AbbVie 2014 Annual Report Download - page 101

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AbbVie and Abbott entered into a tax sharing agreement, effective on the date of separation, which
provides that Abbott is liable for and has indemnified AbbVie against all income tax liabilities for periods
prior to the separation.
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.
AbbVie will be responsible for unrecognized tax benefits and related interest and penalties for periods
after separation or in instances where an existing entity was transferred to AbbVie upon separation. As a
result, AbbVie has continued to account for these tax uncertainties. To the extent that these obligations
relate to periods prior to the separation, a reimbursement receivable of approximately $41 million has been
recorded within other assets at December 31, 2014.
If recognized, the net amount of potential tax benefits that would impact the company’s effective tax
rate is $389 million and $218 million in 2014 and 2013, respectively. The company is routinely audited by
the tax authorities in significant jurisdictions, and a number of audits are currently underway. It is
reasonably possible during the next twelve months that uncertain tax positions may be settled, which could
result in a decrease in the gross amount of unrecognized tax benefits. Due to the potential for resolution of
federal, state, and foreign examinations, and the expiration of various statutes of limitation, the company’s
gross unrecognized tax benefits balance may change within the next twelve months up to $31 million. All
significant federal, state, local, and international matters have been concluded for years through 2005. The
company believes adequate provision has been made for all income tax uncertainties.
AbbVie recognizes accrued interest and penalties related to uncertain tax positions in income tax
expense. The amounts expensed and the liabilities accrued are immaterial as of and for the years ended
December 31, 2014, 2013, and 2012. Uncertain tax positions are generally included as a long-term liability
on the consolidated balance sheets.
Note 14 Legal Proceedings and Contingencies
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Subject to certain exceptions specified in the separation agreement, AbbVie assumed the liability for,
and control of, all pending and threatened legal matters related to its business, including liabilities for any
claims or legal proceedings related to products that had been part 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. AbbVie is involved in various claims,
legal proceedings and investigations, including those described below. The recorded accrual balance for
litigation at December 31, 2014 was not significant. Within the next year, other legal proceedings may
occur that may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to
predict the outcome of all other proceedings and exposures with certainty, management believes that their
ultimate disposition should not have a material adverse effect on AbbVie’s consolidated financial position,
cash flows, or results of operations.
Several pending lawsuits filed against Unimed Pharmaceuticals, Inc., Solvay Pharmaceuticals, Inc. (a
company Abbott acquired in February 2010 and now known as AbbVie Products LLC) and others were
consolidated for pre-trial purposes in the United States District Court for the Northern District of Georgia
under the Multi-District Litigation Rules as In re AndroGel Antitrust Litigation, 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 patent litigation settlement agreement and related
2014 Form 10-K 95