AbbVie 2013 Annual Report Download - page 54

The following table is an analysis of the three largest rebate accruals and chargeback allowances, which
comprise approximately 88 percent of the combined rebate provisions charged against revenues in 2013.
Remaining rebate provisions charged against gross sales are not significant in the determination of
operating earnings.
Medicaid
and Managed
Medicare Care Wholesaler
(in millions) Rebates Rebates Chargebacks
Balance at December 31, 2010 $ 634 $ 410 $ 159
Provisions 985 831 1,361
Payments (899) (735) (1,349)
Balance at December 31, 2011 720 506 171
Provisions 1,077 830 1,645
Payments (990) (840) (1,592)
Balance at December 31, 2012 807 496 224
Provisions 1,028 846 2,362
Payments (1,168) (883) (2,374)
Balance at December 31, 2013 $ 667 $ 459 $ 212
Historically, adjustments to prior years’ rebate accruals have not been material to net income. AbbVie
employs various techniques to verify the accuracy of claims submitted to it, and where possible, works
with the organizations submitting claims to gain insight into changes that might affect the rebate
amounts. For Medicaid, Medicare and other government agency programs, the calculation of a rebate
involves interpretations of relevant regulations, which are subject to challenge or change in
interpretation.
Cash Discounts and Returns
Cash discounts can be reliably estimated. Product returns can be reliably estimated because AbbVie’s
historical returns are low, and because sales return terms and other sales terms have remained
relatively unchanged for several periods.
Pension and Post-Employment Benefits
AbbVie engages outside actuaries to assist in the determination of the obligations and costs under the
plans that are direct obligations of AbbVie. The valuation of the funded status and the net periodic
benefit cost for these plans are calculated using actuarial assumptions. The significant assumptions,
which are reviewed annually, include the discount rate, the expected long-term rate of return on plan
assets and the health care cost trend rates. The significant assumptions used in determining these
calculations are disclosed in Note 10 to the consolidated financial statements.
The discount rate is selected based on current market rates on high-quality, fixed-income investments
at December 31 each year. AbbVie employs a yield-curve approach for countries where a robust bond
market exists. The yield curve is developed using high-quality bonds. The discount rate is the single
rate that equates the discounted cash flows to the rates utilizing the yield curve. As a result, the yield-
curve 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, 2013
and will be used in the calculation of net periodic benefit cost in 2014. A 0.5% change in the assumed
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