AbbVie 2013 Annual Report Download - page 70

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.
In AbbVie’s financial statements for periods prior to 2013, income tax expense and tax balances were
calculated as if AbbVie was a separate taxpayer, although AbbVie’s operations were historically
included in tax returns filed by Abbott. After separation, AbbVie’s income tax expense and income tax
balances represent AbbVie’s federal, state and foreign income taxes as an independent company. As a
result, its effective tax rate and income tax balances are not necessarily comparable to those for periods
prior to the separation.
Prior to the separation, AbbVie did not maintain an income taxes payable to/from account with Abbott.
With the exception of certain entities outside the United States that transferred to AbbVie at
separation, AbbVie is deemed to have settled current tax balances with the Abbott tax paying entities
in the respective jurisdictions. These settlements were reflected as changes in net parent company
investment.
Cash and Equivalents
Cash and equivalents include time deposits and money market funds with original maturities at the
time of purchase of three months or less.
Investments
Short-term investments consist primarily of time deposits and U.S. Treasury securities. Investments in
marketable equity securities are classified as available-for-sale and are recorded at fair value with any
unrealized holding gains or losses, net of tax, included in accumulated other comprehensive income
(loss). Investments in equity securities that are not traded on public stock exchanges and
held-to-maturity debt securities are recorded at cost.
AbbVie reviews the carrying value of investments each quarter to determine whether an other than
temporary decline in fair value exists. AbbVie considers factors affecting the investee, factors affecting
the industry the investee operates in and general equity market trends. The company considers the
length of time an investment’s fair value has been below cost and the near-term prospects for recovery.
When AbbVie determines that an other than temporary decline has occurred, the cost basis investment
is written down with a charge to other (income) expense and the available-for-sale securities’ unrealized
loss is recognized as a charge to income and removed from accumulated other comprehensive income
(loss) (AOCI).
Accounts Receivable
Accounts receivable are stated at their net realizable value. The allowance against gross accounts
receivable reflects the best estimate of probable losses inherent in the receivables portfolio determined
on the basis of historical experience, specific allowances for known troubled accounts and other
currently available information. Accounts receivable are written off after all reasonable means to collect
the full amount (including litigation, where appropriate) have been exhausted. The allowance was
$88 million at December 31, 2013 and $83 million at December 31, 2012. The increase in 2013 was due
to a higher level of past due receivables.
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