AbbVie 2013 Annual Report Download - page 68

included in AbbVie’s historical combined financial statements. However, AbbVie’s historical combined
balance sheet as of December 31, 2012 does not include any equity related to stock-based
compensation plans. See Note 10 and Note 11 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 U.S. GAAP 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, pension and post-employment
benefits, income taxes, litigation, valuation of intangible assets and goodwill, financial instruments, and
inventory and accounts receivable exposures.
Basis of Consolidation
The consolidated financial statements as of and for the year ended December 31, 2013 include the
accounts of AbbVie and all of its subsidiaries in which a controlling interest is maintained. Controlling
interest is determined by majority ownership interest and the absence of substantive third-party
participating rights or, in the case of variable interest entities, by majority exposure to expected losses,
residual returns or both. Investments in companies over which AbbVie has a significant influence but
not a controlling interest are accounted for using the equity method with AbbVie’s share of earnings or
losses reported in other (income) expense, net. All other investments are generally accounted for using
the cost method. Intercompany balances and transactions are eliminated.
Certain reclassifications have been made to conform the prior period combined financial statements to
the current period presentation.
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 or are probable. 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.
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