AbbVie 2013 Annual Report Download - page 52

pertain to obligations and agreements outstanding at December 31, 2013. Refer to Notes 8 and 9
for further discussion regarding the company’s debt instruments and related interest rate
agreements outstanding at December 31, 2013. Annual interest on capital lease obligations is not
material.
(b) Includes the company’s significant unconditional purchase obligations. These commitments do not
exceed the company’s projected requirements and are made in the normal course of business.
(c) Amounts less than one year includes a voluntary contribution of $370 million AbbVie made to its
main domestic defined benefit plan subsequent to December 31, 2013. Amounts otherwise exclude
pension and other post-employment benefits and related deferred compensation cash outflows.
Timing of funding is uncertain and dependent on future movements in interest rates and
investment returns, changes in laws and regulations, and other variables. Also included in this
amount are components of other long-term liabilities including restructuring and an expected
payment related to the contingent sales-based payment recognized as part of the acquisition of a
business in 2013. Refer to Notes 7 and 9 for further information.
AbbVie enters into R&D collaboration arrangements with third parties that may require future
milestone payments to third parties contingent upon the achievement of certain development,
regulatory or commercial milestones. Individually, these arrangements are not material in any one
annual reporting period. However, if milestones for multiple products covered by these arrangements
would happen to be reached in the same reporting period, the aggregate charge to expense could be
material to the results of operations in that period. From a business perspective, the payments are
viewed as positive because they signify that the product is successfully moving through development and
is now generating or is more likely to generate cash flows from product sales. It is not possible to
predict with reasonable certainty whether these milestones will be achieved or the timing for
achievement. As a result, these potential payments are not included in the table of contractual
obligations. Refer to Note 5 for further discussion of these collaboration arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires the use of estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenue and expenses. A summary of the company’s significant
accounting policies is included in Note 2. Certain of these policies are considered critical as these most
significantly impact the company’s financial condition and results of operations and require the most
difficult, subjective or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. Actual results may vary from these estimates.
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.
Rebates
AbbVie provides rebates to pharmacy benefit management companies, state agencies that administer
the federal Medicaid program, insurance companies that administer Medicare drug plans, wholesalers,
group purchasing organizations, and other government agencies and private entities. Rebate amounts
are usually based upon the volume of purchases using contractual or statutory prices for a product. For
each type of rebate, the factors used in the calculations of the accrual for that rebate include the
identification of which products have been sold subject to the rebate, which customer or government
agency price terms apply for that rebate, and the estimated lag time between sale and payment of the
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