AbbVie 2012 Annual Report Download - page 54

Acquired in-process research and development (IPR&D) expense in 2012 included a charge of
$110 million for the acquisition of ABT-719, a charge of $150 million as a result of entering into a
global collaboration to develop and commercialize an oral, next-generation JAK1 inhibitor, and a
charge of $28 million as a result of entering into a two-year collaboration agreement to research,
develop and commercialize up to three compounds with Antibody-Drug Conjugate approaches. IPR&D
expenses in 2011 included a charge of $188 million for the achievement of a developmental milestone
under a licensing agreement for the treatment of CKD, and charges of $400 million and $85 million for
entering into collaboration agreements for second-generation oral antioxidant inflammation modulators
and an anti-CD4 biologic for the treatment of rheumatoid arthritis and psoriasis, respectively. IPR&D
expenses in 2010 included charges of $238 million and $75 million as a result of entering into a
licensing agreement for the treatment of CKD and entering into a collaboration agreement for the
treatment of endometriosis, respectively.
Interest Expense
Interest expense, net in 2012 of $84 million was comprised primarily of interest expense on outstanding
debt and bridge facility fees related to the separation from Abbott, partially offset by interest income.
In November 2012, AbbVie issued $14.7 billion of long-term debt with maturities ranging from three to
30 years. AbbVie entered into interest rate swaps with various financial institutions, which converted
$8.0 billion of its fixed rate interest rate debt to floating interest rate debt. In addition, AbbVie issued
$1.0 billion of commercial paper in the fourth quarter of 2012. AbbVie expects to incur approximately
$300 million of net interest expense in 2013.
Other (Income) Expense
Other (income) expense, net, for 2012 included income of $21 million from the resolution of a
contractual agreement and a loss of $52 million for the impairment of an equity security. Other
(income) expense, net, included losses of $29 million in 2012 and $56 million in 2011 of fair value
adjustments and accretion in the contingent consideration related to the acquisition of Solvay. Other
(income) expense, net, for 2012, 2011 and 2010 also included ongoing contractual payments from
Takeda associated with the conclusion of the TAP Pharmaceutical Products Inc. joint venture in 2008.
Income Tax Expense
The income tax rates were 7.9 percent in 2012, 6.4 percent in 2011 and 13.6 percent in 2010. Income
taxes in 2012 and 2011 included the recognition of tax benefits totaling approximately $195 million and
$410 million, respectively, as a result of favorable resolutions of various tax positions pertaining to prior
years. Income taxes in 2011 also reflected the non-deductibility of a litigation reserve. Excluding these
discrete items, the effective tax rates are less than the statutory federal income tax rate of 35 percent
principally due to the benefit of lower statutory tax rates and tax exemptions in Puerto Rico and other
foreign taxing jurisdictions that reduced the tax rates by 23.5, 25.4 and 22.5 percentage points in 2012,
2011 and 2010, respectively.
AbbVie expects that its effective income tax rate in 2013 will be approximately 22 percent, excluding
any discrete items.
In October 2010, Puerto Rico enacted legislation 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 was included in cost of products sold. The majority of the tax is creditable
for U.S. income tax purposes. In 2012 and 2011, the excise tax totaled approximately $180 million and
$105 million, respectively.
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