AbbVie 2012 Annual Report Download - page 72

compensation plans. See Note 9 and Note 10 for a further description of the accounting for
post-employment benefits and stock-based compensation, respectively.
Note 2 Summary of Significant Accounting Policies
Use of Estimates
The financial statements have been prepared in accordance with generally accepted accounting
principles in the United States 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, income taxes, pension and post-employment benefits, valuation of intangible assets and
goodwill, litigation, financial instruments, and inventory and accounts receivable exposures.
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.
Advertising
Costs associated with advertising are expensed in the year incurred and are included in selling, general
and administrative expenses (SG&A). Advertising expenses were $506 million, $375 million and
$290 million in 2012, 2011 and 2010, respectively.
Pension and Post-Employment Benefits
AbbVie records annual expenses relating to its pension benefit and other post-employment plans based
on calculations which include various actuarial assumptions, including discount rates, assumed asset
rates of return, compensation increases, turnover rates and health care cost trend rates. AbbVie reviews
its actuarial assumptions on an annual basis and makes modifications to the assumptions based on
current rates and trends. Actuarial losses and gains are amortized over the remaining service attribution
periods of the employees under the corridor method, in accordance with the rules for accounting for
post-employment benefits. Differences between the expected long-term return on plan assets and the
actual annual return are amortized over a five-year period.
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