AbbVie 2014 Annual Report Download - page 70

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periods prior to January 1, 2013. These allocations totaled $838 million for the year ended December 31,
2012.
Prior to the separation on January 1, 2013, AbbVie employees participated in various benefits and
stock-based compensation programs maintained by Abbott. A portion of the cost of those programs was
included in AbbVie’s historical combined financial statements. See Note 11 and Note 12 for a further
description of the accounting for post-employment benefits and stock-based compensation, respectively.
Note 2 Summary of Significant Accounting Policies
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Use of Estimates
The financial statements have been prepared in accordance with U.S. GAAP and necessarily include
amounts based on estimates and assumptions by management. Actual results could differ from those
amounts. Significant estimates include amounts for sales rebates, pension and post-employment benefits,
income taxes, litigation, valuation of intangible assets and goodwill, financial instruments, and inventory and
accounts receivable exposures.
Basis of Consolidation
The consolidated financial statements as of and for the years ended December 31, 2014 and 2013
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 income, net. All other investments are generally accounted for using the cost method.
Intercompany balances and transactions are eliminated.
Certain reclassifications have been made to conform the prior period consolidated financial statements
to the current period presentation.
Revenue Recognition
AbbVie recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,
the sales price is fixed or determinable and collectability of the sales price is reasonably assured. Revenue
from product sales is recognized when title and risk of loss have passed to the customer. Provisions for
discounts, rebates and sales incentives to customers and returns and other adjustments are provided for in
the period the related sales are recorded. Sales incentives to customers are not material. Historical data is
readily available and reliable, and is used for estimating the amount of the reduction in gross sales.
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.
Research and Development Costs
Internal research and development (R&D) costs 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. Payments made
to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful
life of the related product. Amounts capitalized for such payments are included in intangible assets, net of
accumulated amortization.
64 2014 Form 10-K