AbbVie 2013 Annual Report Download - page 69

Collaborations and Other Arrangements
The company enters into collaborative agreements with third parties to develop and commercialize
drug candidates. Collaborative activities may include joint research and development and
commercialization of new products. AbbVie generally receives certain licensing rights under these
arrangements. These collaborations often require upfront payments and may include additional
milestone, research and development cost sharing, royalty or profit share payments, contingent upon
the occurrence of certain future events linked to the success of the asset in development and
commercialization. Upfront payments associated with collaborative arrangements during the
development stage are expensed to acquired in-process research and development (IPR&D).
Subsequent payments made to the partner for the achievement of milestones during the development
stage are expensed to R&D when the milestone is achieved. Milestone payments made to the partner
subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products
sold over the estimated useful life of the related asset. Royalty and sales based milestones are expensed
as cost of products sold when incurred.
Advertising
Costs associated with advertising are expensed as incurred and are included in selling, general and
administrative expenses (SG&A). Advertising expenses were $626 million, $506 million and
$375 million in 2013, 2012 and 2011, respectively.
Pension and Post-Employment Benefits
AbbVie records annual expenses relating to its defined benefit pension 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 to net period benefit cost over a
five-year period.
Prior to separation, AbbVie employees participated in certain defined benefit pension and other
post-employment plans sponsored by Abbott, which included participants of Abbott’s other businesses.
Such plans were accounted for as multiemployer plans in AbbVie’s historical combined financial
statements as of and for the years ended December 31, 2012 and 2011. As a result, no asset or liability
was recorded by AbbVie in the historical combined balance sheets to recognize the funded status of
these plans. In 2013, subsequent to the separation from Abbott, AbbVie’s portion of the defined
benefit pension plans were separated from the Abbott defined benefit pension plans using a
December 31, 2012 measurement date. As a result, the funded status for each plan is reflected in
AbbVie’s consolidated balance sheet as of December 31, 2013. In addition to participation in defined
benefit pension and other post-employment plans sponsored by Abbott, AbbVie is the sole sponsor for
certain defined benefit pension and other post-employment plans. The funded status of these plans was
recorded in AbbVie’s combined balance sheet at December 31, 2012 and the consolidated balance
sheet at December 31, 2013.
Refer to Note 10 for information regarding AbbVie’s pension and post-employment plans.
Income Taxes
Income taxes are accounted for 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
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