AbbVie 2013 Annual Report Download - page 55

discount rate would have had the following effects on AbbVie’s calculation of net periodic benefit costs
in 2014 and projected benefit obligations as of December 31, 2013:
50 basis point
(in millions) Increase Decrease
Defined benefit plans
Service cost and interest cost $ (37) $ 38
Projected benefit obligation (329) 358
Other post-employment plans
Service cost and interest cost $ (3) $ 4
Projected benefit obligation (30) 34
The expected long-term rate of return is based on the asset allocation, historical performance and the
current view of expected future returns. AbbVie considers these inputs with a long-term focus to avoid
short-term market influences. The current long-term rate of return on plan assets is supported by the
historical performance of the trust’s actual and target asset allocation. AbbVie’s assumed expected
long-term rate of return has a significant effect on the amounts reported for defined benefit pension
plans as of December 31, 2013 and will be used in the calculation of net periodic benefit cost in 2014.
As of December 31, 2013, a 1% change in assumed expected long-term rate of return on plan assets
would have increased or decreased the net period benefit cost of these plans in 2014 by $28 million.
The health care cost trend rate is selected by reviewing historical trends and current views on projected
future health care cost increases. The current health care cost trend rate is supported by the historical
trend experience of the plan. Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans as of December 31, 2013 and will be used in the calculation of
net periodic benefit cost in 2014. A 1% change in assumed health care cost trend rates would have the
following effects on AbbVie’s calculation of net periodic benefit costs in 2014 and projected benefit
obligation as of December 31, 2013:
One percentage
point
(in millions) Increase Decrease
Service cost and interest cost $13 $ (9)
Projected benefit obligation 71 (56)
Income Taxes
AbbVie accounts for income taxes under the asset and liability method. Provisions for federal, state and
foreign income taxes are calculated on reported pretax earnings based on current tax laws. Deferred
taxes are provided using enacted tax rates on the future tax consequences of temporary differences,
which are the differences between the financial statement carrying amount of assets and liabilities and
their respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or
maintained when, based on currently available information, it is more likely than not that all or a
portion of a deferred tax asset will not be realized.
Litigation
The company is subject to contingencies, such as legal proceedings and claims that arise in the normal
course of business. Refer to Note 13 for further information. Loss contingency provisions are recorded
for probable losses at management’s best estimate of a loss, or when a best estimate cannot be made, a
minimum loss contingency amount within a probable range is recorded. Accordingly, AbbVie is often
initially unable to develop a best estimate of loss, and therefore the minimum amount, which could be
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