimitations on Effectivenesseffectiveness of Controls.controls. AbbVie's management, including its Chief Executive Officer and its Chief Financial Officer, do not expect that AbbVie's disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. 95 |2017 Form 10-K 97 None.104 |2015 Form 10-KManagement's Report on Internal Control Over Financial Reporting Management of AbbVie is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. AbbVie's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting. Management assessed the effectiveness of AbbVie's internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework (2013 framework). Based on that assessment, management concluded that AbbVie maintained effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria. On May 26, 2015, AbbVie acquired Pharmacyclics, Inc. (Pharmacyclics), which represents a material change in the internal control over financial reporting since management's last assessment of effectiveness. Management has excluded Pharmacyclics from its assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 31, 2015. AbbVie's consolidated balance sheet as of December 31, 2015 included $1 billion of total assets (excluding goodwill and other intangible assets which were included in management's assessment of internal controls over financial reporting) related to Pharmacyclics. In addition, AbbVie's consolidated statement of net earnings for 2015 included $774 million of net revenues and reflected a net loss of $331 million related to Pharmacyclics. The effectiveness of AbbVie's internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report appearing on page 106 hereof, which expresses an unqualified opinion on the effectiveness of AbbVie's internal control over financial reporting as of December 31, 2015.2015 Form 10-K | 105REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders of AbbVie Inc. We have audited AbbVie Inc. and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). AbbVie Inc. and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include internal controls of Pharmacyclics, Inc., which was acquired on May 26, 2015 and is included in the 2015 consolidated financial statements of AbbVie Inc. and subsidiaries and constituted $1 billion of total assets (excluding goodwill and other intangible assets which were included in management's assessment of and conclusions on the effectiveness of internal control over financial reporting) as of December 31, 2015 and $774 million and $331 million of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of AbbVie Inc. and subsidiaries also did not include an evaluation of the internal control over financial reporting of Pharmacyclics, Inc. In our opinion, AbbVie Inc. and subsidiaries' maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2015 of AbbVie Inc. and subsidiaries and our report dated February 19, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young LLPChicago, IllinoisFebruary 19, 2016106 |2015 Form 10-K |2017 Form 10-KITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE20162018 AbbVie Inc. Proxy Statement. The 20162018 Definitive Proxy Statement will be filed on or about March 21, 2016.19, 2018. Also incorporated herein by reference is the text found in this Form 10-K under the caption, "Executive Officers of the Registrant" on pages 26 and 27 hereof.ITEM 11. EXECUTIVE COMPENSATION20162018 AbbVie Inc. Proxy Statement under the headings "Director Compensation," "Executive Compensation," and "Compensation Committee Report" is incorporated herein by reference. The 20162018 Definitive Proxy Statement will be filed on or about March 21, 2016.19, 2018. 99ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS20152017 about AbbVie's equity compensation plans under which AbbVie common stock has been authorized for issuance:Plan Category (a)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights(1) (b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights(2) (c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) 34,485,674 $ 30.64 86,286,146 — — — 34,485,674 $ 30.64 86,286,146 2015 Form 10-K | 107(1)Includes 20,061,746 shares issuable under AbbVie's Incentive Stock Program pursuant to awards granted by Abbott and adjusted into AbbVie awards in connection with AbbVie's separation from Abbott.(2)The weighted-average exercise price does not include outstanding restricted stock units and restricted stock awards that have no exercise price.(b)Information Concerning Security Ownership. Incorporated herein by reference is the material under the heading "Securities Ownership—Securities Ownership of Executive Officers and Directors" in the 2016 Proxy Statement. The 2016 Definitive Proxy Statement will be filed on or about March 21, 2016.Plan Category Equity compensation plans approved by security holders 18,770,467 $ 41.69 73,405,945 Equity compensation plans not approved by security holders — — — Total 18,770,467 $ 41.69 73,405,945 (1) Includes 3,350,775 shares issuable under AbbVie's Incentive Stock Program pursuant to awards granted by Abbott and adjusted into AbbVie awards in connection with AbbVie's separation from Abbott. (2) The weighted-average exercise price does not include outstanding restricted stock units, restricted stock awards and performance shares that have no exercise price. (3) Excludes shares issuable upon the exercise of stock options and pursuant to other rights granted under the Stemcentrx 2011 Equity Incentive Plan, which was assumed by AbbVie upon the consummation of its acquisition of Stemcentrx, Inc. As of December 31, 2017, 562,497 options remained outstanding under this plan. The options have a weighted-average exercise price of $13.62. No further awards will be granted under this plan. (b) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE20162018 AbbVie Inc. Proxy Statement under the headings "The Board of Directors and its Committees," "Corporate Governance Materials," and "Procedures for Approval of Related Person Transactions" is incorporated herein by reference. The 20162018 Definitive Proxy Statement will be filed on or about March 21, 2016.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES20162018 AbbVie Inc. Proxy Statement under the headings "Audit Fees and Non-Audit Fees" and "Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm" is incorporated herein by reference. The 20162018 Definitive Proxy Statement will be filed on or about March 21, 2016.108 |2015 Form 10-KPART IV |2017 Form 10-K(a)Documents filed as part of this Form 10-K.(1)Financial Statements: See Item 8, "Financial Statements and Supplementary Data," on page 47 hereof, for a list of financial statements.(2)Financial Statement Schedules: All schedules omitted are inapplicable or the information required is shown in the consolidated financial statements or notes thereto.(3)Exhibits Required by Item 601 of Regulation S-K: The information called for by this paragraph is incorporated herein by reference to the Exhibit Index on pages 111 through 113 of this Form 10-K.(b)Exhibits filed: See Exhibit Index on pages 111 through 113.(c)Financial Statement Schedules: None applicable.2015 Form 10-K | 109 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, AbbVie Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.(a) Documents filed as part of this Form 10-K. (1) (2) (3) (b) Exhibits: AbbVie Inc.Exhibit DescriptionBy:/s/ RICHARD A. GONZALEZ Name: Richard A. GonzalezTitle:Chairman of the Board andChief Executive OfficerDate: February 19, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of AbbVie Inc. on February 19, 2016 in the capacities indicated below./s/ RICHARD A. GONZALEZRichard A. GonzalezChairman of the Board andChief Executive Officer(Principal Executive Officer)/s/ WILLIAM J. CHASEWilliam J. ChaseExecutive Vice President,Chief Financial Officer(Principal Financial Officer)/s/ THOMAS A. HURWICHThomas A. HurwichVice President, Controller(Principal Accounting Officer)/s/ ROBERT J. ALPERN, M.D.Robert J. Alpern, M.D.Director of AbbVie Inc./s/ ROXANNE S. AUSTINRoxanne S. AustinDirector of AbbVie Inc./s/ WILLIAM H.L. BURNSIDEWilliam H.L. BurnsideDirector of AbbVie Inc./s/ EDWARD M. LIDDYEdward M. LiddyDirector of AbbVie Inc./s/ EDWARD J. RAPPEdward J. RappDirector of AbbVie Inc./s/ ROY S. ROBERTSRoy S. RobertsDirector of AbbVie Inc./s/ GLENN F. TILTONGlenn F. TiltonDirector of AbbVie Inc./s/ FREDERICK H. WADDELLFrederick H. WaddellDirector of AbbVie Inc.110 |2015 Form 10-KEXHIBIT INDEXABBVIE INC.ANNUAL REPORTFORM 10-K2015 Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be "filed" under the Securities Exchange Act of 1934.ExhibitNumberExhibit Description2.1*Agreement and Plan of Reorganization by and among AbbVie Inc., Oxford Amherst Corporation, Oxford Amherst LLC and Pharmacyclics, Inc. dated as of March 4, 2015 (incorporated by reference to Exhibit 2.1 of the Company'scompany's Current Report on Form 8-K filed on March 6, 2015).2.2
3.1
3.2
4.1
4.2
4.3
4.4 101Exhibit Description 10.1
10.2
10.3
10.4
AbbVie Performance Incentive Plan, as amended and restated.10.5
AbbVie Deferred Compensation Plan, as amended and restated.restated (incorporated by reference to Exhibit 10.5 of the company's Annual Report on Form 10-K filed on February 17, 2017).**10.6
2015restated (incorporated by reference to Exhibit 10.6 of the company's Annual Report on Form 10-K | 111
filed on February 19, 2016).**ExhibitNumberExhibit Description10.7 10.8
10.9
10.10
10.11
10.12
10.13
|2017 Form 10-KExhibit Description 10.15
10.16
10.17
10.18
*364-Day Term Loan Credit Agreement, dated as of September 25, 2015, among AbbVie, Bank of America, N.A. and the lenders and other parties party thereto (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed on September 29, 2015).10.19*364-Day Bridge Term Loan Credit Agreement, dated as of March 27, 2015, among the Company, as borrower, the various financial institutions party thereto, as lenders, and Morgan Stanley Senior Funding, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 30, 2015).10.20112 |2015 Form 10-KExhibitNumberExhibit Description12 23
31.1
31.2
32.1
32.2
101101
The following financial statements and notes from the AbbVie Inc. Annual Report on Form 10-K for the year ended December 31, 20152017 filed on February 19, 2016,16, 2018, formatted in XBRL: (i) Consolidated Statements of Earnings; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements.
The AbbVie Inc. 20162018 Definitive Proxy Statement will be filed with the Securities and Exchange Commission under separate cover on or about March 21, 2016.19, 2018.*Incorporated herein by reference. Commission file number 001-35565.** 103* Incorporated herein by reference. Commission file number 001-35565. ** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. filed as an exhibit hereto.2015104 |2017 Form 10-K 105 113AbbVie Inc. By: /s/ RICHARD A. GONZALEZ Name: Richard A. Gonzalez Title: Date: February 16, 2018 /s/ RICHARD A. GONZALEZ /s/ WILLIAM J. CHASE /s/ ROBERT A. MICHAEL /s/ ROBERT J. ALPERN, M.D. /s/ ROXANNE S. AUSTIN /s/ WILLIAM H.L. BURNSIDE /s/ BRETT J. HART /s/ EDWARD M. LIDDY /s/ MELODY B. MEYER /s/ EDWARD J. RAPP /s/ GLENN F. TILTON /s/ FREDERICK H. WADDELL |2017 Form 10-K