AbbVie 2014 Annual Report Download - page 56

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approach reflects the specific cash flows for plans (i.e. duration) in calculating the discount rate. 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 has a significant effect on the amounts reported
for defined benefit pension and post-employment plans as of December 31, 2014, and will be used in the
calculation of net periodic benefit cost in 2015. A 50 basis point change in the assumed discount rate
would have had the following effects on AbbVie’s calculation of net periodic benefit costs in 2015 and
projected benefit obligations as of December 31, 2014:
50 basis point
(in millions) Increase Decrease
Defined benefit plans
Service cost and interest cost $ (53) $ 59
Projected benefit obligation (466) 540
Other post-employment plans
Service cost and interest cost $ (6) $ 7
Projected benefit obligation (50) 58
The expected long-term rate of return is based on the asset allocation, historical performance, and the
current view of expected future returns. AbbVie considers these inputs with a long-term focus to avoid
short-term market influences. The current long-term rate of return on plan assets is supported by the
historical performance of the trust’s actual and target asset allocation. AbbVie’s assumed expected
long-term rate of return has a significant effect on the amounts reported for defined benefit pension plans
as of December 31, 2014 and will be used in the calculation of net periodic benefit cost in 2015. As of
December 31, 2014, a 1 percentage point change in assumed expected long-term rate of return on plan
assets would have increased or decreased the net period benefit cost of these plans in 2015 by
$42 million.
The health care cost trend rate is selected by reviewing historical trends and current views on
projected future health care cost increases. The current health care cost trend rate is supported by the
historical trend experience of the plan. Assumed health care cost trend rates have a significant effect on
the amounts reported for health care plans as of December 31, 2014 and will be used in the calculation of
net periodic benefit cost in 2015. A 1 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 2015 and projected
benefit obligation as of December 31, 2014:
One percentage
point
(in millions) Increase Decrease
Service cost and interest cost $ 21 $(16)
Projected benefit obligation 121 (92)
Income Taxes
AbbVie accounts for income taxes under the asset and liability method. Provisions for federal, state,
and foreign income taxes are calculated on reported pretax earnings based on current tax laws. Deferred
taxes are provided using enacted tax rates on the future tax consequences of temporary differences, which
are the differences between the financial statement carrying amount 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.
50 2014 Form 10-K