AbbVie 2012 Annual Report Download - page 62

For its impairment reviews, 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, 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.
At December 31, 2012 and 2011, goodwill and other intangible assets totaled $8,453 million and
$9,010 million, respectively, and amortization expense for intangible assets was $625 million,
$764 million and $708 million in 2012, 2011 and 2010, respectively. There were no impairments of
goodwill in 2012, 2011 or 2010 and the results of the last impairment test indicated that the fair value
of each reporting unit was substantially in excess of its carrying value. In 2012 and 2011, AbbVie
recorded impairment charges of $13 million and $46 million, respectively, for certain projects under
development.
CERTAIN REGULATORY MATTERS
Legislative Issues
In the first quarter of 2010, the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act (collectively referred to herein as ‘‘health care reform legislation’’) were
signed into law in the United States. Health care reform legislation included an increase in the basic
Medicaid rebate rate from 15.1 percent to 23.1 percent and extended the rebate to drugs provided
through Medicaid managed care organizations. Starting in 2011, additional rebates were incurred
related to the Medicare Part D coverage gap ‘‘donut hole.’’ These Medicare and Medicaid rebate
changes will continue to have a negative effect on AbbVie’s gross profit margin in future years.
In 2011, AbbVie began recording the annual fee imposed by health care reform legislation on
companies that sell branded prescription drugs to specified government programs. The amount of the
annual fee, which totaled approximately $100 million in both 2012 and 2011, is based on the ratio of
certain of AbbVie’s sales as compared to the total such sales of all covered entities multiplied by a
fixed dollar amount specified in the legislation by year. The fee is not tax deductible and is included in
SG&A expenses.
AbbVie’s markets are highly competitive and subject to substantial government regulations. AbbVie
expects debate to continue over the availability, method of delivery, and payment for health care
products and services. It is not possible to predict the extent to which AbbVie or the health care
industry in general might be adversely affected by these factors in the future. A more complete
discussion of these factors is contained in Item 1, ‘‘Business’’ and Item 1A, ‘‘Risk Factors.’’
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