AbbVie 2012 Annual Report Download - page 55

Transition from Abbott and Cost to Operate as an Independent Company
The combined financial statements reflect the operating results and financial position of AbbVie as it
was operated by Abbott, rather than as an independent company. AbbVie will incur additional ongoing
operating expenses to operate as an independent company. These costs will include the cost of various
corporate headquarters functions, incremental information technology-related costs, and incremental
costs to operate a stand-alone back office infrastructure outside the United States. In order to establish
these stand-alone functions, AbbVie will also incur non-recurring expenses and capital expenditures.
The transition services agreement in the United States covers certain corporate support services that
AbbVie has historically received from Abbott. Such services include information technology, accounts
payable, payroll, and other financial functions, as well as engineering support for various facilities,
quality assurance support, and other administrative services. The term of the service under the
agreement varies by activity. This agreement facilitates the separation by allowing AbbVie to operate
independently prior to establishing stand-alone back office systems across its organization.
The operating costs of various information technology systems maintained by Abbott have been
allocated to AbbVie on bases which management believes are reasonable. Included in these allocations
was AbbVie’s proportionate share of fixed operating costs. As an independent company, AbbVie’s
information technology operating costs may be higher than the costs allocated in the historical
combined financial statements. In addition, AbbVie will incur non-recurring expenses and capital
expenditures to establish its independent information technology systems.
In markets outside the United States, AbbVie does not currently have sufficient back office
infrastructure to operate without transition service agreements with Abbott. Abbott has entered into a
transition services agreement with AbbVie to provide services outside the United States, including back
office services in certain countries, for up to two years after separation. The back office services
provided include information technology, accounts payable, payroll, receivables collection, treasury and
other financial functions, as well as order entry, warehousing, and other administrative services. This
transition services agreement allows AbbVie to operate its international pharmaceuticals business
independently prior to establishing a stand-alone back office infrastructure for all countries. During the
transition from Abbott, AbbVie will incur non-recurring expenses to expand its international
infrastructure. In addition, in certain international markets, the marketing authorizations to sell
AbbVie’s products will continue to be held by Abbott post-separation until the authorizations can be
transferred through the applicable regulatory channels.
It is not practicable to estimate the costs that would have been incurred in each of the periods
presented in the historical financial statements for the functions described above. Actual costs that
would have been incurred if AbbVie operated as a stand-alone company during these periods would
have depended on various factors, including organizational design, outsourcing and other strategic
decisions related to corporate functions, information technology, and international back office
infrastructure.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
years ended December 31 (in millions) 2012 2011 2010
Cash flows provided by/(used in):
Operating activities $ 6,345 $ 6,247 $ 4,976
Investing activities (2,418) 553 (5,031)
Financing activities 1,931 (6,783) 65
Strong cash flows from operating activities in all three years were driven by higher net earnings and
focused working capital management. In 2011, AbbVie recorded non-cash charges of $1.5 billion in
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