AbbVie 2014 Annual Report Download - page 49

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entering into a global collaboration with Galapagos for cystic fibrosis therapies, and charges totaling
$48 million as a result of entering into several other arrangements.
IPR&D expense in 2012 included a charge of $110 million for the acquisition of ABT-719, a charge of
$150 million as a result of entering into a global collaboration to develop and commercialize an oral,
next-generation JAK1 inhibitor, and a charge of $28 million as a result of entering into a two-year
collaboration agreement to research, develop, and commercialize up to three compounds with
Antibody-Drug Conjugate approaches.
Other Expense
Other expense in 2014 consisted of a $750 million charge related to an R&D collaboration agreement
with Calico to discover, develop, and commercialize new therapies for patients with age-related diseases.
Interest Expense, Net
Interest expense, net of $391 million in 2014, $278 million in 2013, and $84 million in 2012 was
comprised primarily of interest expense on outstanding debt. In November 2012, AbbVie issued
$14.7 billion of long-term debt with maturities ranging from three to 30 years and entered into interest
rate swaps with various financial institutions, which converted $8.0 billion of its fixed rate interest rate debt
to floating interest rate debt. Commercial paper outstanding at December 31, 2014, 2013 and 2012 was
$416 million, $400 million and $1.0 billion, respectively.
Interest expense, net in 2014 also included $141 million of financing related fees incurred in
connection with the terminated proposed combination with Shire and, in 2012, bridge facility fees related
to the separation from Abbott.
Other Income, Net
Other income, net, includes income from the resolution of certain contractual agreements, fair value
adjustments to contingent consideration, and impairments of equity securities. Other income, net in 2014
primarily consisted of income of $34 million from the resolution of a contractual agreement.
Income Tax Expense
The effective income tax rate was 25 percent in 2014, 23 percent in 2013, and 8 percent in 2012. The
effective tax rate fluctuates from year to year due to the allocation of the company’s taxable earnings
among jurisdictions, as well as certain discrete factors and events in each year, including acquisitions and
collaborations. The increase in the effective income tax rate in 2014 was principally driven by state
valuation allowances of $129 million and additional expenses of $129 million related to the Branded
Prescription Drug Fee, which is non-deductible. The increase in the effective tax rate in 2013 over 2012 is
principally due to income tax expense related to certain 2013 earnings outside the United States that are
not expected to be indefinitely reinvested, as well as the absence of $195 million of tax benefits recorded
in 2012 as a result of the favorable resolution of various tax positions pertaining to a prior year.
Transition from Abbott and Cost to Operate as an Independent Company
AbbVie has and will continue to incur additional ongoing operating expenses to operate as an
independent company, including the cost of various corporate headquarters functions, incremental
information technology-related costs, and incremental costs to operate a stand-alone back office
infrastructure outside the United States.
AbbVie’s transition services agreements with Abbott in the United States cover certain corporate support
services that AbbVie has historically received from Abbott. Such services include information technology,
accounts payable, payroll, and other financial functions, as well as engineering support for various facilities,
2014 Form 10-K 43