AbbVie
Annual Report 2014

Plain-text annual report

2014 annual report on form 10-k 2015 notice of annual meeting and proxy statement AbbVie 1 North Waukegan Road North Chicago, IL 60064 U.S.A. abbvie.com Copyright© 2015 AbbVie. All rights reserved. 2200_Cover.indd 1 3/11/15 3:15 PM about abbvie AbbVie is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries. For further information on the company and its people, portfolio and commitments, please visit www.abbvie.com. stockholder information AbbVie Inc. Corporate Headquarters 1 North Waukegan Road North Chicago, IL 60064 847.932.7900 abbvie.com Investor Relations Dept. ZZ05, AP34 Corporate Secretary Dept. V364, AP34 Stock Listing The ticker for AbbVie’s common stock is ABBV. The principal market for AbbVie common stock is the NYSE. AbbVie common stock is also listed on the Chicago Stock Exchange, the NYSE Euronext Paris, and the SIX Swiss Exchange. Annual Meeting The Annual Meeting will be held on Friday, May 8, 2015, at 9 a.m. at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, IL 60601. Dividend Reinvestment Plan The AbbVie Dividend Reinvestment Plan offers registered stockholders an opportunity to purchase additional shares, commission-free, through automatic dividend reinvestment and/or optional cash investments. Interested persons may contact the transfer agent. Transfer Agent Computershare Trust Co. NA P.O. Box 43078 Providence, RI 02940-3078 877.881.5970 (toll free) 732.645.4123 www.computershare.com 2200_Cover.indd 2 3/11/15 3:15 PM 13NOV201221365766 Dear AbbVie Shareholder: When AbbVie launched as a new company in January of 2013, our stated goal was to create an innovation driven, patient-focused biopharmaceutical company capable of delivering sustainable top-tier performance by creating a consistent stream of innovative new medicines that advance standard of care for patients. In our first two years, we have made significant progress against that mission. We have advanced our culture to be faster, more agile, with a strong focus on innovative science and patient insight; refined our therapeutic focus to invest in areas where we have deep knowledge of the science and biology; built a robust pipeline of potential new medicines; and supplemented the strong talent we have from our legacy company Abbott with new talent from diverse backgrounds and experiences. Over that two-year period, we have delivered strong growth from our promoted, on-market portfolio, including market-leading growth from Humira. We have worked to improve our operational efficiency including improvement in our gross margin profile. We maintained our strong commitment to returning cash to our shareholders through our strong and growing dividend. And, we delivered industry-leading total shareholder return of over 105%. Quite simply, AbbVie is not the same company we were just two years ago. Today we have major leading franchises in immunology, virology and a strong emerging franchise in oncology. Our late-stage pipeline has progressed well with strong pivotal data on several important assets such as Zinbryta, Elagolix and Venetoclax. 2014 was an exceptional year for AbbVie. We delivered top-tier financial performance as well as advanced our overall strategic imperatives for our business. Our sales and earnings exceeded original projections during the year, our leading brands delivered outstanding performance, and we delivered results that exceeded our financial guidance. In addition to delivering both strong revenue and profit growth, we continued to provide excellent capital returns to our shareholders through increasing our cash dividend by nearly 17 percent, and implementing a $5 billion stock repurchase program. Humira, our flagship treatment for rheumatoid arthritis and other autoimmune conditions, continued to perform exceptionally well with product sales increasing by nearly 19%, to $12.5 billion for the year. Our other leading brands Duodopa (Parkinson’s disease), Creon (pancreatitis), Synagis (lung disease), and Synthroid (hypothyroidism) also turned in double-digit performance. In December, we strengthened our product portfolio with the first launch of Viekira, our novel hepatitis C therapy that represents a significant advancement in the treatment of this disease. We made significant progress in advancing our pipeline, which is the strongest in our history. AbbVie has more than 40 programs in clinical development, with 30 of those in Phase 2 or later. We have 10 ongoing or recently initiated potential registration programs in oncology; completed late-stage clinical trials in virology, neuroscience and immunology; and advanced several early-stage assets into mid-stage development. We are well positioned to deliver strong performance in 2015 and beyond. In 2014 we entered into a number of new and innovative collaborations and licensing arrangements, including our partnership with Calico, the Google-based life sciences company. Each of these collaborations is designed to further advance our pipeline of new and promising therapies. We also continued to evaluate promising strategic acquisitions that provide operational benefits, strong, financial performances and meet our criteria for return to our shareholders. We’ve set a high bar for ourselves as we move into the next stage of our evolution, and we remain in an excellent position to deliver on our commitments to patients, physicians, payors and shareholders. On behalf of our 26,000 employees, I want to thank you for your trust and confidence in AbbVie. Sincerely, 4DEC201212233206 Richard A. Gonzalez Chairman and Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) (cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR (cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 Commission file number 001-35565 AbbVie Inc. Delaware (State or other jurisdiction of incorporation or organization) 1 North Waukegan Road North Chicago, Illinois 60064-6400 (Address of principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, par value $0.01 per share 32-0375147 (I.R.S. employer identification number) (847) 932-7900 (telephone number) Name of Each Exchange on Which Registered New York Stock Exchange Chicago Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:3) No (cid:2) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. Large Accelerated Filer (cid:2) Accelerated Filer (cid:3) Smaller Reporting Company (cid:3) Non-accelerated Filer (cid:3) (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:2) The aggregate market value of the 1,574,311,912 shares of voting stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of AbbVie Inc.’s most recently completed second fiscal quarter (June 30, 2014), was $88,854,164,315. AbbVie has no non-voting common equity. Number of common shares outstanding as of January 31, 2015: 1,593,886,909 DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2015 AbbVie Inc. Proxy Statement are incorporated by reference into Part III. The Proxy Statement will be filed on or about March 20, 2015. PART I ITEM 1. BUSINESS ..................................................................................................................................................................................................................................................................................................................................................... Separation from Abbott Laboratories AbbVie(1) was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an independent company as a result of the distribution by Abbott Laboratories (Abbott) of 100 percent of the outstanding common stock of AbbVie to Abbott’s shareholders. AbbVie’s common stock began trading ‘‘regular-way’’ under the ticker symbol ‘‘ABBV’’ on the New York Stock Exchange on January 2, 2013. Overview AbbVie is a global, research-based biopharmaceutical company. AbbVie develops and markets advanced therapies that address some of the world’s most complex and serious diseases. AbbVie’s products are focused on treating conditions such as chronic autoimmune diseases, including rheumatoid arthritis, psoriasis, and Crohn’s disease; hepatitis C (HCV); human immunodeficiency virus (HIV); endometriosis; thyroid disease; Parkinson’s disease; complications associated with chronic kidney disease and cystic fibrosis; and other health conditions such as low testosterone. AbbVie also has a pipeline of promising new medicines, including more than 30 compounds or indications in Phase 2 or Phase 3 development across such important medical specialties as immunology, virology/liver disease, oncology, renal disease, neurological diseases and women’s health. Segments AbbVie operates in one business segment—pharmaceutical products. Incorporated herein by reference is Note 15 entitled ‘‘Segment and Geographic Area Information’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ and the sales information related to HUMIRA included under Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.’’ Products AbbVie’s portfolio of products includes a broad line of therapies that address some of the world’s most complex and serious diseases. HUMIRA. HUMIRA is a biologic therapy administered as a subcutaneous injection. It is approved to treat the following autoimmune diseases in the United States, Canada, and Mexico (collectively, North America), and in the European Union: Condition Rheumatoid arthritis (moderate to severe) Psoriatic arthritis Ankylosing spondylitis Crohn’s disease (moderate to severe) Plaque psoriasis (moderate to severe) Juvenile idiopathic arthritis Ulcerative colitis (moderate to severe) Axial spondyloarthropathy Pediatric Crohn’s disease (severe) Pediatric enthesitis-related arthritis Principal Markets North America, European Union North America, European Union North America, European Union North America, European Union North America, European Union North America, European Union United States, European Union United States, European Union United States, European Union European Union (1) As used throughout the text of this report on Form 10-K, the term ‘‘AbbVie’’ refers to AbbVie Inc., a Delaware corporation, or AbbVie Inc. and its consolidated subsidiaries, as the context requires. 2014 Form 10-K 13NOV201221352027 1 HUMIRA is also approved in over 60 other markets, including Japan, China, Brazil, and Australia. HUMIRA was introduced to the market in January 2003. HUMIRA accounted for 63 percent of AbbVie’s total net sales in 2014. The United States composition of matter (that is, compound) patent covering adalimumab (which is sold under the trademark HUMIRA) is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in April 2018. AbbVie continues to dedicate substantial research and development efforts to expanding indications for HUMIRA, including in the fields of rheumatology, gastroenterology (pediatric Crohn’s disease and pediatric ulcerative colitis), dermatology (pediatric psoriasis and hidradenitis suppurativa), and ophthalmology (uveitis). Phase 3 trials are ongoing in preparation for regulatory applications for uveitis in the United States and the European Union. Regulatory applications for hidradenitis suppurativa have been filed in the United States and the European Union. AbbVie continues to work on HUMIRA formulation and delivery enhancements to improve convenience and the overall patient experience. HCV products. VIEKIRA PAK is an all-oral, short-course, interferon-free therapy, with or without ribavirin, for the treatment of adult patients with genotype 1 chronic hepatitis C (HCV), including those with compensated cirrhosis. VIEKIRA PAK was approved by the FDA in December 2014. In Europe, AbbVie’s HCV treatment is marketed as VIEKIRAX + EXVIERA and is approved for use in patients with genotype 1 and genotype 4 HCV. The European Commission granted marketing authorization for this treatment in January 2015. Additional Virology products. AbbVie’s additional virology products include Kaletra and Norvir for the treatment of HIV infection and Synagis for the prevention of respiratory syncytial virus (RSV) infection in high risk infants. Kaletra. Kaletra (also marketed as Aluvia in emerging markets) is a prescription anti-HIV-1 medicine that contains two protease inhibitors: lopinavir and ritonavir. Kaletra is used with other anti-HIV-1 medications as a treatment that maintains viral suppression in people with HIV-1. Norvir. Norvir (ritonavir) is a protease inhibitor that is indicated in combination with other antiretroviral agents for the treatment of HIV-1 infection. Synagis. Synagis is a product marketed by AbbVie outside of the United States that protects at-risk infants from severe respiratory disease caused by RSV. Metabolics/Hormones products. Metabolic and hormone products target a number of conditions, including testosterone deficiency, exocrine pancreatic insufficiency and hypothyroidism. These products include: AndroGel. AndroGel is a testosterone replacement therapy for males diagnosed with symptomatic low testosterone that is available in two strengths: 1 percent and 1.62 percent. Creon. Creon is a pancreatic enzyme therapy for exocrine pancreatic insufficiency, a condition that occurs in patients with cystic fibrosis, chronic pancreatitis, and several other conditions. Synthroid. Synthroid is used in the treatment of hypothyroidism. AbbVie has the rights to sell AndroGel, Creon and Synthroid only in the United States. Endocrinology products. Lupron (also marketed as Lucrin and Lupron Depot) is a product for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty, and for the preoperative treatment of patients with anemia caused by uterine fibroids. Lupron is approved for daily subcutaneous injection and one-month, three-month, four-month and six-month intramuscular injection. 2 13NOV201221352027 2014 Form 10-K Other products. AbbVie’s other products include the following: Duopa and Duodopa. AbbVie’s levodopa-carbidopa intestinal gel for the treatment of advanced Parkinson’s disease is marketed as Duopa in the United States and as Duodopa outside of the United States. Anesthesia products. Sevoflurane (sold under the trademarks Ultane and Sevorane) is an anesthesia product that AbbVie sells worldwide for human use. Dyslipidemia products. AbbVie’s dyslipidemia products (TriCor, Trilipix, Niaspan, Simcor and Advicor) address the range of metabolic conditions characterized by high cholesterol and/or high triglycerides. Zemplar. Zemplar is a product sold worldwide for the treatment of secondary hyperparathyroidism associated with Stage 3, 4, and 5 chronic kidney disease (CKD). Research and Development Activities AbbVie has numerous compounds in clinical development, including potential treatments for complex, life-threatening diseases. AbbVie’s ability to discover and develop new compounds is enhanced by the company’s use of integrated discovery and development project teams, which include chemists, biologists, physicians, and pharmacologists who work on the same compounds as a team. The research and development process generally begins with discovery research which focuses on the identification of a molecule that has a desired effect against a given disease. If preclinical testing of an identified compound proves successful, the compound moves into clinical development which generally includes the following phases: • Phase 1—involves the first human tests in a small number of healthy volunteers or patients to assess safety, tolerability and potential dosing. • Phase 2—tests the drug’s efficacy against the disease in a relatively small group of patients. • Phase 3—tests a drug that demonstrates favorable results in the earlier phases in a significantly larger patient population to further demonstrate efficacy and safety based on regulatory criteria. The clinical trials from all of the development phases provide the data required to prepare and submit a New Drug Application (NDA), a Biological License Application (BLA) or other submission for regulatory approval to the FDA or similar government agencies outside the United States. The specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions. The research and development process from discovery through a new drug launch typically takes 8 to 12 years and can be even longer. The research and development of new pharmaceutical products has a significant amount of inherent uncertainty. There is no guarantee when, or if, a molecule will receive the regulatory approval required to launch a new drug or indication. In addition to the development of new products and new formulations, research and development projects also may include Phase 4 trials, sometimes called post-marketing studies. For such projects, clinical trials are designed and conducted to collect additional data regarding, among other parameters, the benefits and risks of an approved drug. AbbVie spent approximately $3.3 billion in 2014, $2.9 billion in 2013, and $2.8 billion in 2012 on research to discover and develop new products, indications and processes and to improve existing products and processes. These expenses consisted primarily of salaries and related expenses for personnel, license fees, consulting payments, contract research, clinical drug supply manufacturing, the costs of laboratory equipment and facilities, clinical trial costs, and collaboration fees and expenses. 2014 Form 10-K 13NOV201221352027 3 Intellectual Property Protection and Regulatory Exclusivity Generally, upon approval, products may be entitled to certain kinds of exclusivity under applicable intellectual property and regulatory regimes. AbbVie seeks patent protection, where available, in all significant markets and/or countries for each product in development. In the United States, the expiration date for patents filed on or after June 8, 1995 is 20 years after the filing date. Given that patents relating to pharmaceutical products are often obtained early in the development process, and given the amount of time needed to complete clinical trials and other development activities required for regulatory approval, the length of time between product launch and patent expiration is significantly less than 20 years. The Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act) permits a patent holder to seek a patent extension, commonly called a ‘‘patent term restoration,’’ for patents on products (or processes for making the product) regulated by the Federal Food, Drug, and Cosmetic Act. The length of the patent extension is roughly based on 50 percent of the period of time from the filing of an Investigational New Drug Application for a compound to the submission of the NDA for such compound, plus 100 percent of the time period from NDA submission to regulatory approval. The extension, however, cannot exceed five years and the patent term remaining after regulatory approval cannot exceed 14 years. Pharmaceutical products may be entitled to other forms of legal or regulatory exclusivity upon approval. The scope, length, and requirements for each of these exclusivities varies both in the United States and in other jurisdictions. In the United States, if the FDA approves a drug product that contains an active ingredient not previously approved, the product is typically entitled to five years of non-patent regulatory exclusivity. Other products may be entitled to three years of exclusivity if approval was based on the FDA’s reliance on new clinical studies essential to approval submitted by the NDA applicant. If the NDA applicant studies the product for use by children, the FDA may grant pediatric exclusivity, which extends by 180 days the longest existing exclusivity (patent or regulatory) related to the product. For products that are either used to treat conditions that afflict a relatively small population or for which there is not a reasonable expectation that the research and development costs will be recovered, the FDA may designate the pharmaceutical as an orphan drug and grant it seven years of market exclusivity. Applicable laws and regulations dictate the scope of any exclusivity to which a product is entitled upon its approval in any particular country. In certain instances, regulatory exclusivity may protect a product where patent protection is no longer available or for a period of time in excess of patent protection. It is not possible to estimate for each product in development the total period and scope of exclusivity to which it may become entitled until regulatory approval is obtained. However, given the length of time required to complete clinical development of a pharmaceutical product, the minimum and maximum periods of exclusivity that might be achieved in any individual case would not be expected to exceed three and 14 years, respectively. These estimates do not consider other factors, such as the difficulty of recreating the manufacturing process for a particular product or other proprietary knowledge that may delay the introduction of a generic or other follow-on product after the expiration of applicable patent and other regulatory exclusivity periods. Biologics may be entitled to exclusivity under the Biologics Price Competition and Innovation Act, which was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law provides a pathway for approval of biosimilars following the expiration of 12 years of exclusivity for the innovator biologic and a potential additional 180 day-extension term for conducting pediatric studies. Biologics are also eligible for orphan drug exclusivity, as discussed above. The law also includes an extensive process for the innovator biologic and biosimilar manufacturer to litigate patent infringement, validity, and enforceability prior to the approval of the biosimilar. The European Union has also created a pathway for approval of biosimilars and has published guidelines for approval of certain biosimilar products. The more complex nature of biologics and biosimilar products has led to greater regulatory scrutiny and more rigorous requirements for approval of follow-on biosimilar products than for small molecule generic pharmaceutical products, and in the European Union, it has also reduced the effect of biosimilars on sales 4 13NOV201221352027 2014 Form 10-K of the innovator biologic as compared to the sales erosion caused by generic versions of small molecule pharmaceutical products. AbbVie owns or has licensed rights to a substantial number of patents and patent applications. AbbVie licenses or owns a patent portfolio of thousands of patent families, each of which includes United States patent applications and/or issued patents, and may also contain the non-United States counterparts to these patents and applications. These patents and applications, including various patents that expire during the period 2015 to 2035, in aggregate are believed to be of material importance in the operation of AbbVie’s business. However, AbbVie believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to adalimumab (which is sold under the trademark HUMIRA), are material in relation to the company’s business as a whole. The United States composition of matter (that is, compound) patent covering adalimumab is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in April 2018. In addition, the following patents, licenses, and trademarks are significant: those related to lopinavir/ ritonavir (which is sold under the trademarks Kaletra and Aluvia), those related to ombitasvir/paritaprevir/ ritonavir and dasabuvir (which are sold under the trademarks VIEKIRA PAK, VIEKIRAX, EXVIERA, and HOLKIRA PAK), and those related to testosterone (which is sold under the trademark AndroGel). The United States composition of matter patent covering lopinavir is expected to expire in 2016. A principal United States non-composition of matter patent covering lopinavir/ritonavir is expected to expire in 2016. The United States composition of matter patents covering ombitasvir, paritaprevir and dasabuvir are expected to expire in 2032, 2031 and 2029, respectively. The principal United States non-composition of matter patent covering AndroGel 1 percent is expected to expire in 2021, including pediatric exclusivity. Agreements that may affect exclusivity are discussed in Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.’’ AbbVie may rely, in some circumstances, on trade secrets to protect its technology. However, trade secrets are difficult to protect. AbbVie seeks to protect its technology and product candidates, in part, by confidentiality agreements with its employees, consultants, advisors, contractors, and collaborators. These agreements may be breached and AbbVie may not have adequate remedies for any breach. In addition, AbbVie’s trade secrets may otherwise become known or be independently discovered by competitors. To the extent that AbbVie’s employees, consultants, advisors, contractors, and collaborators use intellectual property owned by others in their work for the company, disputes may arise as to the rights in related or resulting know-how and inventions. Marketing, Sales, and Distribution Capabilities AbbVie utilizes a combination of dedicated commercial resources, regional commercial resources and distributorships to market, sell, and distribute its products worldwide. AbbVie directs its primary marketing efforts toward securing the prescription, or recommendation, of its brand of products by physicians, key opinion leaders, and other health care providers. Managed care providers (for example, health maintenance organizations and pharmacy benefit managers), hospitals, and state and federal government agencies (for example, the United States Department of Veterans Affairs and the United States Department of Defense) are also important customers. AbbVie also markets directly to consumers themselves, although in the United States all of the company’s products must be sold pursuant to a prescription. Outside of the United States, AbbVie focuses its marketing efforts on key opinion leaders, payors, physicians, and country regulatory bodies. AbbVie also provides patient support programs closely related to its products. In 2014, AbbVie’s products were sold in over 170 countries. AbbVie’s products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty 2014 Form 10-K 13NOV201221352027 5 pharmacies, and independent retailers from AbbVie-owned distribution centers and public warehouses. Although there are no significant seasonal aspects to AbbVie’s business, AbbVie’s product sales may be affected by end customer and retail buying patterns, fluctuations in wholesaler inventory levels, and other factors. In the United States, AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies and patients. In 2014, three wholesale distributors (McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation) accounted for substantially all of AbbVie’s sales in the United States. No individual wholesaler accounted for greater than 42 percent of AbbVie’s 2014 gross sales in the United States. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. These wholesalers purchase product from AbbVie under standard terms and conditions of sale. Certain products are co-marketed or co-promoted with other companies. AbbVie has no single customer that, if the customer were lost, would have a material adverse effect on the company’s business. No material portion of AbbVie’s business is subject to renegotiation of profits or termination of contracts at the election of the government. Orders are generally filled on a current basis, and order backlog is not material to AbbVie’s business. Third Party Agreements AbbVie has agreements with third parties for process development, analytical services, and manufacturing of certain products. AbbVie procures certain products and services from a limited number of suppliers and, in some cases, a single supply source. For example, the filling and packaging of HUMIRA syringes to be sold outside of the United States and Puerto Rico is performed by a single supplier at its two different facilities. AbbVie does not currently believe that this agreement is material because AbbVie’s business is not substantially dependent upon it. AbbVie maintains significant inventory of HUMIRA syringes to reduce the risk of any supply disruption and its own syringe-filling and packaging facility in the United States is approved to supply syringes to primary markets outside of the United States and Puerto Rico. In addition, AbbVie has agreements with third parties for active pharmaceutical ingredient and product manufacturing, formulation and development services, fill, finish, and packaging services, transportation, and distribution and logistics services for certain products. AbbVie does not believe that these manufacturing related agreements are material because AbbVie’s business is not substantially dependent on any individual agreement. In most cases, AbbVie maintains alternate supply relationships that it can utilize without undue disruption of its manufacturing processes if a third party fails to perform its contractual obligations. AbbVie also maintains sufficient inventory of product to minimize the impact of any supply disruption. AbbVie is also party to certain collaborations and other arrangements, as discussed in Note 6, ‘‘Acquisitions, Collaborations and Other Arrangements,’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data,’’ and has certain agreements with Abbott as discussed in Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Transition from Abbott and Cost to Operate as an Independent Company.’’ Sources and Availability of Raw Materials AbbVie purchases, in the ordinary course of business, raw materials and supplies essential to its operations from numerous suppliers around the world, including in the United States. In addition, certain medical devices and components necessary for the manufacture of our products are provided by unaffiliated third party suppliers. AbbVie has not experienced any recent significant availability problems or supply shortages for forecasted sales. 6 13NOV201221352027 2014 Form 10-K Environmental Matters AbbVie believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. AbbVie’s capital and operating expenditures for pollution control in 2014 were approximately $3 million and $26 million, respectively. Capital and operating expenditures for pollution control in 2015 are estimated to be approximately $4 million and $28 million, respectively. Abbott was identified as one of many potentially responsible parties in investigations and/or remediations at several locations in the United States, including Puerto Rico, under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. Some of these locations were transferred to AbbVie in connection with the separation and distribution, and AbbVie has become a party to these investigations and remediations. Abbott was also engaged in remediation at several other sites, some of which have been transferred to AbbVie in connection with the separation and distribution, in cooperation with the Environmental Protection Agency or similar agencies. While it is not feasible to predict with certainty the final costs related to those investigations and remediation activities, AbbVie believes that such costs, together with other expenditures to maintain compliance with applicable laws and regulations concerning environmental protection, should not have a material adverse effect on the company’s financial position, cash flows, or results of operations. Competition The markets for AbbVie’s products are highly competitive. AbbVie competes with other research-based pharmaceuticals and biotechnology companies that discover, manufacture, market, and sell proprietary pharmaceutical products and biologics. For example, HUMIRA competes with a number of anti-TNF and other products that are approved for a number of disease states and AbbVie’s virology products compete with protease inhibitors and other anti-HIV treatments. The search for technological innovations in pharmaceutical products is a significant aspect of competition. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price is also a competitive factor. In addition, the substitution of generic pharmaceutical products for branded pharmaceutical products creates competitive pressures on AbbVie’s products that do not have patent protection. Biosimilars. Competition for AbbVie’s biologic products is affected by the approval of follow-on biologics, also known as ‘‘biosimilars.’’ Biologics have added major therapeutic options for the treatment of many diseases, including some for which therapies were unavailable or inadequate. The advent of biologics has also raised complex regulatory issues and significant pharmacoeconomic concerns because the cost of developing and producing biologic therapies is typically dramatically higher than for conventional (small molecule) medications, and because many expensive biologic medications are used for ongoing treatment of chronic diseases, such as rheumatoid arthritis or inflammatory bowel disease, or for the treatment of previously untreatable cancer. Significant investments in biologics infrastructure and manufacturing are necessary to produce biologic products, as are significant investments in marketing, distribution, and sales organization activities, which may limit the number of biosimilar competitors. In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and implementing regulations. The enactment of federal health care reform legislation in March 2010 provided a pathway for approval of biosimilars under the Public Health Service Act, but the approval process for, and science behind, biosimilars is more complex than the approval process for, and science behind, generic or other follow-on versions of small molecule products. This added complexity is due to steps needed to ensure that the safety and efficacy of biosimilars is highly similar to that of an original biologic, such as HUMIRA. Ultimate approval by the FDA is dependent upon many factors, including a showing that the biosimilar is ‘‘highly similar’’ to the original product and has no 2014 Form 10-K 13NOV201221352027 7 clinically meaningful differences from the original product in terms of safety, purity, potency, and in vitro characterization. The types of data that could ordinarily be required in an application to show similarity may include analytical data and studies to demonstrate chemical similarity, animal studies (including toxicity studies), and clinical studies. The law also requires that the biosimilar must be for an indication approved for the original biologic and that the manufacturing facility meets the standards necessary to assure that the biosimilar is safe, pure, and potent. Furthermore, the new law provides that only a biosimilar product that is deemed to be ‘‘interchangeable’’ will be considered by the FDA to be substitutable for the original biologic product without the intervention of the health care provider who prescribed the original biologic product. To prove that a biosimilar product is interchangeable, the applicant must demonstrate that the product can be expected to produce the same clinical results as the original biologic product in any given patient, and if the product is administered more than once in a patient, that safety risks and potential for diminished efficacy of alternating or switching between the use of the interchangeable biosimilar biologic product and the original biologic product is no greater than the risk of using the original biologic product without switching. The new law is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning will likely be subject to substantial uncertainty for years to come. In the European Union, while a pathway for the approval of biosimilars has existed since 2005, the products that have come to market to date have had a mixed impact on the market share of incumbent products, with significant variation by product. Other Competitive Products. Although a number of competitive biologic branded products have been approved since HUMIRA was first introduced in 2003, most have gained only a modest share of the worldwide market. AbbVie will continue to face competitive pressure from these biologics and from orally administered products. Regulation—Discovery and Clinical Development United States. Securing approval to market a new pharmaceutical product in the United States requires substantial effort and financial resources and takes several years to complete. The applicant must complete preclinical tests, and obtain FDA approval before commencing clinical trials. Clinical trials are intended to establish the safety and efficacy of the pharmaceutical product and typically are conducted in three sequential phases, although the phases may overlap or be combined. If the required clinical testing is successful, the results are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. The FDA reviews an NDA or BLA to determine whether a product is safe and effective for its intended use and whether its manufacturing is compliant with current Good Manufacturing Practices (cGMP). Even if an NDA or a BLA receives approval, the applicant must comply with post-approval requirements. For example, holders of an approval must report adverse reactions, provide updated safety and efficacy information, and comply with requirements concerning advertising and promotional labeling. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition, as a condition of approval, the FDA may require post-marketing testing and surveillance to further assess and monitor the product’s safety or efficacy after commercialization. Any post-approval regulatory obligations, and the cost of complying with such obligations, could expand in the future. Outside the United States. AbbVie is subject to similar regulations outside the United States. AbbVie must obtain approval of a clinical trial application or product from the applicable regulatory authorities before it can commence clinical trials or marketing of the product. The approval requirements and process vary, and the time required to obtain approval may be longer or shorter than that required for FDA 8 13NOV201221352027 2014 Form 10-K approval. For example, AbbVie may submit marketing authorizations in the European Union under either a centralized or decentralized procedure. The centralized procedure is mandatory for the approval of biotechnology products and many pharmaceutical products and provides for a single marketing authorization that is valid for all European Union member states. Under the centralized procedure, a single marketing authorization application is submitted to the European Medicines Agency. After the agency evaluates the application, it makes a recommendation to the European Commission, which then makes the final determination on whether to approve the application. The decentralized procedure provides for mutual recognition of national approval decisions and is available for products that are not subject to the centralized procedure. In Japan, applications for approval of a new product are made through the Pharmaceutical and Medical Devices Agency (PMDA). Bridging studies to demonstrate that the foreign clinical data applies to Japanese patients may be required. After completing a comprehensive review, the PMDA reports to the Ministry of Health, Labour and Welfare, which then approves or denies the application. The regulatory process in many emerging markets continues to evolve. Many emerging markets, including those in Asia, generally require regulatory approval to have been obtained in a large developed market (such as the United States) before the country will begin or complete its regulatory review process. Some countries also require that local clinical studies be conducted in order to obtain regulatory approval in the country. The requirements governing the conduct of clinical trials and product licensing also vary. In addition, post-approval regulatory obligations such as adverse event reporting and cGMP compliance generally apply and may vary by country. For example, after a marketing authorization has been granted in the European Union, periodic safety reports must be submitted and other pharmacovigilance measures must be implemented. Regulation—Commercialization, Distribution, and Manufacturing The manufacture, marketing, sale, promotion, and distribution of AbbVie’s products are subject to comprehensive government regulation. Government regulation by various national, regional, federal, state, and local agencies, both in the United States and other countries, addresses (among other matters) inspection of, and controls over, research and laboratory procedures, clinical investigations, product approvals and manufacturing, labeling, packaging, marketing and promotion, pricing and reimbursement, sampling, distribution, quality control, post-marketing surveillance, record keeping, storage, and disposal practices. AbbVie’s operations are also affected by trade regulations in many countries that limit the import of raw materials and finished products and by laws and regulations that seek to prevent corruption and bribery in the marketplace (including the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act, which provide guidance on corporate interactions with government officials) and require safeguards for the protection of personal data. In addition, AbbVie is subject to laws and regulations pertaining to health care fraud and abuse, including state and federal anti-kickback and false claims laws in the United States. Prescription drug manufacturers such as AbbVie are also subject to taxes, as well as application, product, user, establishment, and other fees. Compliance with these laws and regulations is costly and materially affects AbbVie’s business. Among other effects, health care regulations substantially increase the time, difficulty, and costs incurred in obtaining and maintaining approval to market newly developed and existing products. AbbVie expects compliance with these regulations to continue to require significant technical expertise and capital investment to ensure compliance. Failure to comply can delay the release of a new product or result in regulatory and enforcement actions, the seizure or recall of a product, the suspension or revocation of the authority necessary for a product’s production and sale, and other civil or criminal sanctions, including fines and penalties. 2014 Form 10-K 13NOV201221352027 9 In addition to regulatory initiatives, AbbVie’s business can be affected by ongoing studies of the utilization, safety, efficacy, and outcomes of health care products and their components that are regularly conducted by industry participants, government agencies, and others. These studies can call into question the utilization, safety, and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of, or limitations on, marketing of such products domestically or worldwide, and may give rise to claims for damages from persons who believe they have been injured as a result of their use. Access to human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. A major focus is cost containment. Efforts to reduce health care costs are also being made in the private sector, notably by health care payors and providers, which have instituted various cost reduction and containment measures. AbbVie expects insurers and providers to continue attempts to reduce the cost of health care products. Outside the United States, many countries control the price of health care products directly or indirectly, through reimbursement, payment, pricing, coverage limitations, or compulsory licensing. Budgetary pressures in the United States and in other countries may also heighten the scope and severity of pricing pressures on AbbVie’s products for the foreseeable future. United States. Specifically, U.S. federal laws require pharmaceuticals manufacturers to pay certain statutorily-prescribed rebates to state Medicaid programs on prescription drugs reimbursed under state Medicaid plans, and the efforts by states to seek additional rebates affect AbbVie’s business. Similarly, the Veterans Health Care Act of 1992, as a prerequisite to participation in Medicaid and other federal health care programs, requires that manufacturers extend additional discounts on pharmaceutical products to various federal agencies, including the United States Department of Veterans Affairs, Department of Defense, and Public Health Service entities and institutions. In addition, recent legislative changes would require similarly discounted prices to be offered to TRICARE program beneficiaries. The Veterans Health Care Act of 1992 also established the 340B drug discount program, which requires pharmaceuticals manufacturers to provide products at reduced prices to various designated health care entities and facilities. In the United States, most states also have generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer’s generic version of a pharmaceutical product for the one prescribed. In addition, the federal government follows a diagnosis-related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid and has implemented a prospective payment system (PPS) for services delivered in hospital outpatient, nursing home, and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based on the diagnosis and/or procedure rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. Medicare reimburses Part B drugs based on average sales price plus a certain percentage to account for physician administration costs, which have recently been reduced in the hospital outpatient setting. End stage renal disease treatment is covered through a bundled payment that likewise creates incentives for providers to demand lower pharmaceutical prices. Medicare enters into contracts with private plans to negotiate prices for most patient-administered medicine delivered under Part D. In March 2010, Congress enacted the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (together, the Affordable Care Act). Under the Affordable Care Act, AbbVie pays a fee related to its pharmaceuticals sales to government programs. Also in 2011, AbbVie began providing a discount of 50 percent for branded prescription drugs sold to patients who fall into the Medicare Part D coverage gap, or ‘‘donut hole.’’ The Affordable Care Act also includes provisions known as the Physician Payments Sunshine Act, which require manufacturers of drugs and biologics covered under Medicare and Medicaid starting in 2012 to record any transfers of value to physicians and teaching hospitals and to report this data beginning in 2013 to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting 10 13NOV201221352027 2014 Form 10-K requirements have also been enacted on the state level in the United States, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring disclosure of interactions with health care professionals. Failure to report appropriate data may result in civil or criminal fines and/or penalties. AbbVie expects debate to continue during 2015 at all government levels worldwide over the marketing, availability, method of delivery, and payment for health care products and services. AbbVie believes that future legislation and regulation in the markets it serves could affect access to health care products and services, increase rebates, reduce prices or the rate of price increases for health care products and services, change health care delivery systems, create new fees and obligations for the pharmaceuticals industry, or require additional reporting and disclosure. It is not possible to predict the extent to which AbbVie or the health care industry in general might be affected by the matters discussed above. AbbVie is subject to a Corporate Integrity Agreement (CIA) entered into by Abbott on May 7, 2012 that requires enhancements to AbbVie’s compliance program and contains reporting obligations, including disclosure of financial payments to doctors. If AbbVie fails to comply with the CIA, the Office of Inspector General for the United States Department of Health and Human Services may impose monetary penalties or exclude AbbVie from federal health care programs, including Medicare and Medicaid. European Union. The European Union has adopted directives and other legislation governing labeling, advertising, distribution, supply, pharmacovigilance, and marketing of pharmaceutical products. Such legislation provides mandatory standards throughout the European Union and permits member states to supplement these standards with additional regulations. European governments also regulate pharmaceutical product prices through their control of national health care systems that fund a large part of the cost of such products to consumers. As a result, patients are unlikely to use a pharmaceutical product that is not reimbursed by the government. In many European countries, the government either regulates the pricing of a new product at launch or subsequent to launch through direct price controls or reference pricing. In recent years, many countries have also imposed new or additional cost containment measures on pharmaceutical products. Differences between national pricing regimes create price differentials within the European Union that can lead to significant parallel trade in pharmaceutical products. Most governments also promote generic substitution by mandating or permitting a pharmacist to substitute a different manufacturer’s generic version of a pharmaceutical product for the one prescribed and by permitting or mandating that health care professionals prescribe generic versions in certain circumstances. In addition, governments use reimbursement lists to limit the pharmaceutical products that are eligible for reimbursement by national health care systems. Japan. In Japan, the National Health Insurance system maintains a Drug Price List specifying which pharmaceutical products are eligible for reimbursement, and the Ministry of Health, Labour and Welfare sets the prices of the products on this list. The government generally introduces price cut rounds every other year and also mandates price decreases for specific products. New products judged innovative or useful, that are indicated for pediatric use, or that target orphan or small population diseases, however, may be eligible for a pricing premium. The government has also promoted the use of generics, where available. Emerging Markets. Many emerging markets take steps to reduce pharmaceutical product prices, in some cases through direct price controls and in others through the promotion of generic alternatives to branded pharmaceuticals. Since AbbVie markets its products worldwide, certain products of a local nature and variations of product lines must also meet other local regulatory requirements. Certain additional risks are inherent in conducting business outside the United States, including price and currency exchange controls, changes in 2014 Form 10-K 13NOV201221352027 11 currency exchange rates, limitations on participation in local enterprises, expropriation, nationalization, and other governmental action. Employees AbbVie employed approximately 26,000 persons as of January 31, 2015. Outside the United States, some of AbbVie’s employees are represented by unions or works councils. AbbVie believes that it has good relations with its employees. Internet Information Copies of AbbVie’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through AbbVie’s investor relations website (www.abbvieinvestor.com) as soon as reasonably practicable after AbbVie electronically files the material with, or furnishes it to, the Securities and Exchange Commission. AbbVie’s corporate governance guidelines, outline of directorship qualifications, code of business conduct and the charters of AbbVie’s audit committee, compensation committee, nominations and governance committee, and public policy committee are all available on AbbVie’s investor relations website (www.abbvieinvestor.com). ITEM 1A. RISK FACTORS ..................................................................................................................................................................................................................................................................................................................................................... You should carefully consider the following risks and other information in this Form 10-K in evaluating AbbVie and AbbVie’s common stock. Any of the following risks could materially and adversely affect AbbVie’s results of operations, financial condition or cash flows. The risk factors generally have been separated into three groups: risks related to AbbVie’s business, risks related to AbbVie’s separation from Abbott and risks related to AbbVie’s common stock. Based on the information currently known to it, AbbVie believes that the following information identifies the most significant risk factors affecting it in each of these categories of risks. However, the risks and uncertainties AbbVie faces are not limited to those set forth in the risk factors described below and may not be in order of importance or probability of occurrence. Additional risks and uncertainties not presently known to AbbVie or that AbbVie currently believes to be immaterial may also adversely affect its business. In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on AbbVie’s business, results of operations, financial condition or cash flows. In such case, the trading price of AbbVie’s common stock could decline. Risks Related to AbbVie’s Business The expiration or loss of patent protection and licenses may adversely affect AbbVie’s future revenues and operating earnings. AbbVie relies on patent, trademark and other intellectual property protection in the discovery, development, manufacturing, and sale of its products. In particular, patent protection is, in the aggregate, important in AbbVie’s marketing of pharmaceutical products in the United States and most major markets outside of the United States. Patents covering AbbVie products normally provide market exclusivity, which is important for the profitability of many of AbbVie’s products. As patents for certain of its products expire, AbbVie will or could face competition from lower priced generic products. The expiration or loss of patent protection for a product typically is followed promptly by substitutes that may significantly reduce sales for that product in a short amount of time. If AbbVie’s 12 13NOV201221352027 2014 Form 10-K competitive position is compromised because of generics or otherwise, it could have a material adverse effect on AbbVie’s business and results of operations. In addition, proposals emerge from time to time for legislation to further encourage the early and rapid approval of generic drugs. Any such proposals that are enacted into law could increase the impact of generic competition. AbbVie’s principal patents and trademarks are described in greater detail in Item 1, ‘‘Business— Intellectual Property Protection and Regulatory Exclusivity’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations,’’ and litigation regarding these patents is described in Item 3, ‘‘Legal Proceedings.’’ The United States composition of matter patent for HUMIRA, which is AbbVie’s largest selling product and had worldwide net sales of approximately $12.5 billion in 2014, is expected to expire in December 2016, and the equivalent European Union patent is expected to expire in the majority of European Union countries in April 2018. Because HUMIRA is a biologic and biologics cannot be readily substituted, it is uncertain what impact the loss of patent protection would have on the sales of HUMIRA. AbbVie’s major products could lose patent protection earlier than expected, which could adversely affect AbbVie’s future revenues and operating earnings. Third parties or government authorities may challenge or seek to invalidate or circumvent AbbVie’s patents and patent applications. For example, manufacturers of generic pharmaceutical products file, and may continue to file, Abbreviated New Drug Applications with the FDA seeking to market generic forms of AbbVie’s products prior to the expiration of relevant patents owned or licensed by AbbVie by asserting that the patents are invalid, unenforceable and/or not infringed. Although most of the challenges to AbbVie’s intellectual property have come from other businesses, governments may also challenge intellectual property rights. For example, court decisions and potential legislation relating to patents, such as legislation regarding biosimilars, and other regulatory initiatives may result in further erosion of intellectual property protection. In addition, certain governments outside the United States have indicated that compulsory licenses to patents may be sought to further their domestic policies or on the basis of national emergencies, such as HIV/AIDS. If triggered, compulsory licenses could diminish or eliminate sales and profits from those jurisdictions and negatively affect AbbVie’s results of operations. AbbVie normally responds to challenges by vigorously defending its patents, including by filing patent infringement lawsuits. Patent litigation and other challenges to AbbVie’s patents are costly and unpredictable and may deprive AbbVie of market exclusivity for a patented product. To the extent AbbVie’s intellectual property is successfully challenged or circumvented or to the extent such intellectual property does not allow AbbVie to compete effectively, AbbVie’s business will suffer. To the extent that countries do not enforce AbbVie’s intellectual property rights or require compulsory licensing of AbbVie’s intellectual property, AbbVie’s future revenues and operating income will be reduced. A third party’s intellectual property may prevent AbbVie from selling its products or have a material adverse effect on AbbVie’s future profitability and financial condition. Third parties may claim that an AbbVie product infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require AbbVie to enter into license agreements. AbbVie cannot guarantee that it would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject AbbVie to significant damages or an injunction preventing the manufacture, sale, or use of the affected AbbVie product or products. Any of these events could have a material adverse effect on AbbVie’s profitability and financial condition. 2014 Form 10-K 13NOV201221352027 13 Any significant event that adversely affects HUMIRA revenues could have a material and negative impact on AbbVie’s results of operations and cash flows. HUMIRA accounted for approximately 63 percent of AbbVie’s total net sales in 2014. Any significant event that adversely affects HUMIRA’s revenues could have a material adverse impact on AbbVie’s results of operations and cash flows. These events could include loss of patent protection for HUMIRA, the approval of biosimilars of HUMIRA, the discovery of previously unknown side effects or impaired efficacy, increased competition from the introduction of new, more effective or less expensive treatments, and discontinuation or removal from the market of HUMIRA for any reason. AbbVie’s research and development efforts may not succeed in developing and marketing commercially successful products and technologies, which may cause its revenues and profitability to decline. To remain competitive, AbbVie must continue to launch new products and new indications and/or brand extensions for existing products, and such launches must generate revenue sufficient both to cover its substantial research and development costs and to replace sales of profitable products that are lost to or displaced by competing products or therapies. Failure to do so would have a material adverse effect on AbbVie’s revenue and profitability. Accordingly, AbbVie commits substantial effort, funds, and other resources to research and development and must make ongoing substantial expenditures without any assurance that its efforts will be commercially successful. A high rate of failure in the biopharmaceutical industry is inherent in the research and development of new products, and failure can occur at any point in the research and development process, including after significant funds have been invested. Products that appear promising in development may fail to reach the market for numerous reasons, including failure to demonstrate effectiveness, safety concerns, superior safety or efficacy of competing therapies, failure to achieve positive clinical or pre-clinical outcomes beyond the current standards of care, inability to obtain necessary regulatory approvals or delays in the approval of new products and new indications, limited scope of approved uses, excessive costs to manufacture, the failure to obtain or maintain intellectual property rights, or infringement of the intellectual property rights of others. Decisions about research studies made early in the development process of a pharmaceutical product candidate can affect the marketing strategy once such candidate receives approval. More detailed studies may demonstrate additional benefits that can help in the marketing, but they also consume time and resources and may delay submitting the pharmaceutical product candidate for approval. AbbVie cannot guarantee that a proper balance of speed and testing will be made with respect to each pharmaceutical product candidate or that decisions in this area would not adversely affect AbbVie’s future results of operations. Even if AbbVie successfully develops and markets new products or enhancements to its existing products, they may be quickly rendered obsolete by changing clinical preferences, changing industry standards, or competitors’ innovations. AbbVie’s innovations may not be accepted quickly in the marketplace because of existing clinical practices or uncertainty over third-party reimbursement. AbbVie cannot state with certainty when or whether any of its products under development will be launched, whether it will be able to develop, license, or otherwise acquire compounds or products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause AbbVie’s products to become obsolete, causing AbbVie’s revenues and operating results to suffer. A portion of AbbVie’s near-term pharmaceutical pipeline relies on collaborations with third parties, which may adversely affect the development and sale of its products. AbbVie depends on alliances with pharmaceuticals and biotechnology companies for a portion of the products in its near-term pharmaceutical pipeline. For example, AbbVie is collaborating with Biogen Idec to develop a treatment for the relapsing remitting form of multiple sclerosis. It is also collaborating with 14 13NOV201221352027 2014 Form 10-K Roche Holding AG to discover, develop, and commercialize a next-generation Bcl-2 inhibitor, ABT-199, for patients with relapsed/refractory chronic lymphocytic leukemia. Failures by these parties to meet their contractual, regulatory, or other obligations to AbbVie, or any disruption in the relationships between AbbVie and these third parties, could have an adverse effect on AbbVie’s pharmaceutical pipeline and business. In addition, AbbVie’s collaborative relationships for research and development extend for many years and may give rise to disputes regarding the relative rights, obligations and revenues of AbbVie and its collaboration partners, including the ownership of intellectual property and associated rights and obligations. This could result in the loss of intellectual property rights or protection, delay the development and sale of potential pharmaceutical products, and lead to lengthy and expensive litigation or arbitration. Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations. The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited, and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing, and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically. Failure to successfully discover, develop, manufacture and sell biologics—including HUMIRA— could adversely impact AbbVie’s business and results of operations. AbbVie’s biologic products may become subject to competition from biosimilars. The Biologics Price Competition and Innovation Act was passed on March 23, 2010 as Title VII to the Patient Protection and Affordable Care Act. The law created a framework for the approval of biosimilars in the United States and could allow competitors to reference data from biologic products already approved. In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In addition, companies are developing biosimilars in other countries that could compete with AbbVie’s biologic products. If competitors are able to obtain marketing approval for biosimilars referencing AbbVie’s biologic products, AbbVie’s products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Expiration or successful challenge of AbbVie’s applicable patent rights could also trigger competition from other products, assuming any relevant exclusivity period has expired. As a result, AbbVie could face more litigation with respect to the validity and/or scope of patents relating to its biologic products. New products and technological advances by AbbVie’s competitors may negatively affect AbbVie’s results of operations. AbbVie competes with other research-based pharmaceuticals and biotechnology companies that discover, manufacture, market, and sell proprietary pharmaceutical products and biologics. For example, HUMIRA competes with a number of anti-TNF products that are approved for a number of disease states and AbbVie’s virology products compete with protease inhibitors and other anti-HIV treatments. These competitors may introduce new products or develop technological advances that compete with AbbVie’s products in therapeutic areas such as immunology, virology/liver disease, renal disease, dyslipidemia, and neuroscience. AbbVie cannot predict with certainty the timing or impact of the introduction by competitors 2014 Form 10-K 13NOV201221352027 15 of new products or technological advances. Such competing products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than AbbVie’s products, and this could negatively impact AbbVie’s business and results of operations. The manufacture of many of AbbVie’s products is a highly exacting and complex process, and if AbbVie or one of its suppliers encounters problems manufacturing AbbVie’s products, AbbVie’s business could suffer. The manufacture of many of AbbVie’s products is a highly exacting and complex process, due in part to strict regulatory requirements. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for AbbVie’s products, changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in the types of products produced, physical limitations that could inhibit continuous supply, man-made or natural disasters, and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded and AbbVie may experience product shortages or incur added expenses. This could, among other things, lead to increased costs, lost revenue, damage to customer relations, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. AbbVie uses a number of products in its pharmaceutical and biologic manufacturing processes that are sourced from single suppliers, and an interruption in the supply of those products could adversely affect AbbVie’s business and results of operations. AbbVie uses a number of products in its pharmaceutical and biologic manufacturing processes that are sourced from single suppliers. The failure of these single-source suppliers to fulfill their contractual obligations in a timely manner or as a result of regulatory noncompliance or physical disruption at a manufacturing site may impair AbbVie’s ability to deliver its products to customers on a timely and competitive basis, which could adversely affect AbbVie’s business and results of operations. Finding an alternative supplier could take a significant amount of time and involve significant expense due to the nature of the products and the need to obtain regulatory approvals. AbbVie cannot guarantee that it will be able to reach agreement with alternative providers or that regulatory authorities would approve AbbVie’s use of such alternatives. AbbVie does, however, carry business interruption insurance, which provides a degree of protection in the case of a failure by a single-source supplier. Significant safety or efficacy issues could arise for AbbVie’s products, which could have a material adverse effect on AbbVie’s revenues and financial condition. Pharmaceutical products receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety or efficacy issues are reported or if new scientific information becomes available (including results of post-marketing Phase 4 trials), or if governments change standards regarding safety, efficacy or labeling, AbbVie may be required to amend the conditions of use for a product. For example, AbbVie may voluntarily provide or be required to provide updated information on a product’s label or narrow its approved indication, either of which could reduce the product’s market acceptance. If safety or efficacy issues with an AbbVie product arise, sales of the product could be halted by AbbVie or by regulatory authorities. Safety or efficacy issues affecting suppliers’ or competitors’ products also may reduce the market acceptance of AbbVie’s products. 16 13NOV201221352027 2014 Form 10-K New data about AbbVie’s products, or products similar to its products, could negatively impact demand for AbbVie’s products due to real or perceived safety issues or uncertainty regarding efficacy and, in some cases, could result in product withdrawal. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, practice management groups or organizations involved with various diseases to publish guidelines or recommendations related to the use of AbbVie’s products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of AbbVie’s products. AbbVie is subject to product liability claims and lawsuits that may adversely affect its business and results of operations. In the ordinary course of business, AbbVie is the subject of product liability claims and lawsuits alleging that AbbVie’s products or the products of other companies that it promotes have resulted or could result in an unsafe condition for or injury to patients. Product liability claims and lawsuits and safety alerts or product recalls, regardless of their ultimate outcome, may have a material adverse effect on AbbVie’s business and reputation and on its ability to attract and retain customers. Consequences may also include additional costs, a decrease in market share for the product in question, lower income and exposure to other claims. Product liability losses are self-insured. Product liability claims could have a material adverse effect on AbbVie’s business and results of operations. AbbVie is subject to cost-containment efforts and pricing pressures that could cause a reduction in future revenues and operating earnings, and changes in the terms of rebate and chargeback programs, which are common in the pharmaceuticals industry, could have a material adverse effect on AbbVie’s operations. Cost-containment efforts by governments and private organizations are described in greater detail in Item 1, ‘‘Business—Regulation—Commercialization, Distribution, and Manufacturing.’’ To the extent these cost containment efforts are not offset by greater demand, increased patient access to health care, or other factors, AbbVie’s future revenues and operating earnings will be reduced. In the United States, the European Union and other countries, AbbVie’s business has experienced downward pressure on product pricing, and this pressure could increase in the future. In the United States, practices of managed care groups and institutional and governmental purchasers and United States federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act, contribute to pricing pressures. Recently enacted changes to the health care system in the United States and the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries could result in additional pricing pressures. In numerous major markets worldwide, the government plays a significant role in funding health care services and determining the pricing and reimbursement of pharmaceutical products. Consequently, in those markets, AbbVie is subject to government decision-making and budgetary actions with respect to its products. In particular, many European countries have ongoing government-mandated price reductions for many pharmaceutical products, and AbbVie anticipates continuing pricing pressures in Europe. Differences between countries in pricing regulations could lead to third-party cross-border trading in AbbVie’s products that results in a reduction in future revenues and operating earnings. Rebates related to government programs, such as fee-for-service Medicaid or Medicaid managed care programs, arise from laws and regulations. AbbVie cannot predict if additional government initiatives to contain health care costs or other factors could lead to new or modified regulatory requirements that include higher or incremental rebates or discounts. Other rebate and discount programs arise from contractual agreements with private payers. Various factors, including market factors and the ability of 2014 Form 10-K 13NOV201221352027 17 private payers to control patient access to products, may provide payers the leverage to negotiate higher or additional rebates or discounts that could have a material adverse effect on AbbVie’s operations. AbbVie is subject to numerous governmental regulations, and it can be costly to comply with these regulations and to develop compliant products and processes. AbbVie’s products are subject to rigorous regulation by numerous international, supranational, federal, and state authorities, as described in Item 1, ‘‘Business—Regulation—Discovery and Clinical Development.’’ The process of obtaining regulatory approvals to market a pharmaceutical product can be costly and time consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, future products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and substantial additional costs. In addition, AbbVie cannot guarantee that it will remain compliant with applicable regulatory requirements once approval has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post-marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. AbbVie must incur expense and spend time and effort to ensure compliance with these complex regulations. Possible regulatory actions could result in substantial modifications to AbbVie’s business practices and operations; refunds, recalls, or seizures of AbbVie’s products; a total or partial shutdown of production in one or more of AbbVie’s or its suppliers’ facilities while AbbVie or its supplier remedies the alleged violation; the inability to obtain future approvals; and withdrawals or suspensions of current products from the market. Any of these events could disrupt AbbVie’s business and have a material adverse effect on its business and results of operations. Laws and regulations affecting government benefit programs could impose new obligations on AbbVie, require it to change its business practices, and restrict its operations in the future. The health care industry is subject to various federal, state, and international laws and regulations pertaining to government benefit programs reimbursement, rebates, price reporting and regulation, and health care fraud and abuse. In the United States, these laws include anti-kickback and false claims laws, the Medicaid Rebate Statute, the Veterans Health Care Act, and individual state laws relating to pricing and sales and marketing practices. Violations of these laws may be punishable by criminal and/or civil sanctions, including, in some instances, substantial fines, imprisonment, and exclusion from participation in federal and state health care programs, including Medicare, Medicaid, and Veterans Administration health programs. These laws and regulations are broad in scope and they are subject to change and evolving interpretations, which could require AbbVie to incur substantial costs associated with compliance or to alter one or more of its sales or marketing practices. In addition, violations of these laws, or allegations of such violations, could disrupt AbbVie’s business and result in a material adverse effect on its business and results of operations. AbbVie could be subject to increased monetary penalties and/or other sanctions, including exclusion from federal health care programs, if it fails to comply with the terms of the May 7, 2012 resolution of the Department of Justice’s investigation into sales and marketing activities for Depakote. On May 7, 2012, Abbott settled United States federal and 49 state investigations into its sales and marketing activities for Depakote by pleading guilty to a misdemeanor violation of the Food, Drug, and Cosmetic Act and agreeing to pay approximately $700 million in criminal fines and forfeitures and approximately $900 million to resolve civil claims. Under the plea agreement, Abbott submitted to a term of probation that was initially set at 5 years, but was shortened to 3 years upon the separation of Abbott and AbbVie. The obligations of the plea agreement have transferred to and become fully binding on AbbVie. The conditions of probation include certain reporting requirements, maintenance of certain 18 13NOV201221352027 2014 Form 10-K compliance measures, certifications of AbbVie’s CEO and board of directors, and other conditions. If AbbVie violates the terms of its probation, it may face additional monetary sanctions and other such remedies as the court deems appropriate. On October 2, 2012, the court accepted the guilty plea and imposed the agreed-upon sentence. In addition, Abbott entered into a five-year CIA with the Office of Inspector General for the United States Department of Health and Human Services (OIG). The effective date of the CIA is October 11, 2012. The obligations of the CIA have transferred to and become fully binding on AbbVie. The CIA requires enhancements to AbbVie’s compliance program, fulfillment of reporting and monitoring obligations, management certifications, and resolutions from AbbVie’s board of directors, among other requirements. Compliance with the requirements of the settlement will impose additional costs and burdens on AbbVie, including in the form of employee training, third party reviews, compliance monitoring, reporting obligations, and management attention. If AbbVie fails to comply with the CIA, the OIG may impose monetary penalties or exclude AbbVie from federal health care programs, including Medicare and Medicaid. AbbVie and Abbott may be subject to third party claims and shareholder lawsuits in connection with the settlement, and AbbVie may be required to indemnify all or a portion of Abbott’s costs. The international nature of AbbVie’s business subjects it to additional business risks that may cause its revenue and profitability to decline. AbbVie’s business is subject to risks associated with doing business internationally, including in emerging markets. Sales outside of the United States make up approximately 46 percent of AbbVie’s total net sales in 2014. The risks associated with AbbVie’s operations outside the United States include: • fluctuations in currency exchange rates; • changes in medical reimbursement policies and programs; • multiple legal and regulatory requirements that are subject to change and that could restrict AbbVie’s ability to manufacture, market, and sell its products; • differing local product preferences and product requirements; • trade protection measures and import or export licensing requirements; • difficulty in establishing, staffing, and managing operations; • differing labor regulations; • potentially negative consequences from changes in or interpretations of tax laws; • political and economic instability, including sovereign debt issues; • price and currency exchange controls, limitations on participation in local enterprises, expropriation, nationalization, and other governmental action; • inflation, recession and fluctuations in interest rates; • potential deterioration in the economic position and credit quality of certain non-U.S. countries, including in Europe and Latin America; and • potential penalties or other adverse consequences for violations of anti-corruption, anti-bribery and other similar laws and regulations, including the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act. Events contemplated by these risks may, individually or in the aggregate, have a material adverse effect on AbbVie’s revenues and profitability. 2014 Form 10-K 13NOV201221352027 19 AbbVie may acquire other businesses, license rights to technologies or products, form alliances, or dispose of assets, which could cause it to incur significant expenses and could negatively affect profitability. AbbVie may pursue acquisitions, technology licensing arrangements, and strategic alliances, or dispose of some of its assets, as part of its business strategy. AbbVie may not complete these transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the expected benefits. If AbbVie is successful in making an acquisition, the products and technologies that are acquired may not be successful or may require significantly greater resources and investments than originally anticipated. AbbVie may not be able to integrate acquisitions successfully into its existing business and could incur or assume significant debt and unknown or contingent liabilities. AbbVie could also experience negative effects on its reported results of operations from acquisition or disposition-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. These effects could cause a deterioration of AbbVie’s credit rating and result in increased borrowing costs and interest expense. Additionally, changes in AbbVie’s structure, operations, revenues, costs, or efficiency resulting from major transactions such as acquisitions, divestitures, mergers, alliances, restructurings or other strategic initiatives, may result in greater than expected costs, may take longer than expected to complete or encounter other difficulties, including the need for regulatory approval where appropriate. AbbVie is dependent on wholesale distributors for distribution of its products in the United States and, accordingly, its results of operations could be adversely affected if they encounter financial difficulties. In 2014, three wholesale distributors—AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation—accounted for substantially all of AbbVie’s sales in the United States. If one of its significant wholesale distributors encounters financial or other difficulties, such distributor may decrease the amount of business that it does with AbbVie, and AbbVie may be unable to collect all the amounts that the distributor owes it on a timely basis or at all, which could negatively impact AbbVie’s business and results of operations. AbbVie has debt obligations that could adversely affect its business and its ability to meet its obligations. The amount of debt that AbbVie has incurred and intends to incur could have important consequences to AbbVie and its investors. These consequences include, among other things, requiring a portion of AbbVie’s cash flow from operations to make interest payments on this debt and reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow AbbVie’s business. To the extent that AbbVie incurs additional indebtedness, these risks could increase. In addition, AbbVie’s cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and AbbVie may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to refinance its debt. AbbVie may need additional financing in the future to meet its capital needs or to make opportunistic acquisitions, and such financing may not be available on favorable terms, if at all. AbbVie may need to seek additional financing for its general corporate purposes. For example, it may need to increase its investment in research and development activities or need funds to make acquisitions. AbbVie may be unable to obtain any desired additional financing on terms favorable to it, if at all. If AbbVie loses its investment grade credit rating or adequate funds are not available on acceptable terms, AbbVie may be unable to fund its expansion, successfully develop or enhance products, or respond to competitive pressures, any of which could negatively affect AbbVie’s business. If AbbVie raises additional funds by issuing debt or entering into credit facilities, it may be subject to limitations on its operations due to restrictive covenants. Failure to comply with these covenants could adversely affect AbbVie’s business. 20 13NOV201221352027 2014 Form 10-K AbbVie depends on information technology and a failure of those systems could adversely affect AbbVie’s business. AbbVie relies on sophisticated information technology systems to operate its business. These systems are potentially vulnerable to malicious intrusion, random attack, loss of data privacy, or breakdown. Although AbbVie has invested in the protection of its data and information technology and also monitors its systems on an ongoing basis, there can be no assurance that these efforts will prevent breakdowns or breaches in AbbVie’s information technology systems that could adversely affect AbbVie’s business. Other factors can have a material adverse effect on AbbVie’s profitability and financial condition. Many other factors can affect AbbVie’s profitability and financial condition, including: • changes in or interpretations of laws and regulations, including changes in accounting standards, taxation requirements, product marketing application standards, and environmental laws; • differences between the fair value measurement of assets and liabilities and their actual value, particularly for pension and post-employment benefits, stock-based compensation, intangibles, and goodwill; and for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the actual amount; • changes in the rate of inflation (including the cost of raw materials, commodities, and supplies), interest rates, market value of AbbVie’s equity investments, and the performance of investments held by it or its employee benefit trusts; • changes in the creditworthiness of counterparties that transact business with or provide services to AbbVie or its employee benefit trusts; and • changes in business, economic, and political conditions, including: war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs, or other forms of labor or union activity; and pressure from third-party interest groups. Risks Related to AbbVie’s Separation from Abbott AbbVie’s historical financial information for fiscal year 2012 and prior periods is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results. The historical information about AbbVie in this Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and for the periods ending prior to December 31, 2012 refers to AbbVie’s business as operated by and integrated with Abbott. AbbVie’s historical financial information for these periods was derived from the consolidated financial statements and accounting records of Abbott. Accordingly, the financial information for these periods does not necessarily reflect the financial condition, results of operations or cash flows that AbbVie would have achieved as a separate, publicly traded company during the periods presented or those that AbbVie will achieve in the future. For additional information about the past financial performance of AbbVie’s business and the basis of presentation of the financial statements of AbbVie’s business, see Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and Item 8, ‘‘Financial Statements and Supplementary Data.’’ 2014 Form 10-K 13NOV201221352027 21 As AbbVie builds its information technology infrastructure and transitions its data to its own systems, AbbVie could incur substantial additional costs and experience temporary business interruptions. AbbVie is installing and implementing information technology infrastructure to support its critical business functions, including accounting and reporting, manufacturing process control, customer service, inventory control and distribution. AbbVie may incur temporary interruptions in business operations if it cannot transition effectively from Abbott’s existing transactional and operational systems, data centers and the transition services that support these functions as AbbVie replaces these systems. AbbVie may not be successful in implementing its new systems and transitioning its data, and it may incur substantially higher costs for implementation than currently anticipated. AbbVie’s failure to avoid operational interruptions as it implements the new systems and replaces Abbott’s information technology services, or its failure to implement the new systems and replace Abbott’s services successfully, could disrupt its business, adversely affect its ability to collect receivables from customers, and have a material adverse effect on its profitability. In addition, if AbbVie is unable to replicate or transition certain systems, its ability to comply with regulatory requirements could be impaired. Abbott may fail to perform under various transaction agreements that have been executed as part of the separation or AbbVie may fail to have necessary systems and services in place when certain of the transaction agreements expire. In connection with the separation, AbbVie and Abbott entered into a separation and distribution agreement and various other agreements, including transition services agreements, a tax sharing agreement, international commercial operations agreements, finished goods supply agreements, contract manufacturing agreements, an employee matters agreement, a special products master agreement, an information technology agreement, and a transitional trademark license agreement. Certain of these agreements provide for the performance of services by each company for the benefit of the other for a period of time after AbbVie’s separation from Abbott. AbbVie relies on Abbott to satisfy its performance and payment obligations under these agreements. If Abbott is unable to satisfy its obligations under these agreements, including its indemnification obligations, AbbVie could incur operational difficulties or losses. In addition, AbbVie and Abbott entered into long-term arrangements under a special products master agreement relating to certain product rights and into an ex-U.S. transition services agreement for Abbott to provide AbbVie with back office functions and other services in certain markets outside the United States until AbbVie has established sufficient back office infrastructure to conduct operations in such markets. These arrangements could lead to disputes between Abbott and AbbVie over AbbVie’s rights to certain intellectual property and territorial commercialization rights and over the allocation of costs and revenues for AbbVie’s products and operations outside of the United States. If AbbVie does not have in place its own systems and services, or if AbbVie does not have agreements with other providers of these services when the transaction or long-term agreements terminate, AbbVie may not be able to operate its business effectively and its profitability may decline. AbbVie is in the process of creating its own, or engaging third parties to provide, systems and services to replace many of the systems and services Abbott currently provides to it. AbbVie may not be successful in effectively or efficiently implementing these systems and services or in transitioning data from Abbott’s systems to AbbVie’s. These systems and services may also be more expensive or less efficient than the systems and services Abbott is expected to provide during the transition period. AbbVie is developing and implementing its own back office functions, administrative systems, personnel, and processes for markets outside the United States where Abbott will initially provide such functions. There can be no assurance that AbbVie will be able to fully implement such functions effectively and without disrupting its business in those markets. 22 13NOV201221352027 2014 Form 10-K Potential indemnification liabilities to Abbott pursuant to the separation agreement could materially adversely affect AbbVie. The separation agreement with Abbott provides for, among other things, the principal corporate transactions required to effect the separation, certain conditions to the separation and provisions governing the relationship between AbbVie and Abbott with respect to and resulting from the separation. Among other things, the separation agreement provides for indemnification obligations designed to make AbbVie financially responsible for substantially all liabilities, except certain tax liabilities, that may exist relating to its business activities, whether incurred prior to or after AbbVie’s separation from Abbott, as well as those obligations of Abbott assumed by AbbVie pursuant to the separation agreement, including those relating to Depakote. If AbbVie is required to indemnify Abbott under the circumstances set forth in the separation agreement, AbbVie may be subject to substantial liabilities. Risks Related to AbbVie’s Common Stock AbbVie cannot guarantee the timing, amount, or payment of dividends on its common stock. Although AbbVie expects to pay regular cash dividends, the timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of AbbVie’s board of directors. The board’s decisions regarding the payment of dividends will depend on many factors, such as AbbVie’s financial condition, earnings, capital requirements, debt service obligations, industry practice, legal requirements, regulatory constraints, and other factors that the board deems relevant. For more information, see Item 5, ‘‘Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.’’ AbbVie’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and access capital markets. AbbVie cannot guarantee that it will continue to pay a dividend in the future. An AbbVie stockholder’s percentage of ownership in AbbVie may be diluted in the future. In the future, a stockholder’s percentage ownership in AbbVie may be diluted because of equity issuances for capital market transactions, equity awards that AbbVie will be granting to AbbVie’s directors, officers and employees, acquisitions, or other purposes. AbbVie’s employees have options to purchase shares of its common stock as a result of conversion of their Abbott stock options (in whole or in part) to AbbVie stock options. AbbVie anticipates its compensation committee will grant additional stock options or other stock-based awards to its employees. Such awards will have a dilutive effect on AbbVie’s earnings per share, which could adversely affect the market price of AbbVie’s common stock. From time to time, AbbVie will issue additional options or other stock-based awards to its employees under AbbVie’s employee benefits plans. In addition, AbbVie’s amended and restated certificate of incorporation authorizes AbbVie to issue, without the approval of AbbVie’s stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over AbbVie’s common stock respecting dividends and distributions, as AbbVie’s board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of AbbVie’s common stock. For example, AbbVie could grant the holders of preferred stock the right to elect some number of AbbVie’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences AbbVie could assign to holders of preferred stock could affect the residual value of the common stock. 2014 Form 10-K 13NOV201221352027 23 Certain provisions in AbbVie’s amended and restated certificate of incorporation and amended and restated by-laws, and of Delaware law, may prevent or delay an acquisition of AbbVie, which could decrease the trading price of AbbVie’s common stock. AbbVie’s amended and restated certificate of incorporation and amended and restated by-laws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirors to negotiate with AbbVie’s board of directors rather than to attempt a hostile takeover. These provisions include, among others: • the inability of AbbVie’s stockholders to call a special meeting; • the division of AbbVie’s board of directors into three classes of directors, with each class serving a staggered three-year term; • a provision that stockholders may only remove directors for cause; • the ability of AbbVie’s directors, and not stockholders, to fill vacancies on AbbVie’s board of directors; and • the requirement that the affirmative vote of stockholders holding at least 80 percent of AbbVie’s voting stock is required to amend certain provisions in AbbVie’s amended and restated certificate of incorporation and AbbVie’s amended and restated by-laws relating to the number, term and election of AbbVie’s directors, the filling of board vacancies, the calling of special meetings of stockholders and director and officer indemnification provisions. In addition, Section 203 of the Delaware General Corporation Law provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15 percent of the corporation’s outstanding voting stock. AbbVie believes these provisions protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with AbbVie’s board of directors and by providing AbbVie’s board of directors with more time to assess any acquisition proposal. These provisions are not intended to make the company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that AbbVie’s board of directors determines is not in the best interests of AbbVie and AbbVie’s stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. 24 13NOV201221352027 2014 Form 10-K CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains certain forward looking statements regarding business strategies, market potential, future financial performance and other matters. The words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘project’’ and similar expressions, among others, generally identify ‘‘forward looking statements,’’ which speak only as of the date the statements were made. The matters discussed in these forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward looking statements. In particular, information included under Item 1, ‘‘Business,’’ Item 1A, ‘‘Risk Factors,’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ contain forward looking statements. Where, in any forward looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of AbbVie management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Factors that could cause actual results or events to differ materially from those anticipated include the matters described under Item 1A, ‘‘Risk Factors’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’ AbbVie does not undertake any obligation to update the forward-looking statements included in this Annual Report on Form 10-K to reflect events or circumstances after the date hereof, unless AbbVie is required by applicable securities law to do so. ITEM 1B. UNRESOLVED STAFF COMMENTS ..................................................................................................................................................................................................................................................................................................................................................... None. ITEM 2. PROPERTIES ..................................................................................................................................................................................................................................................................................................................................................... AbbVie’s corporate offices are located at 1 North Waukegan Road, North Chicago, Illinois 60064-6400. AbbVie’s principal manufacturing plants are in the following locations: United States Abbott Park, Illinois* Barceloneta, Puerto Rico Jayuya, Puerto Rico North Chicago, Illinois Worcester, Massachusetts * Leased property. Outside the United States Campoverde di Aprilia, Italy Cork, Ireland Ludwigshafen, Germany Sligo, Ireland In addition to the above, AbbVie has other manufacturing facilities in the United States and worldwide. AbbVie believes its facilities are suitable and provide adequate production capacity. In the United States, including Puerto Rico, AbbVie has one distribution center. AbbVie also has four United States research and development facilities located at: Abbott Park, Illinois; North Chicago, Illinois; Redwood City, California; and Worcester, Massachusetts. Outside the United States, AbbVie’s principal research and development facilities are located in Shanghai, China and Ludwigshafen, Germany. Except as noted, the principal plants in the United States listed above are owned by AbbVie or subsidiaries of AbbVie. The remaining manufacturing plants and all other facilities are owned or leased by AbbVie or subsidiaries of AbbVie. 2014 Form 10-K 13NOV201221352027 25 ITEM 3. LEGAL PROCEEDINGS ..................................................................................................................................................................................................................................................................................................................................................... Information pertaining to legal proceedings is provided in Note 14 entitled ‘‘Legal Proceedings and Contingencies’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data,’’ and is incorporated by reference herein. ITEM 4. MINE SAFETY DISCLOSURES ..................................................................................................................................................................................................................................................................................................................................................... Not applicable. 26 13NOV201221352027 2014 Form 10-K EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists AbbVie’s executive officers, each of whom was first appointed as an AbbVie corporate officer in December 2012, except as otherwise indicated. Name Richard A. Gonzalez Laura J. Schumacher William J. Chase Carlos Alban Michael Severino, M.D.* Timothy J. Richmond Azita Saleki-Gerhardt, Ph.D. Thomas A. Hurwich Age Position 61 51 47 52 49 48 51 54 Chairman of the Board and Chief Executive Officer Executive Vice President, Business Development, External Affairs and General Counsel Executive Vice President, Chief Financial Officer Executive Vice President, Commercial Operations Executive Vice President, Research and Development, Chief Scientific Officer Senior Vice President, Human Resources Senior Vice President, Operations Vice President, Controller * First appointed as a corporate officer in June 2014. Mr. Gonzalez is AbbVie’s Chairman of the Board and Chief Executive Officer. He served as Abbott’s Executive Vice President, Pharmaceutical Products Group from 2010 to 2012, and was responsible for Abbott’s worldwide pharmaceutical business, including commercial operations, research and development, and manufacturing. He has also served as President, Abbott Ventures Inc., Abbott’s medical technology investment arm, from 2009 to 2011. Mr. Gonzalez joined Abbott in 1977 and held various management positions before briefly retiring in 2007, including Abbott’s President and Chief Operating Officer, President, Chief Operating Officer of Abbott’s Medical Products Group, Senior Vice President and President of Abbott’s former Hospital Products Division (now Hospira, Inc.), Vice President and President of Abbott’s Health Systems Division, and Divisional Vice President and General Manager for Abbott’s Diagnostics Operations in the United States and Canada. Ms. Schumacher is AbbVie’s Executive Vice President, Business Development, External Affairs and General Counsel. She served as Abbott’s Executive Vice President, General Counsel, and Corporate Secretary from 2007 to 2012, and as Senior Vice President, Corporate Secretary, and General Counsel from 2005 to 2007. Ms. Schumacher was also responsible for Abbott’s licensing and acquisitions function and its Office of Ethics and Compliance. Ms. Schumacher joined Abbott in 1990. She currently serves as a director of General Dynamics Corporation. Mr. Chase is AbbVie’s Executive Vice President, Chief Financial Officer. He served as Abbott’s Vice President, Licensing and Acquisitions from 2010 to 2012, as Vice President, Treasurer from 2007 to 2010, and as Divisional Vice President, Controller of Abbott International from 2004 to 2007. Mr. Chase joined Abbott in 1989. Mr. Alban is AbbVie’s Executive Vice President, Commercial Operations. He served as Abbott’s Senior Vice President, Proprietary Pharmaceutical Products, Global Commercial Operations from 2011 to 2012, as Senior Vice President, International Pharmaceuticals from 2009 to 2011, as Vice President, Western Europe and Canada from 2007 to 2009, and as Vice President, European Operations from 2006 to 2007. Mr. Alban joined Abbott in 1986. Dr. Severino is AbbVie’s Executive Vice President, Research and Development, Chief Scientific Officer. Dr. Severino served at Amgen Inc. as Senior Vice President, Global Development and Corporate Chief Medical Officer from 2012 to 2014, as Vice President, Global Development from 2010 to 2012 and as Vice President, Therapeutic Area Head, General Medicine and Inflammation Global Clinical Development from 2007 to 2012. He joined AbbVie in 2014. 2014 Form 10-K 13NOV201221352027 27 Mr. Richmond is AbbVie’s Senior Vice President, Human Resources. He served as Abbott’s Divisional Vice President of Compensation & Benefits from 2008 to 2012, as Group Vice President of Talent and Rewards from 2007 to 2008, and as Divisional Vice President of Talent Acquisition from 2006 to 2007. Mr. Richmond joined Abbott in 2006. Dr. Saleki-Gerhardt is AbbVie’s Senior Vice President, Operations. She served as Abbott’s Vice President, Pharmaceuticals Manufacturing and Supply from 2011 to 2012, and as Divisional Vice President, Quality Assurance, Global Pharmaceutical Operations from 2008 to 2011. Dr. Saleki-Gerhardt joined Abbott in 1993. Mr. Hurwich is AbbVie’s Vice President, Controller. He served as Abbott’s Vice President, Internal Audit from 2009 to 2012, and as Divisional Vice President, Controller, Abbott Diagnostics Division from 2003 to 2009. Mr. Hurwich joined Abbott in 1983. The executive officers of AbbVie are elected annually by the board of directors. All other officers are elected by the board or appointed by the Chairman of the Board. All officers are either elected at the first meeting of the board of directors held after the annual stockholder meeting or appointed by the Chairman of the Board after that board meeting. Each officer holds office until a successor has been duly elected or appointed and qualified or until the officer’s death, resignation, or removal. There are no family relationships between any of the executive officers listed above. 28 13NOV201221352027 2014 Form 10-K PART II ITEM 5. MARKET FOR REGISTRANT’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ..................................................................................................................................................................................................................................................................................................................................................... Principal Market The principal market for AbbVie’s common stock is the New York Stock Exchange (NYSE). A ‘‘when-issued’’ trading market for AbbVie’s common stock began on the NYSE on December 10, 2012, and ‘‘regular way’’ trading of AbbVie’s common stock began on January 2, 2013. Prior to December 10, 2012 there was no public market for AbbVie’s common stock. AbbVie’s common stock is also listed on the Chicago Stock Exchange and traded on various regional and electronic exchanges. Outside the United States, AbbVie’s common stock is listed on NYSE Euronext Paris and the SIX Swiss Exchange. First Quarter Second Quarter Third Quarter Fourth Quarter Stockholders Market Price Per Share 2014 2013 high low high low $54.73 56.90 60.02 70.76 $46.42 45.50 51.37 52.06 $40.80 48.00 48.42 54.78 $33.33 39.96 41.07 44.32 There were 56,161 stockholders of record of AbbVie common stock as of January 31, 2015. Dividends Four quarterly dividends were paid on common stock in 2014. The first quarter cash dividend of $0.40 per share was payable February 14, 2014 and the second, third and fourth quarter dividends of $0.42 per share were payable May 15, 2014, August 15, 2014 and November 17, 2014, respectively. On October 20, 2014, AbbVie’s board of directors declared an increase in the quarterly cash dividend from $0.42 per share to $0.49 per share, payable on February 13, 2015 to stockholders of record as of January 15, 2015. A quarterly dividend of $0.40 per share was paid on common stock in 2013. The timing, declaration, amount of, and payment of any dividends by AbbVie in the future is within the discretion of its board of directors and will depend upon many factors, including AbbVie’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of AbbVie’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by its board of directors. Moreover, if AbbVie determines to pay any dividend in the future, there can be no assurance that it will continue to pay such dividends or the amount of such dividends. AbbVie Inc. is an Illinois High Impact Business (HIB) and is located in a federal Foreign Trade Sub-Zone (Sub-Zone 22S). Dividends may be eligible for a subtraction from base income for Illinois income tax purposes. If you have questions, please contact your tax advisor. Performance Graph The following graph compares the cumulative total returns of AbbVie, the S&P 500 Index and the NYSE Arca Pharmaceuticals Index. This graph covers the period from January 2, 2013 (the first day AbbVie’s common stock began ‘‘regular-way’’ trading on the NYSE) through December 31, 2014. This graph assumes $100 was invested in the stock or the index on January 2, 2013 and also assumes the reinvestment of dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance. 2014 Form 10-K 13NOV201221352027 29 COMPARISON OF CUMULATIVE TOTAL RETURN $225 $200 $175 $150 $125 $100 1/2/2013 6/30/2013 12/31/2013 6/30/2014 12/31/2014 AbbVie Inc. S&P 500 Index NYSE Arca Pharmaceu(cid:2)cal Index 13MAR201512001133 This performance graph is furnished and shall not be deemed ‘‘filed’’ with the SEC or subject to Section 18 of the Exchange Act of 1934, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended. Issuer Purchases of Equity Securities (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) 9,410(1) $39.55 34,295(1) $51.43 (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs — — 4,513,139(1) 4,556,844(1) $67.03 $66.86 4,475,247 4,475,247 (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs $5,000,000,000(2) $5,000,000,000(2) $4,699,938,463(2) $4,699,938,463(2) Period October 1, 2014 - October 31, 2014 November 1, 2014 - November 30, 2014 December 1, 2014 - December 31, 2014 Total (1) These shares represent: (i) the shares deemed surrendered to AbbVie to pay the exercise price in connection with the exercise of employee stock options—9,410 in October; 34,295 in November; and 15,871 in December; and (ii) the shares purchased on the open market for the benefit of participants in the AbbVie Employee Stock Purchase Plan—0 in October; 0 in November; and 22,021 in December. These shares do not include the shares surrendered to AbbVie to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock or restricted stock units. This authorization supersedes the previously-disclosed $1.5 billion stock repurchase program. (2) On October 20, 2014, AbbVie announced that its board of directors authorized the purchase of up to $5.0 billion of its common stock, from time to time. 30 13NOV201221352027 2014 Form 10-K ITEM 6. SELECTED FINANCIAL DATA ..................................................................................................................................................................................................................................................................................................................................................... The following table sets forth AbbVie’s selected financial information derived from its (i) audited consolidated financial statements as of and for the years ended December 31, 2014 and 2013; and (ii) audited combined financial statements as of and for the years ended December 31, 2012, 2011 and 2010. The historical financial statements for periods prior to January 1, 2013 were prepared on a stand- alone basis and were derived from Abbott’s consolidated financial statements and accounting records as if the former research-based pharmaceutical business of Abbott had been part of AbbVie for all periods presented. Accordingly, AbbVie’s financial statements for periods prior to January 1, 2013 are presented on a combined basis and reflect AbbVie’s financial position, results of operations and cash flows as its business was operated as part of Abbott prior to the separation, in conformity with generally accepted accounting principles (GAAP) in the United States. The historical financial statements for periods prior to January 1, 2013 also reflected an allocation of expenses related to certain Abbott corporate functions, including senior management, legal, human resources, finance, information technology and quality assurance. These expenses were allocated to AbbVie based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. AbbVie considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expenses that would have been incurred had AbbVie operated as an independent, stand-alone, publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to January 1, 2013 may not be indicative of the results of operations or financial position that would have been achieved if AbbVie had been an independent, stand-alone, publicly-traded company during the periods shown or of AbbVie’s performance for periods subsequent to December 31, 2012. Refer to ‘‘Separation from Abbott Laboratories and Basis of Historical Presentation’’ and ‘‘Transition from Abbott and Cost to Operate as an Independent Company’’ included under Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ for additional information. The selected financial information should be read in conjunction with the financial statements and accompanying notes included under Item 8, ‘‘Financial Statements and Supplementary Data’’ and Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’ as of and for the years ended December 31 (in millions, except per share data) 2014 2013 2012 2011 2010 Statement of earnings data Net sales Net earnings(a) Basic earnings per share(a) Diluted earnings per share(a) Cash dividends declared per share Weighted-average basic shares outstanding(c) Weighted-average diluted shares outstanding(c) Balance sheet data $19,960 $ 1,774 $ 1.11 $ 1.10 $ 1.75 1,595 1,610 $18,790 $ 4,128 $ 2.58 $ 2.56 $ 2.00(b) 1,589 1,604 $18,380 $ 5,275 $ 3.35 $ 3.35 n/a 1,577 1,577 $17,444 $ 3,433 $ 2.18 $ 2.18 n/a 1,577 1,577 $15,638 $ 4,178 $ 2.65 $ 2.65 n/a 1,577 1,577 Total assets Long-term debt and lease obligations(d) $27,547 $14,586 $29,198 $14,310 $27,008 $14,652 $19,521 48 $ $21,135 52 $ (a) Results for the years ended December 31, 2014 and 2013 included higher expenses associated with operating as an independent, stand-alone publicly traded company than the historically derived financial statements. The increases include the impact of interest expense on debt issued in November 2012, a higher tax rate and other full year incremental costs of operating as an independent company. In addition, results for the year ended December 31, 2014 include after-tax transaction and financing- related costs totaling $1.8 billion, or $1.12 per share, incurred in connection with the terminated proposed combination with Shire plc (Shire), a $750 million after-tax charge related to a research and 2014 Form 10-K 13NOV201221352027 31 development collaboration agreement with Calico Life Sciences LLC (Calico), and a $173 million after-tax charge as a result of entering into a global collaboration with Infinity Pharmaceuticals, Inc. (Infinity). Refer to Notes 4 and 6 to the audited consolidated financial statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for further information relating to the termination of the proposed combination with Shire and the collaborations with Calico and Infinity, respectively. (b) AbbVie declared regular quarterly cash dividends in 2013 aggregating $1.60 per share of common stock. In addition, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings on January 4, 2013 and was recorded as a reduction of additional paid-in capital. Refer to Note 12 to the audited consolidated financial statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for additional information regarding cash dividends declared in 2013. (c) On January 1, 2013, Abbott distributed 1,577 million shares of AbbVie common stock. For periods prior to the separation, the weighted-average basic and diluted shares outstanding was based on the number of shares of AbbVie common stock outstanding on the distribution date. Refer to Note 5 to the audited consolidated financial statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for information regarding the calculation of basic and diluted earnings per common share for the years ended December 31, 2014 and 2013. (d) Also includes current portion of long-term debt and lease obligations. 32 13NOV201221352027 2014 Form 10-K ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..................................................................................................................................................................................................................................................................................................................................................... The following is a discussion and analysis of the financial condition of AbbVie Inc. (AbbVie or the company) and results of operations as of and for each of the three years in the period ended December 31, 2014. This commentary should be read in conjunction with the consolidated financial statements and accompanying notes appearing in Item 8, ‘‘Financial Statements and Supplementary Data.’’ EXECUTIVE OVERVIEW Company Overview AbbVie is a global, research-based biopharmaceutical company. AbbVie develops and markets advanced therapies that address some of the world’s most complex and serious diseases. AbbVie products are used to treat chronic autoimmune diseases, including rheumatoid arthritis, psoriasis, and Crohn’s disease; hepatitis C (HCV); human immunodeficiency virus (HIV); endometriosis; thyroid disease; Parkinson’s disease; complications associated with chronic kidney disease (CKD) and cystic fibrosis; and other health conditions such as low testosterone. AbbVie also has a pipeline of promising new medicines, including more than 30 compounds or indications in Phase 2 or Phase 3 development across such important medical specialties as immunology, virology/liver disease, oncology, renal disease, neurological diseases and women’s health. AbbVie’s products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from AbbVie-owned distribution centers and public warehouses. In the United States, AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies and patients. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Certain products are co-marketed or co-promoted with other companies. AbbVie has approximately 26,000 employees and its products are sold in over 170 countries. AbbVie operates in one business segment—pharmaceutical products. Financial Results Since becoming an independent company, AbbVie’s strategy has focused on delivering strong financial results and returns for shareholders while ensuring a strong sustainable growth business over the longer term. In 2014, AbbVie grew worldwide net sales by 6 percent to $20.0 billion, driven primarily by the continued strength of HUMIRA and double-digit sales growth from other key products including Creon, Duodopa and Synthroid. Sales growth in 2014 continued to reflect the impact of the loss of exclusivity in the company’s lipid franchise, which resulted in the loss of $748 million of revenue in 2014 over the prior year. Generic competition began in November 2012 for TriCor, July 2013 for Trilipix and September 2013 for Niaspan. The company’s financial performance in 2014 included delivering fully diluted earnings per share of $1.10, including after-tax transaction and financing-related costs totaling $1.8 billion incurred in connection with the terminated proposed combination with Shire plc (Shire), a $750 million after-tax charge related to a research and development collaboration agreement with Calico Life Sciences LLC (Calico) and a $173 million after-tax charge as a result of entering into a global collaboration with Infinity Pharmaceuticals, Inc. (Infinity). Refer to Note 4 for further information regarding the termination of the company’s proposed combination with Shire and Note 6 for further information regarding the company’s collaborations with Calico and Infinity. AbbVie’s financial performance in 2014 also reflected an improvement in gross margin primarily due to favorable product mix across the product portfolio and operational efficiencies, as well as increased funding in support of AbbVie’s emerging mid-and late-stage pipeline assets and additional HUMIRA indications. 2014 Form 10-K 13NOV201221352027 33 In 2014, the company generated cash flows from operations of $3.5 billion, net of the after-tax transaction and financing-related costs incurred in connection with the terminated proposed combination with Shire. These strong cash flows enabled the company to continue to enhance its pipeline through licensing and collaboration activities, pay cash dividends to shareholders of $2.7 billion and repurchase approximately 9 million shares for $550 million. In addition, the board of directors declared an increase in the company’s quarterly cash dividend from $0.42 per share to $0.49 per share of common stock payable in February 2015, as well as authorized a new $5.0 billion stock repurchase program that is expected to be executed over the next several years. In addition to these financial results, AbbVie continued to advance its pipeline during 2014, including securing regulatory approval in the United States for AbbVie’s interferon-free HCV treatment, VIEKIRA PAK, as well as submitting its regulatory application in the European Union, which was subsequently approved in January 2015. AbbVie also continued to advance its previously submitted regulatory applications in the United States for Duopa, which were subsequently approved in January 2015, and completed several late-stage clinical trials, including ZINBRYTA (daclizumab) for the treatment of the relapsing/remitting form of multiple sclerosis (MS) and registrational programs for an expanded use of HUMIRA for hidradenitis suppurativa. AbbVie also augmented its pipeline through strategic licensing and partnering activities including in-licensing duvelisib, a dual acting PI3 kinase inhibitor currently under investigation for use in a variety of hematological malignancies, from Infinity and entering into a novel collaboration with Calico to discover, develop, and commercialize new therapies for patients with age-related diseases. 2015 Strategic Objectives In 2015, AbbVie expects sales performance to be driven by continued strong growth from HUMIRA, the launch of VIEKIRA PAK, and sales growth in certain key products including Creon and Duodopa, partially offset by a decline in several products due to generic competition, including AndroGel 1% and the remainder of the lipid franchise. In addition, AbbVie expects to achieve operating margin improvements while continuing to invest in its pipeline in support of opportunities in oncology, HCV, and immunology, as well as continued investment in key products. AbbVie expects to grow operating cash flows in 2015, which will enable the company to continue to augment its pipeline through concerted focus on strategic licensing, acquisition and partnering activity and returning cash to shareholders via dividends and share repurchases. AbbVie expects to continue to drive strong HUMIRA sales growth in several ways. AbbVie seeks to expand the HUMIRA patient base by applying for regulatory approval of new indications for HUMIRA, treating conditions such as uveitis and hidradenitis suppurativa. AbbVie will also seek to drive HUMIRA sales growth by expanding its market share and its presence in underserved markets. AbbVie plans to continue making investments in key emerging markets, including Brazil, China, and Russia. Another key driver of AbbVie’s performance in 2015 will be VIEKIRA PAK, which is now approved in the United States, the European Union and a number of other countries around the world. AbbVie expects to support the successful launch of VIEKIRA in the United States by securing payor positions and patient access and focusing commercial efforts on penetration in AbbVie-exclusive and parity accounts. The company has launched VIEKIRAX in several European countries, including Germany, the United Kingdom and Canada, and continues to work with various governments around the world to gain reimbursements approvals. AbbVie will continue its investment in products with historically stable sales levels, while making adjustments as necessary to increase the value of its product portfolio. AbbVie plans to achieve this objective in a variety of ways depending on product and circumstances by, for example, identifying supply chain efficiencies, pursuing additional indications, and optimizing residual value as products reach the end of exclusivity. AbbVie believes that its approach will allow the company to maintain a strong operating margin. 34 13NOV201221352027 2014 Form 10-K R&D efforts will continue to focus a significant portion of expenditures on compounds for immunology, virology/liver disease, oncology, renal disease, neurological diseases and women’s health. AbbVie’s scientists work to advance a pipeline of specialty molecules that demonstrate strong clinical performance for patients and economic value for patients and their healthcare systems. Current R&D projects are described in the ‘‘Research and Development’’ section below. Abbvie will also continue to augment its pipeline through concerted focus on strategic licensing, acquisition and partnering activity in 2015. Research and Development Research and innovation continues to be a key strategic priority for AbbVie. AbbVie’s long-term success depends to a great extent on its ability to continue to discover and develop innovative pharmaceutical products and acquire or collaborate on compounds currently in development at other biotechnology or pharmaceutical companies. AbbVie’s pipeline includes more than 40 compounds or indications in clinical development individually or under collaboration or license agreements. Of these programs, approximately 13 are in Phase 3 development or in registration. AbbVie expects multiple Phase 2 programs to transition into Phase 3 programs during 2015. R&D is focused on therapeutic areas that include immunology, virology/liver disease, oncology, renal disease, neurological diseases, and women’s health, among others. Immunology HUMIRA is approved to treat the following autoimmune diseases in the United States, Canada, and Mexico (collectively, North America), and in the European Union: Condition Rheumatoid arthritis (moderate to severe) Psoriatic arthritis Ankylosing spondylitis Crohn’s disease (moderate to severe) Plaque psoriasis (moderate to severe) Juvenile idiopathic arthritis Ulcerative colitis (moderate to severe) Axial spondyloarthropathy Pediatric Crohn’s disease (severe) Pediatric enthesitis-related arthritis Principal Markets North America, European Union North America, European Union North America, European Union North America, European Union North America, European Union North America, European Union United States, European Union United States, European Union United States, European Union European Union AbbVie continues to dedicate R&D efforts to expanding indications for HUMIRA, including in the fields of gastroenterology, dermatology and ophthalmology. Phase 3 trials are ongoing in preparation for regulatory applications of HUMIRA for uveitis in the United States and the European Union. A regulatory application for hidradenitis suppurativa has been filed in the United States and the European Union. AbbVie also has a number of next-generation programs underway to address immune-mediated conditions, including the following: • AbbVie’s studies of dual variable domain immunoglobulin (DVD-Ig) technology, which represents an approach that can target multiple disease-causing antigens with a single biologic agent, continue to progress. This proprietary technology could lead to next-generation biologic treatments for complex conditions such as cancer or rheumatoid arthritis, where multiple pathways are involved in the disease. ABT-122, a DVD directed against IL-17 and TNF, is currently in Phase 2 investigation in RA, and ABT-981, a DVD targeting IL-1 alpha and beta, is being studied in osteoarthritis in an ongoing Phase 2 program. 2014 Form 10-K 13NOV201221352027 35 • AbbVie is collaborating with Biotest AG on an anti-CD4 biologic known as tregalizumab. The compound is currently in Phase 2b clinical trials for rheumatoid arthritis and psoriasis. • Filgotinib (GLPG0634), a next-generation, oral Janus Kinase 1 (JAK1) inhibitor, is being developed with Galapagos NV (Galapagos) in a collaboration entered into during the first quarter of 2012. Filgotinib is currently in Phase 2b development to treat rheumatoid arthritis and may be able to address other autoimmune diseases. In January 2014, a Phase 2 study to evaluate Filgotinib to treat Crohn’s disease was initiated. • ABT-494, AbbVie’s JAK-1 selective inhibitor, is currently in Phase 2b. • In September 2013, AbbVie entered into a global collaboration with Ablynx NV (Ablynx) to develop and commercialize the anti-IL-6R Nanobody, ALX-0061, to treat inflammatory diseases including rheumatoid arthritis and systemic lupus erythematosus. ALX-0061 is currently in Phase 2 development for rheumatoid arthritis. • In May 2013, AbbVie entered into a global collaboration with Alvine Pharmaceuticals, Inc. (Alvine) to develop ALV003, a novel oral treatment for patients with celiac disease. ALV003 is currently in Phase 2b development. Virology/Liver Disease On December 19, 2014, the U.S. Food and Drug Administration (FDA) approved AbbVie’s VIEKIRA PAK, an all-oral interferon-free treatment, with or without ribavirin (RBV), for the treatment of patients with chronic genotype 1 HCV infection, including those with compensated cirrhosis. On January 16, 2015, AbbVie announced that the European Commission granted marketing authorizations for its all-oral, short-course, interferon-free treatment VIEKIRAX (ombitasvir/paritaprevir/ritonavir tablets) + EXVIERA (dasabuvir tablets). The treatment has been approved with or without RBV for patients with genotype 1 chronic HCV infection, including those with compensated liver cirrhosis, HIV-1 co-infection, patients on opioid substitution therapy and liver transplant recipients. Additionally, VIEKIRAX has been approved for use with RBV in genotype 4 chronic HCV patients. AbbVie’s HCV combination is also in Phase 3 development in Japan. AbbVie submitted its regulatory application in Japan in 2015. AbbVie is also currently conducting Phase 2 studies of its next-generation HCV program which includes ABT-493, a potent protease inhibitor, and ABT-530, AbbVie’s new NS5A inhibitor. Oncology AbbVie is focused on the development of targeted treatments that inhibit tumor growth and improve response to common cancer therapies. AbbVie’s later-stage oncology pipeline includes the following: • Elotuzumab is an anti-SLAM7 antibody for the treatment of multiple myeloma under a collaboration with Bristol-Myers Squibb (BMS). Phase 3 development began in June 2011 for multiple myeloma. In 2014, AbbVie and BMS announced that the FDA granted elotuzumab Breakthrough Therapy Designation for use in combination with lenalidomide and dexamethoasone for the treatment of multiple myeloma in patients who have received one or more prior therapies. Two Phase 3 studies are ongoing with results expected in 2015. • Veliparib (ABT-888), a PARP-inhibitor, is in a Phase 3 study in BRCA-mutated breast cancer being treated with chemotherapy initiated in 2014. Veliparib is also in Phase 2 evaluation for the treatment of a variety of other solid tumors. In 2014, AbbVie announced the initiation of four separate Phase 3 clinical trials evaluating the safety and efficacy of veliparib, in combination with chemotherapy in patients with previously untreated locally advanced or metastatic squamous non-small cell lung cancer (NSCLC) and a separate study in patients with nonsquamous NSCLC, as a neoadjuvant therapy, when added to carboplatin, prior to surgery in women with early-stage, triple 36 13NOV201221352027 2014 Form 10-K negative breast cancer and in patients with human epidermal growth factor receptor 2-(HER2) negative metastatic or locally-advanced breast cancer, containing BRCA1 and/or BRCA2 gene mutations, when added to carboplatin and paclitaxel. • Venetoclax (ABT-199), a next-generation Bcl-2 inhibitor, is in development for patients with relapsed/ refractory chronic lymphocytic leukemia. In 2014, two Phase 3 studies in chronic lymphocytic leukemia (CLL) were initiated in collaboration with AbbVie’s development partner, Roche Holding AG. AbbVie also completed enrollment in a single arm study evaluating venetoclax in patients with relapsed/refractory CLL harboring the 17p deletion mutation, a negative prognostic factor. AbbVie anticipates results from this study in 2015. Venetoclax is also being explored for use across a number of different hematologic cancers including non-Hodgkin lymphoma, diffuse large B-cell lymphoma and acute myeloid leukemia. • Other molecular targets are being explored with Antibody-Drug Conjugate approaches linking anti-target antibodies with potent cytotoxic agents. In 2014, the European Medicines Agency (EMA) and the FDA granted orphan drug designation to AbbVie’s investigational compound ABT-414, an anti-epidermal growth factor receptor antibody drug conjugate, which is being evaluated for safety and efficacy in patients with glioblastoma multiforme, the most common and most aggressive type of malignant primary brain tumor. • In 2014, AbbVie in-licensed duvelisib, a dual acting PI3 kinase inhibitor currently under investigation for use in a variety of hematological malignancies, from Infinity. Duvelisib is also under investigation for use in indolent non-Hodgkins lymphoma and for use in CLL. Renal Disease AbbVie’s renal care pipeline includes atrasentan, for the prevention of progression of diabetic CKD. In 2013, a Phase 3 study was initiated to assess atrasentan, when added to standard of care, on progression of kidney disease in patients with stage 2 to 4 CKD and type 2 diabetes. This global registrational study is expected to be completed in 2018. Atrasentan will potentially be the first compound launched to treat diabetic nephropathy by specifically targeting albuminuria and slowing the progression of CKD. AbbVie was previously investigating ABT-719, for the treatment of acute kidney injury associated with major cardiac and vascular surgeries. In 2014, AbbVie completed its Phase 2b study and, based on the results of that study, decided not to continue development of ABT-719. Neurological Diseases AbbVie has clinical studies underway on multiple compounds that target receptors in the brain that help regulate mood, memory, and other neurological functions and conditions, including the following: • AbbVie is collaborating with Biogen Idec to develop ZINBRYTA (daclizumab) for the treatment of the relapsing/remitting form of MS, which is the most common form, and affects nearly 85 percent of newly diagnosed MS patients. The Phase 3 study for ZINBRYTA (daclizumab), an anti-CD25 monoclonal antibody, was successfully completed in 2014. AbbVie is in the process of working with Biogen Idec to complete its global regulatory applications for ZINBRYTA (daclizumab) which are expected to be submitted in the first half of 2015. • On January 12, 2015, AbbVie announced that the FDA approved Duopa, a levodopa-carbidopa intestinal gel for the treatment of Parkinson’s disease. Duopa is administered using a small, portable infusion pump that delivers levodopa and carbidopa directly into the small intestine for 16 continuous hours via a procedurally-placed tube. This product is sold under the name Duodopa outside the United States. 2014 Form 10-K 13NOV201221352027 37 • In 2014, AbbVie completed two Phase 2b studies of ABT-126, an (cid:2)7-NNR modulator, in both Alzheimer’s disease and cognitive impairment associated with schizophrenia. Based on the results of these studies, AbbVie does not plan to advance the molecule in either of these indications. Women’s Health AbbVie is developing a novel oral gonadotropin-releasing hormone (GnRH) antagonist, elagolix, under a collaboration with Neurocrine Biosciences for the treatment of endometriosis-related pain and uterine fibroids. A Phase 3 study in endometriosis began in mid-2012 and a second Phase 3 trial for endometriosis was initiated in 2013. Positive top-line efficacy results from the initial Phase 3 study were recently announced and additional safety and efficacy data is expected in 2015. A Phase 2a study for uterine fibroids was initiated in November 2011 and transitioned to Phase 2b in 2013. Other Given the numerous sources for potential future growth, no individual project is expected to be material to cash flows or results of operations over the next five years. Factors considered included R&D expenses projected to be incurred for the project over the next year relative to AbbVie’s total R&D expenses, as well as qualitative factors such as marketplace perceptions and impact of a new product on AbbVie’s overall market position. There were no delays in AbbVie’s 2014 R&D activities that are expected to have a material impact on operations. While the aggregate cost to complete the numerous pharmaceutical projects currently in development is expected to be material, the total cost to complete will depend upon AbbVie’s ability to successfully complete each project, the rate at which each project advances, the nature and extent of cost-sharing arrangements, and the ultimate timing for completion. Given the potential for significant delays and the high rate of failure inherent in the research and development of new pharmaceutical products, it is not possible to accurately estimate the total cost to complete all projects currently in development. Separation from Abbott Laboratories and Basis of Historical Presentation AbbVie was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an independent, publicly-traded company as a result of the distribution by Abbott Laboratories (Abbott) of 100 percent of the outstanding common stock of AbbVie to Abbott’s shareholders. Prior to the separation, the historical financial statements were prepared on a stand-alone basis and were derived from Abbott’s consolidated financial statements and accounting records as if the former research-based pharmaceutical business of Abbott had been part of AbbVie for all periods presented. Accordingly, AbbVie’s financial statements for periods prior to January 1, 2013 are presented on a combined basis and reflect AbbVie’s financial position, results of operations and cash flows as its business was operated as part of Abbott prior to the separation, in conformity with generally accepted accounting principles (GAAP) in the United States. The combined financial statements principally represent the historical results of operations and assets and liabilities of Abbott’s former research-based pharmaceutical business. For periods prior to January 1, 2013, the historical combined financial statements also reflected an allocation of expenses related to certain Abbott corporate functions, including senior management, legal, human resources, finance, information technology and quality assurance. These expenses were allocated to AbbVie based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. AbbVie considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expenses that would have been incurred had AbbVie operated as an independent, stand-alone, publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to January 1, 2013 may not be indicative of the results of operations or financial position that would have been achieved if AbbVie had been an independent, stand- alone, publicly-traded company during the periods shown or of AbbVie’s performance for periods subsequent to December 31, 2012. 38 13NOV201221352027 2014 Form 10-K RESULTS OF OPERATIONS Net Sales The comparisons presented at constant currency rates reflect comparative local currency sales at the prior year’s foreign exchange rates. This measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and the current period. AbbVie believes that the non-GAAP measure of change in net sales at constant currency rates, when used in conjunction with the GAAP measure of change in net sales at actual currency rates, may provide a more complete understanding of the company’s operations and can facilitate analysis of the company’s results of operations, particularly in evaluating performance from one period to another. for the years ended (in millions) 2014 2013 2012 2014 2013 2014 2013 Percent change At actual currency rates At constant currency rates United States International Net sales $10,845 $10,181 $10,435 7,945 8,609 9,115 $19,960 $18,790 $18,380 7% 6% 6% (2)% 7% (2)% 8% 9% 10% 2% 8% 3% Sales growth in 2014 and 2013 was driven by the continued strength of HUMIRA, both in the United States and internationally, as well as sales growth in key products including Synthroid, Creon and Duodopa. Sales increased in 2014 and 2013 despite the loss of exclusivity for AbbVie’s consolidated lipid franchise, as well as the unfavorable impact of foreign exchange rates. Generic competition began in November 2012 for TriCor, in July 2013 for Trilipix and in September 2013 for Niaspan. 2014 Form 10-K 13NOV201221352027 39 The following table details the sales of key products. years ended December 31 (in millions) 2014 2013 2012 2014 2013 2014 2013 Percent change At actual currency rates At constant currency rates HUMIRA United States International Total AndroGel United States Kaletra United States International Total Synagis International Lupron United States International Total Synthroid United States Sevoflurane United States International Total Creon United States Dyslipidemia products United States Duodopa International VIEKIRA PAK United States Other Total $ 6,524 $ 5,236 $ 4,377 4,888 5,423 6,019 $12,543 $10,659 $ 9,265 25% 11% 18% 20% 11% 15% 25% 13% 19% 20% 12% 15% $ $ $ $ $ $ $ $ $ $ $ $ $ 934 $ 1,035 $ 1,152 (10)% (10)% (10)% (10)% 213 $ 657 244 $ 718 279 (13)% (13)% (13)% (13)% (5)% (1)% 734 (9)% (2)% 870 $ 962 $ 1,013 (10)% (5)% (7)% (4)% 835 $ 827 $ 825 1% — 9% 9% 580 $ 198 566 $ 219 569 (1)% 3% 231 (10)% (5)% 3% (1)% (5)% (3)% 778 $ 785 $ 800 (1)% (2)% —% (1)% 709 $ 622 $ 551 14% 13% 14% 13% 83 $ 77 $ 467 491 550 $ 568 $ 82 520 602 7% (5)% (5)% (6)% 7% (5)% (1)% (4)% (3)% (6)% —% (4)% 516 $ 412 $ 353 25% 17% 25% 17% 328 $ 1,076 $ 2,145 (70)% (50)% (70)% (50)% 220 $ 178 $ 149 24% 20% 25% 16% 48 — — 100% — 100% — $ 1,629 $ 1,666 $ 1,525 (2)% $19,960 $18,790 $18,380 6% 9% 2% (1)% 10% 8% 3% On a constant currency basis, global HUMIRA sales increased 19 percent in 2014 and 15 percent in 2013, primarily as a result of market growth across therapeutic categories and geographies, approval of new indications, higher market share, and favorable pricing in certain geographies. AbbVie is pursuing several new indications to help further differentiate HUMIRA from competing products and add to the sustainability and future growth of HUMIRA. AndroGel sales decreased 10 percent in both 2014 and 2013 primarily due to a decline in the overall U.S. testosterone replacement market. The company expects this trend will continue. AndroGel sales for 2013 were impacted by rebates implemented during the second half of 2012, certain account losses in early 40 13NOV201221352027 2014 Form 10-K 2013, and the moderation of market growth experienced in 2012. AndroGel 1% sales are expected to be impacted by generic competition in early 2015. Global sales of Kaletra declined in 2014 and 2013 primarily due to lower market share resulting from the impact of increasing competition in the HIV marketplace. Sales for Synagis increased 9 percent in both 2014 and 2013 primarily due to increased product uptake in 2014 and 2013 compared to 2013 and 2012, respectively. Synthroid sales increased 14 percent and 13 percent in 2014 and 2013, respectively, due to strong brand loyalty and market leadership, and favorable pricing. Sales of Sevoflurane, which were relatively flat in 2014 and declined 4 percent in 2013, continued to be impacted by generic competition. Sales of Creon in 2014 and 2013 grew by 25 percent and 17 percent, respectively, primarily driven by market growth and higher market share. Creon maintains market leadership in the pancreatic enzyme market. Sales for AbbVie’s consolidated lipid franchise, which includes TriCor, Trilipix, Niaspan, Simcor and Advicor, declined 70 percent in 2014 and 50 percent in 2013 due to the introduction of generic versions of these products in the U.S. market. Generic competition began in November 2012 for TriCor, July 2013 for Trilipix, and September 2013 for Niaspan. Sales of Duodopa, AbbVie’s therapy for advanced Parkinson’s disease approved in Europe and other international markets, increased 25 percent in 2014 and 16 percent in 2013. Duopa’s regulatory submission in the United States was approved by the FDA in January 2015. AbbVie launched its HCV regimen, VIEKIRA PAK, in the United States following FDA approval in mid-December. Sales of VIEKIRA PAK reflect the shipment of launch quantities into the market to support full commercial launch in January 2015. The European Commission granted marketing authorizations for AbbVie’s HCV regimen, VIEKIRAX (ombitasvir/paritaprevir/ritonavir tablets) + Exviera (dasabuvir tablets), in January 2015. AbbVie expects its HCV regimen to be a significant contributor to sales growth in 2015. Gross Margin years ended December 31 (in millions) Gross margin as a % of net sales Percent change 2014 $15,534 2013 $14,209 2012 $13,872 2014 9% 2013 2% 78% 76% 75% The gross margin for 2014, 2013 and 2012 reflected the favorable impact of product mix across the product portfolio, including HUMIRA, operational efficiencies, price increases, and lower amortization expense for intangible assets, partially offset by the effect of unfavorable foreign exchange rates and, in 2014 and 2013, the loss of exclusivity for the lipid franchise. Gross margin in 2014 also includes royalty income of $81 million relating to prior periods as a result of the settlement of a licensing arrangement, partially offset by a $37 million impairment charge for an intangible asset. Selling, General and Administrative years ended December 31 (in millions) Selling, general and administrative as a % of net sales Percent change 2014 $7,724 2013 $5,352 2012 $4,989 2014 44% 2013 7% 39% 28% 27% 2014 Form 10-K 13NOV201221352027 41 SG&A expenses in 2014 included transaction-related costs totaling $1.7 billion incurred in connection with the terminated proposed combination with Shire. Refer to Note 4 of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for further information regarding the termination of the company’s proposed combination with Shire. Excluding the Shire break fee and transaction-related costs, the increase in SG&A expenses in 2014 and 2013 was due primarily to increased selling and marketing support for new products, including preparations for the expected launch of VIEKIRA PAK, as well as spending relating to new indications and geographic expansion for HUMIRA. These increases were partially offset by the impact of favorable foreign exchange rates in 2014 and 2013. SG&A expenses in 2014, 2013 and 2012 include $422 million, $228 million and $213 million, respectively, of costs associated with the separation of AbbVie from Abbott. SG&A expenses in 2014 also included a $129 million charge due to additional expenses related to the Branded Prescription Drug Fee. On July 28, 2014, the Internal Revenue Service issued final rules and regulations for the Branded Prescription Drug Fee, an annual non-tax-deductible fee payable to the federal government under the Affordable Care Act based on an allocation of a company’s market share for branded prescription drugs sold to certain government programs in the prior year. The final rules accelerated the expense recognition criteria for the fee obligation from the year in which the fee is paid, to the year in which the market share used to allocate the fee is determined. This change required AbbVie and other industry participants to recognize an additional year of expense in 2014. As a result, an additional expense of $129 million was recognized in 2014. The final rules and regulations did not change the amount or timing of annual fees to be paid. SG&A expenses in 2013 included restructuring charges aggregating $39 million, which principally related to the restructuring of certain commercial operations in conjunction with the loss and expected loss of exclusivity of certain products and, in 2012, included litigation charges of $100 million related to an investigation of the sales and marketing activities for Depakote which was resolved in May 2012. Research and Development and Acquired In-Process Research and Development Percent change years ended December 31 (in millions) Research and development as a % of net sales Acquired in-process research and development 2014 $3,297 2013 $2,855 2012 $2,778 2014 15% 2013 3% 17% 15% 15% $ 352 $ 338 $ 288 4% 17% R&D expense in 2014 and 2013 reflected funding to support the company’s emerging mid- and late-stage pipeline assets and the continued pursuit of additional HUMIRA indications. These increases were partially offset by the impact of favorable foreign exchange rate fluctuations in 2014 and 2013. R&D expense included regulatory milestone payments of $40 million in 2014 and $50 million in 2012 related to the company’s collaboration. R&D expenses also included restructuring charges of $15 million in 2013 and $183 million in 2012. Acquired in-process research and development (IPR&D) expense in 2014 principally included a charge of $275 million as a result of entering into a global collaboration with Infinity to develop and commercialize duvelisib, a treatment for patients with cancer. Refer to Note 6, ‘‘Acquisitions, Collaborations and Other Arrangements,’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data,’’ for additional information related to the company’s collaborations and other arrangements. IPR&D expense in 2013 principally included a charge of $175 million as a result of entering into a global license agreement with Ablynx to develop and commercialize ALX-0061, a charge of $70 million as a result of entering into a global collaboration with Alvine to develop ALV003, a charge of $45 million as a result of 42 13NOV201221352027 2014 Form 10-K 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 13NOV201221352027 43 quality assurance support, and other administrative services. The terms of the services under the agreements vary by activity. These agreements facilitate the separation by allowing AbbVie to operate independently prior to establishing stand-alone back office functions across its organization. As of the date of the separation, AbbVie did not have sufficient back office infrastructure to operate in markets outside the United States. As a result, AbbVie entered into transition services agreements with Abbott to provide services outside the United States, including back office services in certain countries, for up to three years after separation. These back office services include information technology, accounts payable, payroll, receivables collection, treasury, and other financial functions, as well as order entry, warehousing, and other administrative services. These transition services agreements have allowed AbbVie to operate its international pharmaceuticals business independently prior to establishing a stand-alone back office infrastructure for all countries. During the transition from Abbott, AbbVie has and will continue to incur non-recurring expenses to expand its international infrastructure. In addition, in certain international markets as of the date of the separation and as of December 31, 2014, certain marketing authorizations to sell AbbVie’s products continued to be held by Abbott until such authorizations could be transferred through the applicable regulatory channels. It is not practicable to estimate the costs that would have been incurred in each of the periods presented in the historical financial statements for the functions described above. Actual costs that would have been incurred if AbbVie operated as a stand-alone company during these periods would have depended on various factors including organizational design, outsourcing, and other strategic decisions related to corporate functions, information technology, and international back office infrastructure. Refer to Note 1 entitled ‘‘Background and Basis of Presentation’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for further description of transactions between AbbVie and Abbott. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES years ended December 31 (in millions) Cash flows provided by/(used in): Operating activities Investing activities Financing activities 2014 2013 2012 $ 3,549 (926) (3,293) $ 6,267 879 (3,442) $ 6,345 (2,418) 1,931 Cash flows provided by operations in 2014 was $3.5 billion compared to $6.3 billion in 2013. The decrease was primarily due to after-tax transaction and financing-related and other costs of $1.8 billion incurred in connection with the termination of the proposed combination with Shire, including net foreign exchange losses related to the settlement of undesignated forward contracts used to hedge anticipated foreign currency cash outflows and the exit of certain foreign currency positions. The decrease was also due to the timing of U.S. wholesaler collections and an investment in inventory in preparation for the launch of AbbVie’s interferon-free HCV combination in the United States starting in mid-December 2014 and in the European Union in January 2015. The decrease was also due to an increase in AbbVie’s voluntary contribution to its main domestic defined benefit pension plan, which was $370 million in 2014 and $145 million in 2013. AbbVie also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2014. In 2014, cash outflows related to collaborations, acquisitions, and other arrangements totaled $622 million, including $275 million paid to Infinity related to a global collaboration to develop duvelisib (IPI-145), and $250 million to fund a novel R&D collaboration with Calico. AbbVie accrued an additional $500 million payment to Calico in 2014 due to the satisfaction of certain conditions under the R&D collaboration, which was subsequently paid in 2015. In 2013, cash outflows related to collaborations, acquisitions, and other arrangements totaled $405 million, including $175 million related to the global collaboration with Ablynx NV and $70 million related to a global collaboration with Alvine. Cash flows from investing activities 44 13NOV201221352027 2014 Form 10-K in 2014 also reflected capital expenditures, including the purchase of a small molecule active pharmaceutical ingredient manufacturing facility in Singapore, and net sales (purchases) of short-term investments. In 2014 and 2013, the company issued and redeemed commercial paper. The balance of commercial paper outstanding was $416 million and $400 million at December 31, 2014 and 2013, respectively. AbbVie may issue additional commercial paper or retire commercial paper to meet liquidity requirements as needed. Cash dividend payments totaled $2.7 billion in 2014 and $2.6 billion in 2013. On October 20, 2014, the board of directors declared a quarterly cash dividend of $0.49 per share for stockholders of record at the close of business on January 15, 2015, payable on February 13, 2015. The timing, declaration, amount of, and payment of any dividends is within the discretion of AbbVie’s board of directors and will depend upon many factors, including AbbVie’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of AbbVie’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by its board of directors. In February 2013, AbbVie’s board of directors authorized a $1.5 billion common stock repurchase program, which was effective immediately. In October 2014, AbbVie’s board of directors authorized a new $5.0 billion stock repurchase program, which was effective immediately and superseded the prior authorization. Under these programs, the company repurchased approximately 9 million shares for $550 million in the open market in 2014 and approximately 4 million shares for $223 million in the open market in 2013. Purchases of AbbVie shares may be made from time to time at management’s discretion. The program has no time limit and can be discontinued at any time. AbbVie’s remaining share repurchase authorization was $4.7 billion as of December 31, 2014. Cash and equivalents in 2014 was also impacted by net unfavorable exchange rate changes totaling $577 million principally due to the impact of the substantial weakening of the Euro in 2014 on the translation of the company’s Euro-denominated assets, and the weakening of foreign currencies in combination with an increased concentration of cash denominated in foreign currencies accumulated in anticipation of the terminated proposed combination with Shire. While a significant portion of cash and equivalents at December 31, 2014 are considered reinvested indefinitely in foreign subsidiaries, AbbVie does not expect such reinvestment to affect its liquidity and capital resources. If these funds were needed for operations in the United States, AbbVie would be required to accrue and pay U.S. income taxes to repatriate these funds. AbbVie believes that it has sufficient sources of liquidity to support its assumption that the disclosed amount of undistributed earnings at December 31, 2014 has been reinvested indefinitely. Substantially all of AbbVie’s trade receivables in Greece, Portugal, Italy, and Spain are with governmental health systems. AbbVie continues to monitor the economic health of the economy in Southern Europe, as heightened economic concerns still exist. Outstanding net governmental receivables in these countries at December 31, 2014 and 2013 were as follows: (in millions) Greece Portugal Italy Spain Total Net receivables 2014 $ 30 27 176 213 $446 2013 $ 37 59 245 440 $781 Net receivables over one year past due 2014 $ — 7 16 10 $33 2013 $ — 3 22 135 $160 2014 Form 10-K 13NOV201221352027 45 AbbVie monitors economic conditions, the creditworthiness of customers, and government regulations and funding, both domestically and abroad. AbbVie regularly communicates with its customers regarding the status of receivable balances, including their payment plans and obtains positive confirmation of the validity of the receivables. AbbVie establishes an allowance against accounts receivable when it is probable they will not be collected. AbbVie also monitors the potential for and periodically has utilized factoring arrangements to mitigate credit risk although the receivables included in such arrangements have historically not been a material amount of total outstanding receivables. Currently, AbbVie does not believe the economic conditions in Southern Europe will have a material impact on the company’s liquidity, cash flow, or financial flexibility. However, if government funding were to become unavailable in these countries or if significant adverse changes in their reimbursement practices were to occur, AbbVie may not be able to collect the entire balance outstanding as of December 31, 2014. Credit Facility, Access to Capital and Credit Ratings Credit Facility Prior to October 2014, AbbVie was party to a $2.0 billion unsecured five-year revolving credit facility from a syndicate of lenders, which also supported commercial paper borrowings. The credit facility enabled the company to borrow funds at floating interest rates. In October 2014, AbbVie replaced its existing revolving credit facility with a new $3.0 billion five-year revolving credit facility. The new revolving credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At December 31, 2014, the company was in compliance with its credit facility covenants. Commitment fees under the credit facility were not material. There were no amounts outstanding under the credit facility as of December 31, 2014 and 2013. Access to Capital The company intends to fund short-term and long-term financial obligations as they mature through cash on hand, future cash flows from operations, or by issuing additional debt. The company’s ability to generate cash flows from operations, issue debt, or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for the company’s products or in the solvency of its customers or suppliers, deterioration in the company’s key financial ratios or credit ratings, or other material unfavorable changes in business conditions. At the current time, the company believes it has sufficient financial flexibility to issue debt, enter into other financing arrangements, and attract long-term capital on acceptable terms to support the company’s growth objectives. Credit Ratings On July 18, 2014, following the announcement of the proposed combination with Shire, Moody’s Investor Service affirmed its Baa1 senior unsecured long-term rating and Prime-2 short-term rating and revised its ratings outlook to ‘‘stable’’ from ‘‘positive’’. In addition, Standard & Poor’s Ratings Services (S&P) placed its ‘‘A’’ corporate credit rating and senior unsecured debt rating on AbbVie on CreditWatch with negative implications. On October 21, 2014, S&P affirmed AbbVie’s ‘‘A’’ corporate credit rating and senior unsecured debt rating and removed the negative credit watch. S&P affirmed its ‘‘A-1’’ commercial paper rating and did not place it on CreditWatch. There were no other changes in the company’s credit ratings in 2014. Unfavorable changes to the ratings may have an adverse impact on future financing arrangements; however, they would not affect the company’s ability to draw on its credit facility and would not result in an acceleration of scheduled maturities of any of the company’s outstanding debt. 46 13NOV201221352027 2014 Form 10-K Contractual Obligations The following table summarizes AbbVie’s estimated contractual obligations as of December 31, 2014. (in millions) Short-term borrowings Research and development collaborations(a) Long-term debt and capital lease obligations, including current portion Interest on long-term debt(b) Future minimum non-cancelable operating lease commitments Purchase obligations and other(c) Other long-term liabilities(d) Total Total Less than one year One to three years Three to More than five years five years $ 425 500 $ 425 500 $ — — $ — $ — — — 14,815 4,604 4,021 303 4,037 685 1,020 517 5,737 3,099 562 863 930 114 818 174 195 38 193 155 5 154 98 2 409 $22,699 $6,355 $5,148 $1,851 $9,345 (a) Accounts payable and accrued liabilities includes a $500 million accrual for a payment to Calico due to the satisfaction of certain conditions under the R&D collaboration, which was paid in the first quarter of 2015. (b) Includes estimated future interest payments on long-term debt securities and capital lease obligations. Interest payments on debt are calculated for future periods using interest rates in effect at the end of 2014. Projected interest payments include the related effects of interest rate swap agreements. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors or events. The projected interest payments only pertain to obligations and agreements outstanding at December 31, 2014. Refer to Notes 9 and 10 for further discussion regarding the company’s debt instruments and related interest rate agreements outstanding at December 31, 2014. Annual interest on capital lease obligations is not material. (c) Includes the company’s significant unconditional purchase obligations. These commitments do not exceed the company’s projected requirements and are made in the normal course of business. (d) Amounts less than one year includes a voluntary contribution of $150 million AbbVie made to its main domestic defined benefit plan subsequent to December 31, 2014. Amounts otherwise exclude pension and other post-employment benefits and related deferred compensation cash outflows. Timing of funding is uncertain and dependent on future movements in interest rates and investment returns, changes in laws and regulations, and other variables. Also included in this amount are components of other long-term liabilities including restructuring. Refer to Notes 8 and 11 for further information. AbbVie enters into R&D collaboration arrangements with third parties that may require future milestone payments to third parties contingent upon the achievement of certain development, regulatory, or commercial milestones. Individually, these arrangements are not material in any one annual reporting period. However, if milestones for multiple products covered by these arrangements would happen to be reached in the same reporting period, the aggregate charge to expense could be material to the results of operations in that period. From a business perspective, the payments are viewed as positive because they signify that the product is successfully moving through development and is now generating or is more likely to generate cash flows from product sales. It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. As a result, these potential payments are not included in the table of contractual obligations. Refer to Note 6 to the consolidated financial statements for further discussion of these collaboration arrangements. 2014 Form 10-K 13NOV201221352027 47 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. A summary of the company’s significant accounting policies is included in Note 2 to the consolidated financial statements. Certain of these policies are considered critical as these most significantly impact the company’s financial condition and results of operations and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Actual results may vary from these estimates. 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. Rebates AbbVie provides rebates to pharmacy benefit management companies, state agencies that administer the federal Medicaid program, insurance companies that administer Medicare drug plans, wholesalers, group purchasing organizations, and other government agencies and private entities. Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. For each type of rebate, the factors used in the calculations of the accrual for that rebate include the identification of which products have been sold subject to the rebate, which customer or government agency price terms apply for that rebate, and the estimated lag time between sale and payment of the rebate. Using historical trends for that rebate, adjusted for current changes, AbbVie estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when AbbVie records its sale of the product. Settlement of the rebate generally occurs from two to eight months after sale. AbbVie regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Rebate and chargeback accruals are recorded in the same period as the related sales, and are reflected as a reduction of sales. Rebates and chargebacks in 2014, 2013 and 2012 totaled $5.9 billion, $4.9 billion, and $4.3 billion, respectively, or 29 percent, 30 percent, and 28 percent, respectively, of the gross sales subject to rebate. A one-percentage point increase in the percentage of rebates to related annual gross sales would decrease net sales by $201 million in 2014. AbbVie considers a one-percentage point increase to be a reasonably likely increase in the percentage of rebates to related gross sales. Other allowances for cash discounts and returns charged against gross sales were $610 million, $748 million, and $667 million in 2014, 2013 and 2012, respectively. Management analyzes the adequacy of ending rebate accrual balances each quarter. In the United States, the most significant charges against gross sales are for Medicaid and Medicare rebates, managed care rebates, and wholesaler chargebacks. Medicaid rebates relate to the Federal Medicaid program, which is administered by state agencies, whereby rebates are provided to participating state and local government entities under various laws and regulations and in some cases supplemental rebates are also provided to the states under contractual agreements. Medicare rebates are negotiated with managed care organizations that manage prescription drug plans covering the Medicare Part D drug benefit. Pharmacy benefit manager rebates arise from contractual agreements with private health care plans that seek to reduce costs by negotiating discounts with pharmaceuticals manufacturers. Under wholesaler chargeback programs, the wholesaler charges AbbVie back for the difference between the price paid by the wholesaler to AbbVie and the price paid by the end customer to the wholesaler under contractual discount agreements negotiated between AbbVie and the end customer. In order to evaluate the adequacy of the ending accrual balances, 48 13NOV201221352027 2014 Form 10-K for each type of rebate, management uses both internal and external data to estimate the level of inventory in the distribution channel and the rebate claims processing lag time for that rebate. External data sources used to estimate the inventory in the distribution channel include inventory levels periodically reported by wholesalers. Management estimates the processing lag time based on periodic sampling of claims data. To estimate the rebate percentage or net price, systems and calculations are used to track sales by product and by customer or payer and to estimate the contractual or statutory rebate or net price. AbbVie believes its systems and calculations are reliable. The following table is an analysis of the three largest rebate accruals and chargeback allowances, which comprise approximately 82 percent of the total consolidated rebate provisions charged against revenues in 2014. Remaining rebate provisions charged against gross sales are not significant in the determination of operating earnings. (in millions) Balance at December 31, 2011 Provisions Payments Balance at December 31, 2012 Provisions Payments Balance at December 31, 2013 Provisions Payments Balance at December 31, 2014 Medicaid and Medicare Rebates $ 720 1,077 (990) 807 1,028 (1,168) 667 1,015 (970) Managed Care Rebates $ 506 830 (840) 496 846 (883) 459 970 (953) Wholesaler Chargebacks $ 171 1,645 (1,592) 224 2,362 (2,374) 212 2,825 (2,784) $ 712 $ 476 $ 253 Historically, adjustments to prior years’ rebate accruals have not been material to net income. AbbVie employs various techniques to verify the accuracy of claims submitted to it, and where possible, works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts. For Medicaid, Medicare, and other government agency programs, the calculation of a rebate involves interpretations of relevant regulations, which are subject to challenge or change in interpretation. Cash Discounts and Returns Cash discounts can be reliably estimated. Product returns can be reliably estimated because AbbVie’s historical returns are low, and because sales return terms and other sales terms have remained relatively unchanged for several periods. Pension and Post-Employment Benefits AbbVie engages outside actuaries to assist in the determination of the obligations and costs under the plans that are direct obligations of AbbVie. The valuation of the funded status and the net periodic benefit cost for these plans are calculated using actuarial assumptions. The significant assumptions, which are reviewed annually, include the discount rate, the expected long-term rate of return on plan assets, and the health care cost trend rates. The significant assumptions used in determining these calculations are disclosed in Note 11 to the consolidated financial statements. The discount rate is selected based on current market rates on high-quality, fixed-income investments at December 31 each year. AbbVie employs a yield-curve approach for countries where a robust bond market exists. The yield curve is developed using high-quality bonds. The discount rate is the single rate that equates the discounted cash flows to the rates utilizing the yield curve. As a result, the yield-curve 2014 Form 10-K 13NOV201221352027 49 approach reflects the specific cash flows for plans (i.e. duration) in calculating the discount rate. For other countries, AbbVie reviews various indices such as corporate bond and government bond benchmarks to estimate the discount rate. AbbVie’s assumed discount rate has a significant effect on the amounts reported for defined benefit pension and post-employment plans as of December 31, 2014, and will be used in the calculation of net periodic benefit cost in 2015. A 50 basis point change in the assumed discount rate would have had the following effects on AbbVie’s calculation of net periodic benefit costs in 2015 and projected benefit obligations as of December 31, 2014: (in millions) Defined benefit plans Service cost and interest cost Projected benefit obligation Other post-employment plans Service cost and interest cost Projected benefit obligation 50 basis point Increase Decrease $ (53) (466) $ (6) (50) $ 59 540 $ 7 58 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, 2014 and will be used in the calculation of net periodic benefit cost in 2015. As of December 31, 2014, a 1 percentage point 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 2015 by $42 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, 2014 and will be used in the calculation of net periodic benefit cost in 2015. A 1 percentage point change in assumed health care cost trend rates would have the following effects on AbbVie’s calculation of net periodic benefit costs in 2015 and projected benefit obligation as of December 31, 2014: (in millions) Service cost and interest cost Projected benefit obligation Income Taxes One percentage point Increase Decrease $ 21 121 $(16) (92) 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. 50 13NOV201221352027 2014 Form 10-K Litigation The company is subject to contingencies, such as legal proceedings and claims, that arise in the normal course of business. Refer to Note 14 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 zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. There were no significant litigation reserves at December 31, 2014. Valuation of Goodwill and Intangible Assets AbbVie has acquired and may continue to acquire significant intangible assets in connection with business combinations that AbbVie records at fair value. Transactions involving the purchase or sale of intangible assets occur with some frequency between companies in the pharmaceuticals industry, and valuations are usually based on a discounted cash flow analysis incorporating the stage of completion. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital, terminal values, and market participants. Each of these factors can significantly affect the value of the intangible asset. IPR&D acquired in a business combination is capitalized as an indefinite- lived intangible asset until regulatory approval is obtained, at which time, it is accounted for as a definite- lived asset and amortized over its estimated useful life. IPR&D acquired in transactions that are not business combinations is expensed immediately, unless deemed to have an alternative future use. Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life. AbbVie reviews the recoverability of definite-lived intangible assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Goodwill and indefinite-lived intangible assets, which relate to IPR&D, are reviewed for impairment annually or when an event that could result in an impairment occurs. Refer to Note 2 to the consolidated financial statements for further information. Annually, the company tests its goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. Some of the factors considered in the assessment include general macro-economic conditions, conditions specific to the industry and market, cost factors, which could have a significant effect on earnings or cash flows, the overall financial performance, and whether there have been sustained declines in the company’s share price. If the company concludes it is more likely than not that the fair value of reporting unit is less than its carrying amount, a quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets using a quantitative impairment test. For its quantitative impairment tests, the company uses an estimated future cash flow approach that requires significant judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign currency exchange rates, the selection of an appropriate discount rate, asset groupings, and other assumptions and estimates. The estimates and assumptions used are consistent with the company’s business plans and a market participant’s views of a company and similar companies. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets, and potentially result in different impacts to the company’s results of operations. Actual results may differ from the company’s estimates. At December 31, 2014 and 2013, goodwill and intangible assets, net of amortization totaled $7.4 billion and $8.2 billion, respectively, and amortization expense for intangible assets was $403 million, $509 million, and $625 million in 2014, 2013 and 2012, respectively. There were no impairments of goodwill in 2014, 2013 or 2014 Form 10-K 13NOV201221352027 51 2012. In 2014, AbbVie recorded an impairment charge of $37 million related to certain on-market product rights in Japan due to increased generic competition. The charge was included in cost of products sold. In 2012, AbbVie recorded impairment charges of $13 million for certain projects under development. These charges were included in R&D expense. There were no impairment charges recorded in 2013. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The amendments in ASU 2014-09 supersede most current revenue recognition requirements. The core principal of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. AbbVie can apply the amendments using one of the following two methods: (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. AbbVie is currently assessing the impact of adopting this guidance on its consolidated financial statements. 52 13NOV201221352027 2014 Form 10-K ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..................................................................................................................................................................................................................................................................................................................................................... The company is exposed to risk that its earnings, cash flows, and equity could be adversely impacted by changes in foreign exchange rates and interest rates. Certain derivative instruments are used when available on a cost-effective basis to hedge the company’s underlying economic exposures. Refer to Note 10 entitled ‘‘Financial Instruments and Fair Value Measures’’ of the Notes to Consolidated Financial Statements included under Item 8, ‘‘Financial Statements and Supplementary Data’’ for further information regarding the company’s financial instruments and hedging strategies. Foreign Currency Risk AbbVie’s primary net foreign currency exposures are the Euro, British pound, and Japanese yen. Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated transactions denominated in a currency other than the functional currency of the local entity. These contracts are designated as cash flow hedges of the variability of the cash flows due to changes in foreign currency exchange rates, and are marked-to-market with the resulting gains or losses reflected in accumulated other comprehensive loss in AbbVie’s consolidated balance sheets. Deferred gains or losses on these contracts are included in cost of products sold at the time the products are sold to a third party, generally not exceeding twelve months. At December 31, 2014 and 2013, AbbVie held $1.4 billion and $1.5 billion, respectively, in notional amounts of such contracts. AbbVie enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. The contracts, which are not designated as hedges, are marked-to-market, and resulting gains or losses are reflected in net foreign exchange on AbbVie’s consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. At December 31, 2014 and 2013, AbbVie held notional amounts of $6.8 billion and $5.3 billion, respectively, of such foreign currency forward exchange contracts. The following table reflects the total foreign currency forward contracts outstanding at December 31, 2014 and 2013. (in millions) Receive primarily U.S. dollars in exchange for the following currencies: Euro British pound Japanese yen All other currencies Total 2014 Weighted average exchange rate Fair and carrying value receivable/ (payable) 1.263 1.618 116.9 N/A $114 21 6 7 $148 2013 Weighted average exchange rate Fair and carrying value receivable/ (payable) 1.359 1.638 103.2 N/A $(56) (3) 7 (4) $(56) Contract amount $4,650 492 401 1,308 $6,851 Contract amount $6,342 563 333 930 $8,168 The company estimates that a 10 percent appreciation in the underlying currencies being hedged from their levels against the U.S. dollar, with all other variables held constant, would decrease the fair value of foreign exchange forward contracts by $790 million at December 31, 2014. If realized, this appreciation would negatively affect earnings over the remaining life of the contacts. A 10 percent appreciation is believed to be a reasonably possible near-term change in foreign currencies. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and stockholders’ equity volatility relating to foreign exchange. 2014 Form 10-K 13NOV201221352027 53 The company estimates that a 10 percent depreciation of AbbVie’s most significant foreign currency positions against the U.S. dollar would cause a foreign exchange loss on cash and short-term investments of $611 million at December 31, 2014. A 10 percent depreciation is believed to be a reasonably possible near-term change in these currencies. The company’s Venezuelan operations continue to report with the U.S. dollar as the functional currency due to the hyperinflationary status of the Venezuelan economy. Currency restrictions enacted in Venezuela require AbbVie to obtain approval from the Venezuelan government to exchange Venezuelan bolivars for U.S. dollars and require such exchange to be made at the official exchange rate established by the government. Effective February 8, 2013, the Venezuelan government devalued the official exchange rate from 4.3 to 6.3, which resulted in a loss of $11 million in 2013 that was recorded in net foreign exchange loss on the consolidated statement of earnings. In the first quarter of 2014, the Venezuelan government expanded the number of exchange mechanisms to three rates of exchange. As of December 31, 2014, these were the CENCOEX rate of 6.3 (the official rate); the SICAD I rate at approximately 12; and the SICAD II rate at approximately 50. In February 2015, the Venezuelan government confirmed the official exchange rate of 6.3 Venezuelan bolivars per U.S. dollar will be used for settlement of food and medicine purchases. The company continues to use the official rate of 6.3 Venezuelan bolivars per U.S. dollar to report its Venezuela financial position, results of operations and cash flows, since the company believes that the nature of AbbVie’s business operations qualify for the official rate as permitted by law. The company cannot predict whether there will be further devaluations of the Venezuelan currency or whether the use of the official rate of 6.3 will continue to be supported by evolving facts and circumstances. If circumstances change such that the company concludes it would be appropriate to use a different rate, or if a devaluation of the official rate occurs, it could result in a significant change to AbbVie’s results of operations. At December 31, 2014, AbbVie had approximately $240 million of net monetary assets denominated in the Venezuelan bolivar (converted at a rate of 6.3 VEF/USD) in its Venezuelan entity, which had net sales of $240 million in 2014. If AbbVie’s net monetary assets denominated in the Venezuelan bolivar had been converted at a rate of 12 VEF/USD at December 31, 2014, it would have resulted in a devaluation loss of $114 million in 2014. Interest Rate Risk Interest rate swaps are used to manage the company’s exposure of changes in interest rates on the fair value of fixed-rate debt. The effect of these hedges is to change the fixed interest rate to a variable rate. AbbVie does not use derivative instruments, such as interest rate swaps, to manage its exposure to changes in interest rates for investment securities. At both December 31, 2014 and 2013, AbbVie had interest rate hedge contracts totaling $8.0 billion. The company estimates that an increase in the interest rates of 100-basis points would decrease the fair value of our interest rate swap contracts by approximately $348 million at December 31, 2014. If realized, the fair value reduction would affect earnings over the remaining life of the contracts. The company estimates that an increase of 100-basis points in long-term interest rates would decrease the fair value of long-term debt by $758 million at December 31, 2014. A 100-basis point change is believed to be a reasonably possible near-term change in interest rates. Market Price Sensitive Investments AbbVie holds equity securities from strategic technology acquisitions that are traded on public stock exchanges. The fair value of these investments was approximately $82 million and $49 million as of December 31, 2014 and 2013, respectively. AbbVie monitors these investments for other than temporary declines in market value, and charges impairment losses to income when an other than temporary decline in value occurs. A hypothetical 20 percent decrease in the share prices of these investments would have had an immaterial decrease to their fair value at December 31, 2014. A 20 percent decrease is believed to be a reasonably possible near-term change in share prices. 54 13NOV201221352027 2014 Form 10-K Non-Publicly Traded Equity Securities AbbVie holds equity securities from strategic technology acquisitions that are not traded on public stock exchanges. The carrying value of these investments was approximately $63 million and $58 million as of December 31, 2014 and 2013, respectively. AbbVie monitors these investments for other than temporary declines in market value, and charges impairment losses to income when an other than temporary decline in estimated value occurs. 2014 Form 10-K 13NOV201221352027 55 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................................................................................................................................................................................................................................................................................................................................................... Consolidated Financial Statements Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 57 58 59 60 61 62 100 101 56 13NOV201221352027 2014 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Statements of Earnings years ended December 31 (in millions, except per share data) 2014 2013 2012 Net sales Cost of products sold Selling, general and administrative Research and development Acquired in-process research and development Other expense Total operating costs and expenses Operating earnings Interest expense, net Net foreign exchange loss Other income, net Earnings before income tax expense Income tax expense Net earnings Per share data Basic earnings per share Diluted earnings per share Cash dividends declared per common share Weighted-average basic shares outstanding Weighted-average diluted shares outstanding $19,960 $18,790 $18,380 4,426 7,724 3,297 352 750 4,581 5,352 2,855 338 — 4,508 4,989 2,778 288 — 16,549 13,126 12,563 3,411 5,664 5,817 391 678 (27) 2,369 595 278 55 (1) 5,332 1,204 84 17 (9) 5,725 450 $ 1,774 $ 4,128 $ 5,275 $ 1.11 $ 1.10 $ 1.75 $ 2.58 $ 2.56 $ 2.00(a) $ 3.35 $ 3.35 n/a 1,595 1,610 1,589 1,604 1,577(b) 1,577(b) (a) On January 4, 2013, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings and was recorded as a reduction of additional paid-in capital. Refer to Note 12 for additional information regarding cash dividends declared in 2013. (b) On January 1, 2013, Abbott Laboratories distributed 1,577 million shares of AbbVie common stock. For periods prior to the separation, the weighted-average basic and diluted shares outstanding was based on the number of shares of AbbVie common stock outstanding on the distribution date. Refer to Note 5 for information regarding the calculation of basic and diluted earnings per common share for the years ended December 31, 2014 and 2013. The accompanying notes are an integral part of these consolidated financial statements. 2014 Form 10-K 13NOV201221352027 57 AbbVie Inc. and Subsidiaries Consolidated Statements of Comprehensive Income years ended December 31 (in millions) Net earnings 2014 2013 2012 $ 1,774 $4,128 $5,275 Foreign currency translation adjustments, net of tax (benefit) expense of $(158) in 2014 and $71 in 2013 (1,073) 48 173 Pension and post-employment benefits, net of tax (benefit) expense of $(351) in 2014, $309 in 2013, and $(24) in 2012 (781) 598 (150) Unrealized (losses) gains on marketable equity securities, net of tax expense (benefit) of $1 in 2014, $— in 2013, and $(15) in 2012 Hedging activities, net of tax expense (benefit) of $8 in 2014, $— in 2013, and $(8) in 2012 Other comprehensive (loss) income Comprehensive income 1 1 264 (1,589) (77) 570 (25) (27) (29) $ 185 $4,698 $5,246 The accompanying notes are an integral part of these consolidated financial statements. 58 13NOV201221352027 2014 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Balance Sheets as of December 31 (in millions, except share data) 2014 2013 Assets Current assets Cash and equivalents Short-term investments Accounts and other receivables, net Inventories, net Income tax receivable Deferred income taxes Prepaid expenses and other Total current assets Investments Property and equipment, net Intangible assets, net of amortization Goodwill Other assets Total assets Liabilities and Equity Current liabilities Short-term borrowings Current portion of long-term debt and lease obligations Accounts payable and accrued liabilities Total current liabilities Long-term liabilities Long-term debt and lease obligations Commitments and contingencies Stockholders’ equity Common stock, $0.01 par value, authorized 4,000,000,000 shares, issued 1,609,519,046 and 1,594,260,996 shares as of December 31, 2014 and 2013, respectively Common stock held in treasury, at cost, 18,129,715 and 6,900,434 shares as of December 31, 2014 and 2013, respectively Additional paid-in-capital Retained earnings Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and equity $ 8,348 26 3,735 1,124 556 896 1,403 $ 9,595 300 3,854 1,150 949 766 1,234 16,088 17,848 92 2,485 1,513 5,862 1,507 118 2,298 1,890 6,277 767 $27,547 $29,198 $ 425 4,021 6,954 11,400 $ 413 18 6,448 6,879 3,840 10,565 3,535 14,292 16 16 (972) 4,194 535 (2,031) 1,742 (320) 3,671 1,567 (442) 4,492 $27,547 $29,198 The accompanying notes are an integral part of these consolidated financial statements. 2014 Form 10-K 13NOV201221352027 59 Common Treasury Accumulated other comprehensive Retained earnings loss Net parent company investment Total $ (25) — — $ — $ 11,957 5,275 — $ 11,932 5,275 — (13,519) (13,519) AbbVie Inc. and Subsidiaries Consolidated Statements of Equity years ended December 31 (in millions) Balance at December 31, 2011 Net earnings Net transactions with Abbott Laboratories Assumption of accumulated unrealized losses on pension and other post-employment benefits, net of tax benefit of $36 Other comprehensive loss, net of tax Balance at December 31, 2012 Separation-related adjustments Reclassification of parent company net investment in connection with separation Issuance of common stock at separation Net earnings Other comprehensive income, net of tax Dividends declared Share repurchases Stock-based compensation plans and other Balance at December 31, 2013 Net earnings Other comprehensive loss, net of tax Dividends declared Share repurchases Stock-based compensation plans and other Balance at December 31, 2014 Common shares outstanding — — — — — — — — 1,577 — — — (4) 14 1,587 — — — (9) 13 1,591 stock $ — — — — — — — — 16 — — — — — 16 — — — — — Additional paid-in capital $ — — — — — — (1,316) 4,420 (16) — — — — 583 3,671 — — — — stock $ — — — — — — — — — — — — (223) (97) (320) — — — (550) (296) (29) (350) (662) — — — 570 — — — (442) — (1,589) — — — — — — — — 3,713 707 (296) (29) 3,363 (1,271) — (4,420) — — 4,128 — (2,561) — — 1,567 1,774 — (2,806) — — — — — — — — — — — — — — 4,128 570 (2,561) (223) 486 4,492 1,774 (1,589) (2,806) (550) 421 (102) 523 — — $16 $(972) $ 4,194 $(2,031) $ 535 $ — $ 1,742 The accompanying notes are an integral part of these consolidated financial statements. 60 13NOV201221352027 2014 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Statements of Cash Flows years ended December 31 (in millions) (brackets denote cash outflows) 2014 2013 2012 Cash flows from operating activities Net earnings Adjustments to reconcile net earnings to net cash from operating activities: Depreciation Amortization of intangible assets Stock-based compensation Upfront costs related to collaborations and acquired in-process research and development Other, net Changes in operating assets and liabilities, net of acquisitions: Accounts and other receivables Inventories Prepaid expenses and other assets Accounts payable and other liabilities $ 1,774 $ 4,128 $ 5,275 383 403 241 1,102 434 (172) (203) (220) (193) 388 509 212 338 34 681 (56) 459 (426) 525 625 187 288 66 223 (203) 90 (731) Cash flows from operating activities 3,549(a) 6,267 6,345 Cash flows from investing activities Acquisitions and investments, net of cash acquired Acquisitions of property and equipment Purchases of investment securities Sales and maturities of investment securities Cash flows from investing activities Cash flows from financing activities Net change in short-term borrowings Dividends paid Purchases of treasury stock Proceeds from the exercise of stock options Proceeds from issuance of long-term debt Net transactions with Abbott Laboratories, excluding noncash items Other, net Cash flows from financing activities Effect of exchange rate changes on cash and equivalents Net (decrease) increase in cash and equivalents Cash and equivalents, beginning of year Cash and equivalents, end of year Other supplemental information Interest paid, net of portion capitalized Income taxes paid (622) (612) (1,169) 1,477 (926) 12 (2,661) (652) 225 — — (217) (405) (491) (930) 2,705 879 (601) (2,555) (320) 347 — (247) (66) (688) (333) (2,550) 1,153 (2,418) 1,000 — — — 14,586 (13,504) (151) (3,293) (3,442) 1,931 (577) (1,247) 9,595 (10) 3,694 5,901 16 5,874 27 $ 8,348 $ 9,595 $ 5,901 $ $ 419 498 $ 283 $ 1,305 $ $ 61 — (a) Cash flows from operating activities included the impact of transaction and financing-related and other costs incurred in connection with the terminated proposed combination with Shire. Refer to Note 4 for additional information. The accompanying notes are an integral part of these consolidated financial statements. 2014 Form 10-K 13NOV201221352027 61 AbbVie Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 Background and Basis of Presentation ..................................................................................................................................................................................................................................................................................................................................................... Background The principal business of AbbVie Inc. (AbbVie or the company) is the discovery, development, manufacture and sale of a broad line of pharmaceutical products. AbbVie’s products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from AbbVie-owned distribution centers and public warehouses. Substantially all of AbbVie’s sales in the United States are to three wholesalers. Outside the United States, products are sold primarily to customers or through distributors, depending on the market served. AbbVie was incorporated in Delaware on April 10, 2012. On January 1, 2013, AbbVie became an independent, publicly-traded company as a result of the distribution by Abbott Laboratories (Abbott) of 100 percent of the outstanding common stock of AbbVie to Abbott’s shareholders (the separation). On January 1, 2013, Abbott’s shareholders of record as of the close of business on December 12, 2012, received one share of AbbVie common stock for every one share of Abbott common stock held as of the record date. AbbVie’s common stock began trading ‘‘regular-way’’ under the ticker symbol ‘‘ABBV’’ on the New York Stock Exchange on January 2, 2013. During the year ended 2013, separation-related adjustments totaling $1.3 billion were recorded in stockholders’ equity. Separation-related adjustments to additional paid-in capital principally reflected dividends to AbbVie shareholders that were declared from pre-separation earnings during the first quarter of 2013 and the transfer of certain pension plan liabilities and assets from Abbott to AbbVie upon the legal split of those plans in 2013. In addition, because the historical financial statements were derived from Abbott’s records, separation-related adjustments also included an adjustment to accumulated other comprehensive loss to reflect the appropriate opening balances associated with currency translation adjustments related to AbbVie’s legal entities at the separation date. Refer to Note 11 for further information regarding the separation of the pension plans. In connection with the separation, AbbVie and Abbott entered into transition services agreements covering certain corporate support and back office services that AbbVie historically received from Abbott. Such services include information technology, accounts payable, payroll, receivables collection, treasury and other financial functions, as well as order entry, warehousing, engineering support, quality assurance support and other administrative services. These agreements facilitate the separation by allowing AbbVie to operate independently prior to establishing stand-alone back office functions across its organization. Transition services may be provided for up to 24 months, with an option for a one-year extension. The majority of these transaction service agreements expired without extension at December 31, 2014. During the years ended December 31, 2014, 2013 and 2012, AbbVie incurred $445 million, $254 million, and $288 million, respectively, of separation-related expenses including legal, information technology and regulatory fees, which were principally classified in selling, general and administrative expenses (SG&A) in the consolidated statements of earnings. Basis of Historical Presentation For a certain portion of AbbVie’s operations, the legal transfer of AbbVie’s assets (net of liabilities) did not occur with the separation of AbbVie on January 1, 2013 due to the time required to transfer marketing authorizations and satisfy other regulatory requirements in certain countries. Under the terms of the separation agreement with Abbott, AbbVie is responsible for the business activities conducted by Abbott on its behalf, and is subject to the risks and entitled to the benefits generated by these operations and assets. 62 13NOV201221352027 2014 Form 10-K As a result, the related assets and liabilities and results of operations have been reported in AbbVie’s consolidated financial statements as of and for the years ended December 31, 2014 and 2013. Net sales related to these operations for the years ended December 31, 2014 and 2013 totaled approximately $282 million and $738 million, respectively. At December 31, 2014, the assets and liabilities consisted primarily of accounts receivable of $27 million, inventories of $16 million, other assets of $33 million and accounts payable and other accrued liabilities of $50 million. At December 31, 2013, the assets and liabilities consisted primarily of accounts receivable of $62 million, inventories of $190 million, other assets of $93 million and accounts payable and other accrued liabilities of $212 million. The majority of these operations are expected to be transferred to AbbVie by the end of 2015. Prior to the separation on January 1, 2013, the historical financial statements of AbbVie were prepared on a stand-alone basis and were derived from Abbott’s consolidated financial statements and accounting records as if the former research-based pharmaceutical business of Abbott had been part of AbbVie for all periods presented. Accordingly, AbbVie’s financial statements for periods prior to January 1, 2013 are presented herein on a combined basis and reflect AbbVie’s financial position, results of operations and cash flows as its business was operated as part of Abbott prior to the separation, in conformity with U.S. generally accepted accounting principles (GAAP). The historical combined financial statements included the allocation of certain assets and liabilities that were historically held at the Abbott corporate level but which were specifically identifiable or allocable to AbbVie. Prior to 2012, cash and equivalents, short-term investments and restricted funds held by Abbott were not allocated to AbbVie unless those assets were held by an entity that was transferred to AbbVie. As of December 31, 2012, AbbVie’s combined balance sheet reflected the direct holdings of AbbVie legal entities. Prior to November 2012, long-term debt and short-term borrowings were not allocated to AbbVie as none of the debt recorded by Abbott was directly attributable to or guaranteed by AbbVie. In November 2012, AbbVie issued $14.7 billion of long-term debt with maturities ranging from three to 30 years and $1.0 billion of commercial paper, which was reflected on AbbVie’s combined balance sheet as of December 31, 2012. All AbbVie intracompany transactions and accounts were eliminated. Prior to 2012, all intercompany transactions between AbbVie and Abbott were considered to be effectively settled in the historical combined financial statements at the time the transactions were recorded. As a result, the total net effect of the settlement of these intercompany transactions was reflected in the combined statement of cash flows for the year ended December 31, 2012 as a financing activity and in the combined balance sheet as of December 31, 2012 as net parent company investment in AbbVie. As of December 31, 2012, outstanding transactions between AbbVie and Abbott were reflected in the combined balance sheet outside of net parent company investment in AbbVie Inc. As of December 31, 2014 and 2013, the aggregate amount due from Abbott totaled $526 million and $738 million, respectively, and was primarily classified in accounts and other receivables, net in AbbVie’s consolidated balance sheets. The aggregate amount due to Abbott totaled $536 million and $876 million as of December 31, 2014 and 2013, respectively, and was classified in accounts payable and accrued liabilities in AbbVie’s consolidated balance sheets. Prior to the separation on January 1, 2013, Abbott provided AbbVie certain services, which included administration of treasury, payroll, employee compensation and benefits, travel and meeting services, public and investor relations, real estate services, internal audit, telecommunications, information technology, corporate income tax and selected legal services. Some of these services continue to be provided to AbbVie on a temporary basis after the separation pursuant to certain transition services agreements. AbbVie’s historical combined financial statements for periods prior to January 1, 2013 reflect an allocation of expenses related to these services. These expenses were allocated to AbbVie based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. AbbVie considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expenses that would have been incurred had AbbVie operated as an independent, publicly-traded company for the 2014 Form 10-K 13NOV201221352027 63 periods prior to January 1, 2013. These allocations totaled $838 million for the year ended December 31, 2012. Prior to the separation on January 1, 2013, AbbVie employees participated in various benefits and stock-based compensation programs maintained by Abbott. A portion of the cost of those programs was included in AbbVie’s historical combined financial statements. See Note 11 and Note 12 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 years ended December 31, 2014 and 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, where AbbVie is determined to be the primary beneficiary. 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, 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 consolidated 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. 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. 64 13NOV201221352027 2014 Form 10-K 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. Royalties are expensed as cost of products sold when incurred. Advertising Costs associated with advertising are expensed as incurred and are included in SG&A in AbbVie’s consolidated statements of earnings. Advertising expenses were $665 million, $626 million, and $506 million in 2014, 2013 and 2012, 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 year ended December 31, 2012. 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 was 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 sheets as of December 31, 2014 and 2013. 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 sheets at December 31, 2014 and 2013. Refer to Note 11 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 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 2014 Form 10-K 13NOV201221352027 65 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. Cash and Equivalents Cash and equivalents include time deposits, money market funds, and treasury securities with original maturities at the time of purchase of three months or less. Investments Short-term investments consist primarily of time deposits and held-to-maturity debt. 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 loss in AbbVie’s consolidated balance sheets. 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, net and the available-for-sale securities’ unrealized loss is recognized as a charge to income and removed from accumulated other comprehensive 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 $74 million at December 31, 2014 and $88 million at December 31, 2013. Inventories Inventories are valued at the lower of cost (first-in, first-out basis) or market. Cost includes material and conversion costs. Inventories, net, consist of the following: as of December 31 (in millions) Finished goods Work-in-process Materials Inventories, net 66 13NOV201221352027 2014 Form 10-K 2014 2013 $ 341 629 154 $ 485 404 261 $1,124 $1,150 Property and Equipment as of December 31 (in millions) Land Buildings Equipment Construction in progress Property and equipment, gross Less accumulated depreciation Property and equipment, net 2014 2013 $ 48 1,228 5,324 505 $ 50 1,263 5,214 382 7,105 (4,620) 6,909 (4,611) $ 2,485 $ 2,298 Depreciation for property and equipment is recorded on a straight-line basis over the estimated useful lives of the assets. The estimated useful life for buildings ranges from 10 to 50 years and five to 20 years for equipment. Leasehold improvements are amortized over the life of the related facility lease (including any renewal periods, if appropriate) or the asset, whichever is shorter. Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $383 million, $388 million and $525 million, respectively. Equipment includes certain computer software and software development costs incurred in connection with developing or obtaining software for internal use and is amortized over three to 10 years. Assets under capital leases included in property and equipment in the consolidated balance sheets are not material. Litigation Loss contingency provisions are recorded for probable losses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. When a best estimate cannot be made, the minimum loss contingency amount in a probable range is recorded. Legal fees are expensed as incurred. Product Liability AbbVie accrues for product liability claims, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The liabilities are adjusted quarterly as additional information becomes available. Receivables for insurance recoveries, if any, for product liability claims are recorded as assets, on an undiscounted basis, when it is probable that a recovery will be realized. Business Combinations Results of operations of acquired companies are included in AbbVie’s results of operations beginning on the respective acquisition dates. Assets acquired and liabilities assumed are recognized at the date of acquisition at their respective fair values. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill. Contingent consideration is recognized at the estimated fair value on the acquisition date, which is determined by utilizing a probability weighted discounted cash flow model. Subsequent changes to the fair value of contingent payments are recognized in other income, net in the consolidated statements of earnings. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred. Goodwill and Intangible Assets Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net 2014 Form 10-K 13NOV201221352027 67 cash flows, risk, the cost of capital, and terminal values of market participants. Definite-lived intangibles are amortized over their estimated useful lives. AbbVie reviews the recoverability of definite-lived intangible assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. AbbVie first compares the projected undiscounted cash flows to be generated by the asset to its carrying value. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, the intangible asset is written down to its fair value, which is usually the discounted cash flow amount, and a loss is recorded equal to the excess of the asset’s net carrying value over its fair value. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest level for which cash flows are largely independent of the cash flows of other assets and liabilities. Goodwill and indefinite-lived assets are not amortized but are subject to an impairment review annually and more frequently when indicators of impairment exist. An impairment of goodwill would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Indefinite-lived intangible assets, which consist of capitalized IPR&D, would occur if the fair value of the IPR&D intangible asset is less than the carrying amount. The company tests its goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If the company concludes it is more likely than not that the fair value of reporting unit is less than its carrying amount, a quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets using a quantitative impairment test. For its quantitative impairment tests, the company uses an estimated future cash flow approach that requires significant judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign currency exchange rates, the selection of an appropriate discount rate, asset groupings and other assumptions and estimates. The estimates and assumptions used are consistent with the company’s business plans and a market participant’s views of a company and similar companies. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets, and potentially result in different impacts to the company’s results of operations. Actual results may differ from the company’s estimates. Based upon the company’s most recent annual impairment test performed in the third quarter of 2014, the company concluded goodwill was not impaired. In 2014, AbbVie recorded an impairment charge of $37 million related to certain on-market product rights in Japan due to increased generic competition. The charge was included in cost of products sold. In 2012, AbbVie recorded impairment charges of $13 million for certain projects under development. These charges were included in R&D expense. There were no impairment charges recorded in 2013. Acquired In-Process Research and Development The initial costs of rights to IPR&D projects acquired in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical products. The fair value of IPR&D projects acquired in a business combination are capitalized and accounted for as indefinite-lived intangible assets until the underlying project receives regulatory approval, at which point the intangible asset will be accounted for as a definite-lived intangible asset, or discontinuation, at which point the intangible asset will be written off. Development costs incurred after the acquisition are expensed as incurred. Indefinite- and definite-lived assets are subject to impairment reviews as discussed previously. Foreign Currency Translation Foreign subsidiary earnings are translated into U.S. dollars using average exchange rates. The net assets of foreign subsidiaries are translated into U.S. dollars using period end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other 68 13NOV201221352027 2014 Form 10-K comprehensive (loss) income. The net assets of subsidiaries in highly inflationary economies are remeasured as if the functional currency were the reporting currency. The remeasurement is recognized in earnings and is immaterial for all years presented. Derivatives All derivative instruments are recognized as either assets or liabilities at fair value in AbbVie’s balance sheets and are classified as current or long-term based on the scheduled maturity of the instrument. The accounting for changes in the fair value of a derivative instrument depends on whether it has been formally designated and qualifies as part of a hedging relationship under the applicable accounting standards and, further, on the type of hedging relationship. For derivatives formally designated as hedges, the company assesses at inception and quarterly thereafter, whether the hedging derivatives are highly effective in offsetting changes in the fair value or cash flows of the hedged item. The changes in fair value of a derivative designated as a fair value hedge and of the hedged item attributable to the hedge risk are recognized in earnings immediately. Fair value hedges are used to hedge the interest rate risk associated with certain of the company’s fixed-rate debt. The effective portions of changes in the fair value of a derivative designated as a cash flow hedge are reported in accumulated other comprehensive loss and are subsequently recognized in earnings consistent with the underlying hedged item. Cash flow hedges are used to manage exposures from changes in foreign currency exchange rates. The derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current earnings. If it is determined that a derivative is no longer highly effective as a hedge, the company discontinues hedge accounting prospectively. Gains or losses are immediately reclassified from accumulated other comprehensive loss to earnings relating to hedged forecasted transactions that are no longer probable of occurring. Gains or losses relating to terminations of effective cash flow hedges in which the forecasted transactions are still probable of occurring are deferred and recognized consistent with the income or loss recognition of the underlying hedged items. Terminations of a fair value hedges result in fair value adjustments to the hedged items until the date of termination with the new bases being accreted to par value on the date of maturity. Derivatives, including those that are not designated as a hedge, are principally classified in the operating section of the consolidated statements of cash flows, consistent with the underlying hedged item. Refer to Note 10 for information regarding AbbVie’s derivative and hedging activities. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The amendments in ASU 2014-09 supersede most current revenue recognition requirements. The core principal of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. AbbVie can apply the amendments using one of the following two methods: (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. AbbVie is currently assessing the impact of adopting this guidance to its consolidated financial statements. 2014 Form 10-K 13NOV201221352027 69 Note 3 Supplemental Financial Information ..................................................................................................................................................................................................................................................................................................................................................... Interest Expense, Net years ended December 31 (in millions) Interest expense Interest and dividend income Interest expense, net 2014 2013 2012 $429 (38) $299 (21) $104 (20) $391 $278 $ 84 Interest expense, net in 2014 included $141 million of financing related fees incurred in connection with the terminated proposed combination with Shire. 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. Accounts Payable and Accrued Liabilities as of December 31 (in millions) Sales rebates Accounts payable Due to Abbott Laboratories Dividends payable Salaries, wages and commissions Royalty license arrangements Other Accounts payable and accrued liabilities Long-Term Liabilities as of December 31 (in millions) Deferred income taxes Pension and other post-employment benefits Other Long-term liabilities 2014 2013 $1,384 881 536 791 623 821 1,918 $1,401 933 876 643 621 443 1,531 $6,954 $6,448 2014 2013 $ 630 2,220 990 $ 570 1,628 1,337 $3,840 $3,535 Note 4 Termination of Proposed Combination with Shire ..................................................................................................................................................................................................................................................................................................................................................... On October 15, 2014, AbbVie’s board of directors withdrew its previous recommendation to AbbVie stockholders in favor of a proposed combination with Shire plc, a company incorporated in Jersey (Shire), and recommended stockholders vote against the proposed combination. On October 20, 2014, AbbVie and Shire mutually agreed to terminate the proposed combination. During the year-ended December 31, 2014, the company incurred transaction and financing-related costs totaling $1.8 billion, of which $1.7 billion was recorded in SG&A expense and $141 million was recorded in interest expense. Included in SG&A expense was a break fee of $1.6 billion, which is tax deductible, paid by AbbVie to Shire in October 2014 as a result of the termination of the proposed combination. In addition, the company recorded $666 million of net foreign exchange losses primarily due to undesignated forward contracts that were entered into to hedge 70 13NOV201221352027 2014 Form 10-K anticipated foreign currency cash outflows associated with the terminated proposed combination with Shire and the exit of certain foreign currency positions. The forward contracts were settled in 2014. AbbVie expects to record additional foreign exchange losses of $170 million in the first quarter of 2015 to reflect the completed liquidation of its remaining foreign currency positions. Refer to Note 10 for further information regarding these forward contracts and to Note 9 for further information regarding certain credit facilities entered into in anticipation of the proposed combination with Shire. Note 5 Earnings Per Share ..................................................................................................................................................................................................................................................................................................................................................... For periods subsequent to the separation, AbbVie calculated basic earnings per share (EPS) pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. In addition, participating securities may include certain performance-based awards that may otherwise have been excluded from the calculation of EPS under the treasury-stock method. AbbVie’s forfeitable restricted stock units (RSUs) and restricted stock awards (RSAs), including most performance-based awards, participate in dividends on the same basis as common shares and such dividends are nonforfeitable to the holder once declared. As a result, these forfeitable RSUs and RSAs meet the definition of a participating security. The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock or the two-class method. For the years ended December 31, 2014 and 2013, the two-class method was more dilutive. As such, the dilutive effect of outstanding RSUs and RSAs for the years ended December 31, 2014 and 2013 of approximately 4 million and 5 million, respectively, was excluded from the denominator for the calculation of diluted EPS. These awards otherwise would have been included in the calculation of EPS under the treasury stock method. Additionally, all earnings (distributed and undistributed) allocable to participating securities, including performance-based awards not otherwise included in the calculation of EPS under the treasury-stock method, were excluded from the numerator for the calculation of basic and diluted earnings per share under the two-class method. Earnings allocable to participating securities for the years ended December 31, 2014 and 2013 were approximately $9 million and $26 million, respectively. For the years ended December 31, 2014 and 2013, approximately 0.4 million and 1 million common shares issuable under stock-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive. For periods prior to the separation, the numerator for both basic and diluted EPS was net earnings attributable to AbbVie. The denominator for basic and diluted EPS was calculated using the 1,577 million AbbVie common shares outstanding immediately following the separation. The same number of shares was used to calculate basic and diluted earnings per share since no AbbVie equity awards were outstanding prior to the separation. Note 6 Acquisitions, Collaborations and Other Arrangements ..................................................................................................................................................................................................................................................................................................................................................... In 2014, 2013 and 2012, cash outflows related to collaborations, the acquisition of product rights and other arrangements totaled $622 million, $405 million and $688 million, respectively. AbbVie recorded IPR&D charges of $352 million, $338 million and $288 million in 2014, 2013 and 2012, respectively. In 2014, AbbVie also recorded other expenses of $750 million related to a collaboration. Significant arrangements impacting 2014, 2013 and 2012, some of which require contingent milestone payments, are summarized below. In addition to the significant arrangements described below, AbbVie entered several other arrangements resulting in charges to IPR&D of $77 million in 2014 and $48 million in 2013 and upon the achievement of certain development, regulatory and commercial milestones, could make additional payments of up to $966 million and $894 million related to arrangements entered into in 2014 and 2013, 2014 Form 10-K 13NOV201221352027 71 respectively. It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. Significant arrangements impacting 2014, 2013 and 2012, some of which require contingent milestone payments, include the following: Calico Life Sciences LLC In September 2014, AbbVie and Calico Life Sciences LLC (Calico) entered into a novel R&D collaboration agreement to discover, develop and commercialize new therapies for patients with age-related diseases, including neurodegeneration and cancer. In 2014, AbbVie recorded $750 million in other expense in the consolidated statement of operations related to its commitments under the agreement of which $250 million was paid in 2014 and $500 million was paid in early 2015. Calico will be responsible for research and early development during the first five years and continue to advance collaboration projects through Phase 2a for a ten year period. AbbVie will have the option to exclusively license collaboration compounds after completion of Phase 2a. AbbVie will support Calico in its early R&D efforts and, upon option exercise, would be responsible for all late-stage development and commercial activities. Collaboration costs and profits will be shared equally by both companies post option exercise. Infinity Pharmaceuticals, Inc. In September 2014, AbbVie entered into a global collaboration agreement with Infinity Pharmaceuticals, Inc. (Infinity) to develop and commercialize duvelisib (IPI-145) for the treatment of patients with cancer. As part of the agreement, AbbVie made an initial upfront payment of $275 million, which was expensed to IPR&D in the third quarter of 2014. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $530 million. In the United States, the companies will jointly commercialize duvelisib and will share equally in any potential profits. Outside the United States, AbbVie will be responsible for the commercialization of duvelisib, and Infinity is eligible to receive tiered double-digit royalties on net product sales. Ablynx NV In September 2013, AbbVie entered into a global collaboration agreement with Ablynx NV to develop and commercialize the anti-IL-6R Nanobody, ALX-0061, for the treatment of inflammatory diseases including rheumatoid arthritis and systemic lupus erythematosus, resulting in a charge to IPR&D of $175 million. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $665 million, as well as royalties on net sales. Galapagos NV In September 2013, AbbVie recorded a charge to IPR&D of $45 million as a result of entering into a global collaboration with Galapagos NV (Galapagos) to discover, develop and commercialize cystic fibrosis therapies. Upon the achievement of certain development, regulatory and commercial milestones, AbbVie could make additional payments of up to $360 million, as well as royalties on net sales. In February 2012, AbbVie recorded a charge to IPR&D of $150 million as a result of entering into a global collaboration with Galapagos to develop and commercialize a next-generation, oral Janus Kinase 1 (JAK1) inhibitor in Phase 2 development with the potential to treat multiple autoimmune diseases. Additional payments of approximately $1.3 billion could be required for the achievement of certain development, regulatory and commercial milestones under this agreement. 72 13NOV201221352027 2014 Form 10-K Alvine Pharmaceuticals, Inc. In May 2013, AbbVie entered into a global collaboration with Alvine Pharmaceuticals, Inc. to develop ALV003, a novel oral treatment for patients with celiac disease. As part of the agreement, AbbVie made an initial upfront payment of $70 million, which was expensed to IPR&D in the second quarter of 2013. AbbVie could make additional payments totaling up to $275 million pursuant to this arrangement. Action Pharma A/S In May 2012, AbbVie recorded a charge to IPR&D of $110 million as a result of the acquisition of ABT-719 (previously referred to as AP214), a drug under development for the prevention of acute kidney injury associated with major cardiac surgery in patients at increased risk. Note 7 Goodwill and Intangible Assets ..................................................................................................................................................................................................................................................................................................................................................... Goodwill The carrying amount of goodwill was $5.9 billion and $6.3 billion at December 31, 2014 and 2013, respectively. Changes in the goodwill balance in 2014 were primarily due to foreign currency translation. Changes in the goodwill balance in 2013 were attributable to foreign currency translation and goodwill additions of $25 million related to product rights acquired during the second quarter. As of December 31, 2014, there were no accumulated goodwill impairment losses. Future impairment tests for goodwill will be performed annually in the third quarter, or earlier if indicators of impairment exist. Intangible Assets, Net The following table summarizes AbbVie’s intangible assets: (in millions) Definite-lived intangible assets Developed product rights License agreements Total definite-lived intangible assets Indefinite-lived research and development Gross carrying amount $4,546 1,097 5,643 445 December 31, 2014 December 31, 2013 Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization $(3,706) (869) (4,575) — $ 840 228 $4,744 994 1,068 445 5,738 447 $(3,503) (792) (4,295) — Net carrying amount $1,241 202 1,443 447 Total intangible assets $6,088 $(4,575) $1,513 $6,185 $(4,295) $1,890 Intangible assets with finite useful lives are amortized over their estimated useful lives, which range between 3 to 16 years with an average of 13 years and 10 years for developed product rights and license agreements, respectively. Additions in 2014 are primarily related to the acquisition of $80 million of amortizable intangible assets under license agreements for on-market product rights in the United States with an average amortization period of 10 years. Amortization expense for 2014, 2013 and 2012 was $403 million, $509 million and $625 million, respectively, and is included in cost of products sold in the consolidated statements of earnings. At December 31, 2014, the anticipated annual amortization expense for intangible assets recorded as of December 31, 2014 was $247 million in 2015, $164 million in 2016, $152 million in 2017, $145 million in 2018 and $107 million in 2019. In the third quarter of 2014, an impairment charge of $37 million was recorded related to certain on-market product rights in Japan due to increased generic competition. The charge was based on a discounted cash flow analysis and is included in cost of products sold. The indefinite-lived intangible assets as of December 31, 2013 relate to IPR&D acquired in a business combination. In 2012, AbbVie recorded an impairment charge of $13 million for certain projects under development. The charge was based on a discounted cash flow analysis and was included in R&D expense. In 2014, no material impairment charges were recorded related to indefinite-lived intangible assets. 2014 Form 10-K 13NOV201221352027 73 Note 8 Restructuring Plans ..................................................................................................................................................................................................................................................................................................................................................... In 2014 and prior years, AbbVie management approved plans to realign its worldwide manufacturing operations and selected domestic and international commercial and R&D operations in order to reduce costs in conjunction with the loss and expected loss of exclusivity of certain products. Restructuring charges recorded in 2014 were $23 million and were primarily recorded in cost of products sold in the consolidated statements of earnings with the remainder recorded in SG&A. Included in the charges were cash costs of $16 million which primarily related to employee severance and contractual obligations. In 2013, AbbVie management approved plans to restructure certain commercial operations in conjunction with the loss and expected loss of exclusivity of certain products. Restructuring charges recorded in 2013 were $83 million and were primarily recorded in SG&A and cost of products sold in the consolidated statements of earnings with the remainder recorded in R&D. Included in the charges were cash costs of $76 million which mainly related to employee severance and contractual obligations. In 2012, AbbVie management approved plans to realign its worldwide manufacturing operations and selected domestic and international commercial and R&D operations in order to reduce costs. In 2012, AbbVie incurred restructuring charges of approximately $191 million for employee severance and contractual obligations, primarily related to the exit from an R&D facility with $183 million recorded within R&D and $8 million within SG&A expenses in the consolidated statements of earnings. The following summarizes the cash activity in the restructuring reserve for the years ended December 31, 2014 and 2013: (in millions) Accrued balance at December 31, 2011 2012 restructuring charges Payments and other adjustments Accrued balance at December 31, 2012 2013 restructuring charges Payments and other adjustments Accrued balance at December 31, 2013 2014 restructuring charges Payments and other adjustments Accrued balance at December 31, 2014 $ 149 191 (107) 233 76 (118) 191 16 (85) $ 122 Payments and other adjustments for 2013 included a $23 million reversal of a previously recorded restructuring reserve due to the company’s re-evaluation of a prior year decision to exit a manufacturing facility. In 2012, AbbVie recorded additional restructuring charges of $69 million, primarily for accelerated depreciation. 74 13NOV201221352027 2014 Form 10-K Note 9 Debt, Credit Facilities, and Commitments and Contingencies ..................................................................................................................................................................................................................................................................................................................................................... The following is a summary of long-term debt as of December 31, 2014 and 2013: (in millions) Floating rate notes due 2015 1.2% notes due 2015 1.75% notes due 2017 2.0% notes due 2018 2.9% notes due 2022 4.4% notes due 2042 Other Fair value hedges Unamortized bond discounts Total long-term debt and lease obligations Current portion Noncurrent portion Effective interest rate in 2014(a) 1.09% 1.31% 1.86% 2.15% 2.97% 4.46% — — — Effective interest rate in 2013(a) 1.14% 1.31% 1.86% 2.15% 2.97% 4.46% — — — $ 2014 500 3,500 4,000 1,000 3,100 2,600 115 (180) (49) 14,586 4,021 $10,565 $ 2013 500 3,500 4,000 1,000 3,100 2,600 98 (432) (56) 14,310 18 $14,292 (a) Excludes the effect of any related interest rate swaps. In November 2012, AbbVie issued $14.7 billion aggregate principal amount of senior notes. Approximately $3.0 billion of these senior notes were issued to Abbott as partial consideration for the transfer of assets from Abbott to AbbVie. AbbVie used part of the net proceeds from the sale of senior notes (other than the senior notes issued to Abbott) to finance the payment made in November 2012 of a $10.2 billion distribution to Abbott, as provided by the terms of the separation agreement. The debt was guaranteed by Abbott until AbbVie separated from Abbott on January 1, 2013. AbbVie may redeem all of the senior notes of each series, other than the floating notes due in 2015, at any time, and some of the senior notes of each series, other than the floating notes due in 2015, from time to time, at a redemption price equal to the principal amount of the senior notes redeemed plus a make-whole premium. AbbVie may not redeem the floating notes due in 2015 prior to maturity. At December 31, 2014, the company was in compliance with its senior note covenants. Short-Term Borrowings At December 31, 2014 and 2013, short-term borrowings included $416 million and $400 million, respectively, of commercial paper borrowings. The weighted-average interest rate on short-term borrowings was 0.2% and 0.2% for 2014 and 2013, respectively. Prior to October 2014, AbbVie had a $2.0 billion unsecured five-year revolving credit facility agreement. In October 2014, AbbVie replaced its existing revolving credit facility with the $3.0 billion five-year revolving credit facility which also supports commercial paper borrowings. At December 31, 2014, AbbVie was in compliance with the financial covenants. No borrowings were outstanding under these facilities at December 31, 2014 and December 31, 2013. 2014 Form 10-K 13NOV201221352027 75 Maturities of Long-Term Debt and Capital Lease Obligations The following table summarizes AbbVie’s future minimum lease payments under non-cancelable operating leases, debt maturities and future minimum lease payments for capital lease obligations as of December 31, 2014: as of and for the years ended December 31 (in millions) 2015 2016 2017 2018 2019 Thereafter Total obligations and commitments Fair value hedges and unamortized bond discounts Total debt and lease obligations Operating leases Debt maturities and capital leases $114 103 92 81 74 98 562 n/a $562 $ 4,021 19 4,018 1,014 6 5,737 14,815 (229) $14,586 Lease expense was $115 million in 2014 and $107 million in 2013 and was not material for 2012. As part of the separation, AbbVie entered into agreements to lease certain facilities, including office, laboratory, and factory and warehouse space, under principally non-cancelable operating leases with Abbott. AbbVie’s operating leases generally include renewal options and provide for the company to pay taxes, maintenance, insurance and other operating costs of the leased property. Capital lease obligations relate to automobiles and certain facilities. As of December 31, 2014, annual future minimum lease payments for capital lease obligations are not material. Debt maturities and capital leases in 2015 include the $500 million floating notes due in 2015 and maturities of $3.5 billion of 1.2% senior notes. Contingencies and Guarantees In connection with the separation, AbbVie has indemnified Abbott for all liabilities resulting from the operation of AbbVie’s business other than income tax liabilities with respect to periods prior to the distribution date and other liabilities as agreed to by AbbVie and Abbott. AbbVie has no material exposures to off-balance sheet arrangements, no special-purpose entities and no activities that included non-exchange- traded contracts accounted for at fair value. In the ordinary course of business, AbbVie has periodically entered into third-party agreements, such as the assignment of product rights, which have resulted in AbbVie becoming secondarily liable for obligations for which AbbVie had previously been primarily liable. Based upon past experience, the likelihood of payments under these agreements is remote. AbbVie periodically acquires a business or product rights in which AbbVie agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events. Note 10 Financial Instruments and Fair Value Measures ..................................................................................................................................................................................................................................................................................................................................................... Risk Management Policy The company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. The company’s hedging policy attempts to manage these risks to an acceptable level based on the company’s judgment of the appropriate trade-off between risk, opportunity and costs. The company uses derivative instruments to reduce its exposure to foreign currency exchange rates. The company is also exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in interest rates. The company periodically enters into interest rate swaps, based on judgment, to manage interest costs in which the company agrees to exchange, at specified intervals, the difference between fixed and 76 13NOV201221352027 2014 Form 10-K floating interest amounts calculated by reference to an agreed-upon notional amount. Derivative instruments are not used for trading purposes or to manage exposure to changes in interest rates for investment securities, and none of the company’s outstanding derivative instruments contain credit risk related contingent features; collateral is generally not required. Financial Instruments Various AbbVie foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany transactions denominated in a currency other than the functional currency of the local entity. These contracts, with notional amounts totaling $1.4 billion and $1.5 billion at December 31, 2014 and December 31, 2013, respectively, are designated as cash flow hedges and are recorded at fair value. Accumulated gains and losses as of December 31, 2014 will be included in cost of products sold at the time the products are sold, generally not exceeding twelve months. The company enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. The contracts are marked-to-market, and resulting gains or losses are reflected in income and are generally offset by losses or gains on the foreign currency exposure being managed. At December 31, 2014 and December 31, 2013, AbbVie held notional amounts of $6.8 billion and $5.3 billion, respectively, of such foreign currency forward exchange contracts. In 2014, the company entered into undesignated forward contracts with a total notional amount of $16.9 billion to hedge anticipated foreign currency cash outflows associated with the terminated proposed combination with Shire. A large portion of these contracts original maturity is in the first quarter of 2015 but were net settled in the fourth quarter of 2014. In 2014, the company realized $490 million in net foreign exchange loss associated with the Shire-related forward contracts. AbbVie is a party to interest rate hedge contracts, designated as fair value hedges, totaling $8.0 billion at both December 31, 2014 and December 31, 2013. The effect of the hedge is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie recorded the contracts at fair value and adjusted the carrying amount of the fixed-rate debt by an offsetting amount. The following table summarizes the amounts and location of AbbVie’s derivative instruments as of December 31. (in millions) 2014 2013 Balance sheet caption 2014 2013 Balance sheet caption Fair value—Derivatives in asset position Fair value—Derivatives in liability position $ — $ — n/a $180 $432 Long-term liabilities Interest rate swaps designated as fair value hedges Foreign currency forward exchange contracts— Hedging instruments 141 — Prepaid expenses and other — 61 Others not designated as hedges 70 17 Prepaid expenses and other 63 12 Total $211 $17 $243 $505 Accounts payable and accrued liabilities Accounts payable and accrued liabilities While certain derivatives are subject to netting arrangements with the company’s counterparties, the company does not offset derivative assets and liabilities within the consolidated balance sheets. The following table summarizes the activity for derivative instruments and the amounts and location of income (expense) and gain (loss) reclassified into net earnings for the years ended December 31, 2014, 2014 Form 10-K 13NOV201221352027 77 2013 and 2012, respectively. The amount of hedge ineffectiveness was not significant for the years ended December 31, 2014, 2013 and 2012. (in millions) 2014 2013 2012 2014 2013 2012 Income statement caption Gain (loss) recognized in other comprehensive (loss) income (Expense) income and (loss) gain reclassified into income Foreign currency forward exchange contracts— Designated as cash flow hedges Not designated as hedges Interest rate swaps designated as fair value $193 n/a $(77) $(11) $ (79) $ — $ 24 (523) n/a Cost of products sold (23) Net foreign exchange (loss) gain n/a 81 hedges n/a n/a n/a 252 (351) (81) Interest expense (income), net The gain/(loss) related to fair value hedges is recognized in net interest expense and directly offsets the (loss)/gain on the underlying hedged item, the fixed-rate debt, resulting in no net impact to net interest expense for years ended December 31, 2014 and 2013. Fair Value Measures The fair value hierarchy under the accounting standard for fair value measurements consists of the following three levels: • Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets that the company has the ability to access; • Level 2—Valuations based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market; and • Level 3—Valuations using significant inputs that are unobservable in the market and include the use of judgment by the company’s management about the assumptions market participants would use in pricing the asset or liability. The following table summarizes the bases used to measure certain assets and liabilities that are carried at fair value on a recurring basis in the consolidated balance sheet as of December 31, 2014: Basis of fair value measurement Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable Inputs (Level 3) Balance at December 31, 2014 $8,348 9 13 211 $8,581 $ 180 63 $ 243 $1,214 — 13 — $1,227 $ — — $ — $7,134 9 — 211 $7,354 $ 180 63 $ 243 $— — — — $— $— — $— (in millions) Assets Cash and equivalents Time deposits Equity securities Foreign currency contracts Total assets Liabilities Interest rate hedges Foreign currency contracts Total liabilities 78 13NOV201221352027 2014 Form 10-K The following table summarizes the bases used to measure certain assets and liabilities that are carried at fair value on a recurring basis in the consolidated balance sheet as of December 31, 2013: (in millions) Assets Cash and equivalents Time deposits Equity securities Foreign currency contracts Total assets Liabilities Interest rate hedges Foreign currency contracts Contingent consideration Total liabilities Basis of fair value measurement Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable Inputs (Level 3) Balance at December 31, 2013 $9,595 300 10 17 $9,922 $ 432 73 165 $ 670 $684 — 10 — $694 $ — — — $ — $8,911 300 — 17 $9,228 $ 432 73 — $ 505 $ — — — — $ — $ — — 165 $165 The fair values for time deposits included in cash and equivalents and short-term investments are determined based on a discounted cash flow analysis reflecting quoted market rates for the same or similar instruments. The fair values of time deposits approximate their amortized cost due to the short maturities of these instruments. Available-for-sale equity securities consists of investments for which the fair value is determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company are valued using publicized spot curves for interest rate hedges and publicized forward curves for foreign currency contracts. The contingent consideration is valued using a discounted cash flow technique that reflects management’s expectations about probability of payment. Cumulative net unrealized holding gains on available-for-sale equity securities totaled $3 million and $2 million at December 31, 2014 and December 31, 2013, respectively. There have been no transfers of assets or liabilities between the fair value measurement levels. The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and investments: (in millions) Fair value as of December 31, 2012 Payments Additions Change in fair value recognized in earnings Fair value as of December 31, 2013 Payments Other Change in fair value recognized in earnings Fair value as of December 31, 2014 $ 251 (131) 28 17 165 (164) — (1) $ — The contingent payments were primarily in connection with the acquisition of Solvay’s U.S. pharmaceuticals business in 2010. The achievement of a certain sales milestone resulted in a payment of approximately 2014 Form 10-K 13NOV201221352027 79 $137 million in 2014 and $131 million in 2013 for which a liability was previously established. Additions of $28 million related to the acquisition of product rights in 2013. The change in fair value recognized in earnings was recognized in net foreign exchange loss and other income, net in the consolidated statements of earnings. In addition to the financial instruments that the company is required to recognize at fair value on the consolidated balance sheets, the company has certain financial instruments that are recognized at historical cost or some basis other than fair value. The carrying values and fair values of certain financial instruments as of December 31, 2014 and 2013 are shown in the table below: (in millions) Book values Approximate fair values 2014 2013 2014 2013 Assets Investments Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges $ 95 $ 108 $ 145 $ 129 425 4,021 10,745 413 18 14,724 425 4,033 10,830 413 18 14,493 The following table summarizes the bases used to measure the approximate fair values of the financial instruments as of December 31, 2014. (in millions) Assets Investments Total assets Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges Total liabilities Basis of fair value measurement Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) $ $ $ 68 68 — 4,012 10,737 $14,749 $ 13 $ 13 $425 21 93 $539 $64 $64 $ — — — $ — Fair value at December 31, 2014 $ $ $ 145 145 425 4,033 10,830 $15,288 80 13NOV201221352027 2014 Form 10-K The following table summarizes the bases used to measure the approximate fair values of the financial instruments as of December 31, 2013. (in millions) Assets Investments Total assets Liabilities Short-term borrowings Current portion of long-term debt and lease obligations Long-term debt and lease obligations, excluding fair value hedges Total liabilities Basis of fair value measurement Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Fair value at December 31, 2013 $ $ $ 129 129 413 18 $ $ $ 39 39 — — 14,493 $14,924 14,413 $14,413 $ 30 $ 30 $413 18 80 $511 $60 $60 $ — — — $ — Investments consist of cost method investments and held-to-maturity debt securities. Cost method investments include certain investments for which the fair value is determined by using the published market price per unit multiplied by the number of units held, without consideration of transaction costs. To determine the fair value of other cost method investments, the company takes into consideration recent transactions, as well as the financial information of the investee, which represents a Level 3 basis of fair value measurement. The fair value of held-to-maturity debt securities was estimated based upon the quoted market prices for the same or similar debt instruments. The fair values of short-term and current borrowings approximate the carrying values due to the short maturities of these instruments. The fair value of long-term debt, excluding fair value hedges, was determined by using the published market price for the debt instruments, without consideration of transaction costs, which represents a Level 1 basis of fair value measurement. The counterparties to financial instruments consist of select major international financial institutions. Concentrations of Risk The company invests excess cash in time deposits, money market funds and U.S. Treasury securities and diversifies the concentration of cash among different financial institutions. The company monitors concentrations of credit risk associated with deposits with financial institutions. Credit exposure limits have been established to limit a concentration with any single issuer or institution. At December 31, 2014, AbbVie had approximately $240 million of net monetary assets denominated in the Venezuelan bolivar (converted at a rate of 6.3 VEF/USD) in its Venezuelan entity, which had net sales of $240 million in 2014. If AbbVie’s net monetary assets denominated in the Venezuelan bolivar had been converted at a rate of 12 VEF/USD at December 31, 2014, it would have resulted in a devaluation loss of $114 million in 2014. The company cannot predict whether there will be further devaluations of the Venezuelan currency or whether the use of the official rate of 6.3 will continue to be supported by evolving facts and circumstances. If circumstances change such that the company concludes it would be appropriate to use a different rate, or if a devaluation of the official rate occurs, it could result in a significant change to AbbVie’s results of operations. Three U.S. wholesalers accounted for 49 percent and 38 percent of total net accounts receivable as of December 31, 2014 and December 31, 2013, respectively, and substantially all of AbbVie’s sales in the 2014 Form 10-K 13NOV201221352027 81 United States are to these three wholesalers. In addition, net governmental receivables outstanding in Greece, Portugal, Italy and Spain totaled $446 million at December 31, 2014 and $781 million at December 31, 2013. HUMIRA is AbbVie’s single largest product and accounted for approximately 63 percent, 57 percent and 50 percent of AbbVie’s total net sales in 2014, 2013 and 2012, respectively. Note 11 Post-Employment Benefits ..................................................................................................................................................................................................................................................................................................................................................... AbbVie sponsors various pension and other post-employment benefit plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. In addition, AbbVie provides medical benefits, primarily to eligible U.S. retirees, through other post-retirement benefit plans. Net obligations for these plans have been reflected in the consolidated balance sheets as of December 31, 2014 and 2013. Abbott Sponsored Plans Prior to separation, AbbVie employees participated in certain U.S. and international defined benefit pension and other post-employment benefit (OPEB) plans sponsored by Abbott. These plans included participants of Abbott’s other businesses and were accounted for as multiemployer benefit plans in AbbVie’s combined financial statements as of and for the year ended December 31, 2012. As a result, no asset or liability was recorded by AbbVie in the historical combined balance sheets through December 31, 2012 to recognize the funded status of these plans. Effective January 1, 2013, in connection with the separation of AbbVie from Abbott, these plans were separated and AbbVie assumed net benefit plan obligations that were previously provided by Abbott. For Abbott-sponsored defined benefit and post-employment benefit plans, AbbVie recorded expenses of $200 million in 2012. Abbott made voluntary contributions to its defined benefit pension plans that AbbVie accounted for as multiemployer benefit plans totaling $310 million in 2012. AbbVie Sponsored Plans Prior to the separation, AbbVie employees participated in the Abbott Laboratories Annuity Retirement Plan, which was Abbott’s principal domestic defined benefit pension plan. In connection with the separation, AbbVie established the AbbVie Pension Plan, which is AbbVie’s principal domestic defined benefit pension plan, with substantially the same terms as the Abbott Laboratories Annuity Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Annuity Retirement Plan on December 31, 2012 automatically became eligible for the AbbVie Pension Plan. During the first quarter of 2013, the AbbVie Pension Plan assumed the obligations and related assets for its employees from the Abbott Laboratories Annuity Retirement Plan. AbbVie made voluntary contributions of $370 million and $145 million in 2014 and 2013, respectively, to this plan. AbbVie also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2014. 82 13NOV201221352027 2014 Form 10-K The benefit plan information in the table below pertains to the global AbbVie-sponsored defined benefit pension and other post-employment plans. as of and for the years ended December 31 (in millions) 2014 2013 2014 2013 Defined benefit plans Other post-employment plans Projected benefit obligations Beginning of period Service cost Interest cost Employee contributions Plan amendments Assumption of plan liabilities Removal of plans Actuarial (gain) loss Benefits paid Other, primarily foreign currency translation loss End of period Fair value of plan assets Beginning of period Actual return on plan assets Company contributions Employee contributions Assumption of plan assets Benefits paid Other, primarily foreign currency translation gain End of period Funded status at December 31 Amounts recognized in consolidated balance sheets Other assets Current liabilities Long-term liabilities Net liability at December 31 Actuarial losses, net Prior service cost AOCI at December 31 $ 4,484 173 217 1 1 — — 1,108 (163) (140) $ 1,669 184 196 1 (1) 3,009 — (455) (146) 27 $ 403 22 22 — (13) — — 111 (8) 1 $ 231 23 19 — — 209 (12) (55) (12) — $ 5,681 $ 4,484 $ 538 $ 403 $ 3,666 282 430 1 — (163) (43) $ 898 491 198 1 2,221 (146) 3 $ — $ — — 12 — — (12) — — 8 — — (8) — $ 4,173 $ 3,666 $ — $ — $(1,508) $ (818) $(538) $(403) $ 210 (26) (1,692) $ 442 (27) (1,233) $ — $ — (8) (395) (10) (528) $(1,508) $ (818) $(538) $(403) $ 2,216 19 $ 1,194 22 $ 181 (53) $ 74 (47) $ 2,235 $ 1,216 $ 128 $ 27 The projected benefit obligations (PBO) in the table above included $1.4 billion and $1.2 billion at December 31, 2014 and 2013, respectively, related to international defined benefit pension plans, a number of which generally are not funded in accordance with local regulations. Benefit payments under those plans are funded from company assets. The funded status at December 31, 2014 reflects that AbbVie considered the release of the new mortality tables and projection scales by the Society of Actuaries as an improvement of the estimate of future mortality and opted to change to the new tables in 2014. For plans reflected in the table above, the accumulated benefit obligations (ABO) were $5.0 billion and $3.9 billion at December 31, 2014 and 2013, respectively. For those plans reflected in the table above in which the ABO exceeded plan assets at December 31, 2014, the ABO, PBO and aggregate plan assets were $2.9 billion, $3.5 billion and $1.8 billion, respectively. 2014 Form 10-K 13NOV201221352027 83 Amounts Recognized in AOCI and OCI The defined benefit pension and other post-employment plans’ actuarial gains or losses and prior service costs or credits not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized to net periodic benefit cost in the future. The following is a summary of the pretax gains and losses included in OCI. years ended December 31 (in millions) 2014 2013 2012 Defined benefit plans Actuarial (gain) loss Prior service cost Amortization of actuarial losses and prior service costs Foreign exchange loss Total pretax (gain) loss recognized in OCI Other post-employment plans Actuarial (gain) loss Prior service cost Amortization of actuarial losses and prior service costs Total pretax (gain) loss recognized in OCI $1,127 1 (68) (41) $(715) $ 98 9 (7) 5 15 (114) 2 $1,019 $(812) $105 $ 111 (13) 3 $ (42) $ 69 — — (53) — $ 101 $ (95) $ 69 The pretax amount of actuarial (gain) loss and prior service cost included in AOCI at December 31, 2014 that is expected to be recognized in the net periodic benefit cost in 2015 is $114 million for defined benefit plans and $2 million for other post-employment plans. Net Periodic Benefit Cost years ended December 31 (in millions) Defined benefit plans Service cost Interest cost Expected return on plan assets Amortization of actuarial losses and prior service costs Net periodic pension benefit cost Other post-employment plans Service cost Interest cost Amortization of actuarial gain and prior service costs Net periodic OPEB cost 2014 2013 2012 $ 173 217 (302) 68 $ 184 196 (259) 114 $ 21 38 (29) 7 $ 156 $ 235 $ 37 $ 22 22 (2) $ 23 19 (1) $ 42 $ 41 $ — — — $ — Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date Defined benefit plans Discount rate Rate of compensation increases Other post-employment plans Discount rate Rate of compensation increases 84 13NOV201221352027 2014 Form 10-K 2014 2013 3.9% 4.4% 4.5% — 4.9% 5.0% 5.3% 6.0% The assumptions above, which were used in calculating the December 31, 2014 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2015. Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost Defined benefit plans Discount rate Expected long-term rate of return on plan assets Expected rate of change in compensation Other post-employment plans Discount rate 2014 2013 2012 4.9% 7.9% 5.0% 4.3% 8.2% 5.0% 5.1% 8.5% 4.2% 5.3% 4.5% N/A For 2014, for purposes of measuring post-retirement health care obligations as of the measurement date, the company assumed a 7.5% pre-65 (7.3% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5% in 2064 and remain at that level thereafter. For purposes of measuring post-retirement health care costs, the company assumed a 7.9% pre-65 (7.6% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 5% for 2051 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. As of December 31, 2014, a 1 percentage point change in assumed health care cost trend rates would have the following effects: year ended December 31, 2014 (in millions) Service cost and interest cost Projected benefit obligation Defined Benefit Pension Plan Assets (in millions) Equities U.S. large cap(a) U.S. mid cap(b) International(c) Fixed income securities U.S. government securities(d) Corporate debt instruments(e) Government Securities International Other Absolute return funds(f) Real assets Other(g) Fair value of plan assets One percentage point Increase Decrease $ 9 121 $ (7) (92) Basis of fair value measurement Balance at December 31, 2014 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) $1,314 267 608 $ 588 67 137 $ 726 200 471 216 326 425 37 848 53 79 — 101 201 29 3 7 79 216 225 224 8 371 46 — $ — — — — — — — 474 — — $4,173 $1,212 $2,487 $474 2014 Form 10-K 13NOV201221352027 85 (in millions) Equities U.S. large cap(a) U.S. mid cap(b) International(c) Fixed income securities U.S. government securities(d) Corporate debt instruments(e) Government Securities International Other Absolute return funds(f) Real assets Other(g) Fair value of plan assets Basis of fair value measurement Balance at December 31, 2013 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) $1,197 244 614 $ 576 62 225 $ 621 182 389 292 212 216 52 704 70 65 35 57 159 45 3 8 62 257 155 57 7 290 62 3 $ — — — — — — — 411 — — $3,666 $1,232 $2,023 $411 (a) A mix of pooled index funds and actively managed equity accounts that are benchmarked to various large cap indices. (b) A mix of pooled index funds and actively managed equity accounts that are benchmarked to various mid cap indices. (c) A mix of pooled index funds and actively managed equity accounts that are benchmarked to various non-US equity indices in both developed and emerging markets. (d) Securities held by actively managed accounts, pooled index funds, and mutual funds. (e) Securities held by actively managed accounts, pooled index funds, and mutual funds. (f) Funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies, and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets. (g) Investments in cash and cash equivalents. Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator. 86 13NOV201221352027 2014 Form 10-K The following table summarizes the change in the value of plan assets that are measured using significant unobservable inputs (Level 3): (in millions) Balance as of January 1 Actual return on plan assets on hand at year end Assumption of level 3 assets Purchases, sales and settlements, net Balance as of December 31 2014 2013 $ 33 $411 21 4 — 372 2 42 $474 $411 The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are established for each plan and are generally made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is 50% in equity securities, 20% in fixed income securities and 30% in asset allocation strategies and other holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension Plan or any other plans’ assets. The plans’ expected return on assets, as shown above, is based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions. Expected Pension and Other Post-Employment Payments (in millions) 2015 2016 2017 2018 2019 2020 to 2024 Defined benefit plans Other post-employment plans $ 161 170 180 192 204 1,239 $ 10 12 14 15 17 115 The above table reflects total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans. Other Prior to the separation, AbbVie employees also participated in the Abbott Laboratories Stock Retirement Plan, which was Abbott’s principal defined contribution plan. AbbVie recorded expense of $67 million in 2012 related to this plan. In connection with the separation, AbbVie established the AbbVie Savings Plan, which is AbbVie’s principal defined contribution plan, with substantially the same terms as the Abbott Laboratories Stock Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Stock Retirement Plan on December 31, 2012 automatically became eligible for the AbbVie Savings Plan. AbbVie recorded expense of $67 million in 2014 and $62 million in 2013 related to this plan. AbbVie provides certain other post-employment benefits, primarily salary continuation plans, to qualifying employees and accrues for the related cost over the service lives of the employees. 2014 Form 10-K 13NOV201221352027 87 Note 12 Equity ..................................................................................................................................................................................................................................................................................................................................................... Stock-Based Compensation Stock-based compensation expense was $241 million, $212 million and $187 million in 2014, 2013 and 2012, respectively, and is principally classified in SG&A for all periods presented with the remainder classified in R&D and cost of products sold. The related tax benefit recognized was $73 million, $68 million and $56 million in 2014, 2013 and 2012, respectively. Stock-based compensation expense for 2012 was allocated to AbbVie based on the portion of Abbott’s incentive stock program in which AbbVie employees participated. Compensation expense for stock-based awards is measured based on the fair value of the awards, as of the date the stock-based awards are granted and adjusted to the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for stock-based awards is amortized over their service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. For stock-based awards granted to retirement-eligible employees, compensation expense is recognized immediately at the grant date because the employee is able to retain the award without continuing to provide service. Prior to separation, AbbVie employees participated in Abbott’s incentive stock program. The AbbVie 2013 Incentive Stock Program, adopted at the time of separation, facilitated the assumption of certain awards granted under Abbott’s incentive stock program and authorizes the post-separation grant of several different forms of benefits, including nonqualified stock options, RSAs, RSUs and performance-based RSAs and RSUs. Under the AbbVie 2013 Incentive Stock Program, 100 million shares of common stock were reserved for issuance with respect to post-separation awards for participants. In connection with the separation, outstanding Abbott employee stock options, RSAs and RSUs previously issued under Abbott’s incentive stock program were adjusted and converted into new Abbott and AbbVie stock-based awards using a formula designed to preserve the intrinsic value and fair value of the awards immediately prior to the separation. Upon the separation on January 1, 2013, holders of Abbott stock options, RSAs and RSUs generally received one AbbVie stock-based award for each Abbott stock-based award outstanding. These adjusted awards retained the vesting schedule and expiration date of the original awards. No AbbVie awards have been granted to Abbott employees other than in connection with the separation. In 2014 and 2013, realized excess tax benefits associated with stock-based compensation totaled $56 million and $38 million, respectively, and were presented in the consolidated statements of cash flows as an outflow within the operating section and an inflow within the financing section. Stock Options The exercise price for options granted is at least equal to 100 percent of the market value on the date of grant. Stock options typically have a contractual term of 10 years and generally vest in one-third increments over a three-year period. The fair value of stock options is determined using the Black-Scholes model. The weighted-average grant-date fair values of the stock options granted were $9.83, $6.87, and $6.80 for 2014, 2013 and 2012, respectively. Stock-based compensation expense attributable to options during each of the years presented was not material. 88 13NOV201221352027 2014 Form 10-K The following table summarizes AbbVie stock option activity for both AbbVie and Abbott employees for the year ended December 31, 2014: (options in thousands, aggregate intrinsic value in millions) Outstanding at December 31, 2013 Granted Exercised Lapsed Outstanding at December 31, 2014 Exercisable at December 31, 2014 Weighted- average exercise price Weighted- Average remaining life (in years) Aggregate intrinsic value Options 35,994 1,134 (8,765) (83) 28,280 $27.48 51.53 27.18 25.97 $28.53 25,497 $27.20 3.6 $ 912 3.3 2.8 $1,044 $ 975 The aggregate intrinsic value in the table above represents the difference between the exercise price and the company’s closing stock price on the last day of trading for the year ended December 31, 2014. The total intrinsic value of options exercised in 2014 and 2013 was $253 million and $229 million, respectively. For options issued under Abbott’s incentive stock programs to AbbVie employees prior to the separation, the total intrinsic value of options exercises in 2012 was $170 million. The total fair value of options vested during 2014 was $8 million. The excess tax benefit realized from option exercises totaled $46 million for 2014. As of December 31, 2014, $4 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years. RSAs & RSUs RSAs generally vest over three or five years. For RSAs that vest over five years, no more than one-third of the award vests in any one year. RSUs vest over three years and, upon vesting, the recipient receives one share of common stock for each vested RSU. In addition, AbbVie grants selected executives and other key employees performance-based RSAs and RSUs with vesting contingent upon meeting various company-wide performance goals, including AbbVie achieving a minimum return on equity. The fair value of RSAs and RSUs (including performance-based awards) is determined based on the number of shares granted and the quoted price of the common stock on the date of grant. AbbVie assumes that the performance goals will be achieved. If such goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. The following table summarizes AbbVie RSA and RSU activity (including performance-based awards) for both AbbVie and Abbott employees for the year ended December 31, 2014: (share units in thousands) Outstanding at December 31, 2013 Granted Vested Lapsed Outstanding at December 31, 2014 Share units Weighted-average grant date fair value 14,910 5,112 (6,638) (569) 12,815 $32.07 51.55 29.43 38.48 $40.98 The fair market value of RSAs and RSUs vested in 2014 and 2013 was $338 million and $285 million, respectively. For RSAs and RSUs issued under Abbott’s incentive stock programs prior to the separation, the fair market value of RSAs and RSUs vested in 2012 was $123 million. The weighted-average grant-date fair 2014 Form 10-K 13NOV201221352027 89 value per share of RSAs and RSUs granted in 2012 was $56.07. Such amounts have not been adjusted to reflect the separation from Abbott. As of December 31, 2014, $192 million of unrecognized compensation cost related to RSAs and RSUs is expected to be recognized as expense over approximately the next two years. Cash Dividends On December 12, 2013, the board of directors declared a quarterly cash dividend of $0.40 per share of common stock for stockholders of record on January 15, 2014, which was paid on February 14, 2014. Additionally, the quarterly cash dividend declared by the board of directors on February 20, 2014 of $0.42 per share, which represented an increase of 5 percent over the previous quarterly rate of $0.40 per share was paid on May 15. On June 18 and September 19, 2014, the board of directors declared quarterly cash dividends of $0.42 per share which were paid on August 15 and November 17, 2014, respectively. Additionally, on October 20, 2014, the board of directors declared an increase in the company’s quarterly cash dividend from $0.42 per share to $0.49 per share of common stock, for stockholders of record on January 15, 2015, which was paid on February 13, 2015. Stock Repurchase Program On February 15, 2013, AbbVie’s board of directors authorized a $1.5 billion stock repurchase program. On October 20, 2014, AbbVie’s board of directors authorized a new $5.0 billion stock repurchase program, which was effective immediately and supersedes the previous authorization, and is expected to be executed over the next several years. The stock repurchase authorization permits purchases of AbbVie shares from time to time in open market or private transactions at management’s discretion depending on the company’s cash flows, net debt level and market conditions. The plan has no time limit and can be discontinued at any time. During 2014 and 2013, AbbVie repurchased approximately 9 million shares and 4 million shares for $550 million and $223 million, respectively, in the open market. Shares repurchased under this program are recorded at acquisition cost, including related expenses, and are available for general corporate purposes. AbbVie’s remaining share repurchase authorization was $4.7 billion as of December 31, 2014. 90 13NOV201221352027 2014 Form 10-K Accumulated Other Comprehensive Loss The following table summarizes the changes in balances of each component of AOCI, net of tax for the years ended December 31, 2013 and 2014: (in millions) (brackets denote losses) Balance as of December 31, 2011 Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net current-period other comprehensive income Separation-related adjustments Foreign currency translation adjustments Pension and post- employment benefits Unrealized gains (losses) on marketable equity securities Hedging activities Total $ 8 $ (65) $ 26 $ 6 $ (25) 173 — 173 — (157) 7 (150) (296) (25) — (25) — (9) $ (18) (18) $ (27) $ (11) (29) — $ (296) Balance as of December 31, 2012 $ 181 $ (511) $ 1 $ (21) $ (350) Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net current-period other comprehensive income Separation-related adjustments Balance as of December 31, 2013 $ 48 — 48 241 470 519 79 598 (914) 1 — 1 — (77) $ 491 — $ 79 (77) $ 570 11 $ (662) $ (827) $ 2 $ (87) $ (442) Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Net current-period other comprehensive (loss) income (1,073) (827) — 46 (1,073) (781) 1 — 1 187 $(1,712) 77 $ 123 264 $(1,589) Balance as of December 31, 2014 $ (603) $(1,608) $ 3 $ 177 $(2,031) Other comprehensive loss in 2014 includes foreign currency translation adjustments totaling a loss of $1.1 billion, which was principally driven by (i) the impact of the substantial weakening of the Euro in 2014 on the translation of the company’s Euro-denominated assets, and (ii) the weakening of foreign currencies in combination with an increased concentration of cash denominated in the foreign currencies accumulated in anticipation of the terminated proposed combination with Shire plc. 2014 Form 10-K 13NOV201221352027 91 The table below presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the years ended December 31, 2014 and 2013: years ended December 31 (in millions) Pension and post-employee benefits Amortization of actuarial losses and other Less tax expense Total reclassification, net of tax Hedging activities Gains (losses) on designated cash flow hedges Less tax expense Total reclassification, net of tax Other 2014 2013 $ 66 (20) $114 (35) $ 46 $ 79 $(79) $ — — 2 $(77) $ — In addition to common stock, AbbVie’s authorized capital includes 200 million shares of preferred stock, par value $0.01. As of December 31, 2014, no shares of preferred stock were issued or outstanding. Note 13 Income Taxes ..................................................................................................................................................................................................................................................................................................................................................... Earnings Before Income Taxes years ended December 31 (in millions) Domestic Foreign Total earnings before income taxes 2014 2013 2012 $(3,245) $ (581) $ 625 5,100 5,913 5,614 $ 2,369 $5,332 $5,725 The increase in the domestic loss before income taxes for the year ended December 31, 2014 was driven by transaction and financing-related costs associated with the terminated proposed combination with Shire. Refer to Note 4 for further information. Income Taxes years ended December 31 (in millions) Current Domestic Foreign Total current taxes Deferred Domestic Foreign Total deferred taxes Total income taxes 92 13NOV201221352027 2014 Form 10-K 2014 2013 2012 $ 634 341 $ 226 354 $ 94 252 $ 975 $ 580 $346 $(301) $ 678 (54) (79) $ 89 15 (380) 624 104 $ 595 $1,204 $450 Effective Tax Rate Reconciliation years ended December 31 Statutory tax rate State taxes, net of federal benefit Effect of foreign operations U.S. tax credits Branded prescription drug fee Valuation allowances Resolution of uncertain tax positions Non-deductible litigation loss All other, net Effective tax rate 2014 2013 2012 35.0% 35.0% 35.0% 0.1 0.3 (23.5) (11.5) (1.5) (2.7) 0.3 0.4 — 0.1 — (3.4) 0.6 — 0.3 1.0 — (11.3) (8.9) 3.7 3.6 — — 3.0 25.1% 22.6% 7.9% The effective tax rate fluctuates 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 effective tax rate in 2014, 2013 and 2012 differs from the statutory tax rate principally due to the benefit from foreign operations which reflects the impact of lower income tax rates in locations outside the United States, tax exemptions and incentives in Puerto Rico and other foreign tax jurisdictions, and business development activities together with the cost of repatriation decisions. The effective tax rate for these periods also reflects the benefit from U.S. tax credits principally related to research and development credits, the orphan drug tax credit and Puerto Rico excise tax credits. The research and development credit for 2014 was due to legislation enacted in the fourth quarter that extended the credit to December 31, 2014. The increase in the effective tax rate in 2014 was principally driven by additional expenses of $129 million related to the Branded Prescription Drug Fee, which is non-deductible, and state tax valuation allowances of $129 million as further discussed in the ‘‘Deferred Tax Assets and Liabilities’’ section following. On July 28, 2014, the Internal Revenue Service issued final rules and regulations for the Branded Prescription Drug Fee, an annual non-tax-deductible fee payable to the federal government under the Affordable Care Act based on an allocation of a company’s market share for branded prescription drugs sold to certain government programs in the prior year. The final rules accelerated the expense recognition criteria for the fee obligation from the year in which the fee is paid, to the year in which the market share used to allocate the fee is determined. This change required AbbVie and other industry participants to recognize an additional year of expense in 2014. The effective income tax rate in 2014 and 2013 reflects income tax expenses relating to current earnings outside the United States that are not deemed indefinitely reinvested. In 2012, the effective income tax rate includes the recognition of tax benefits totaling approximately $195 million as a result of favorable resolutions of various tax positions pertaining to prior years. Puerto Rico enacted legislation that assesses an excise tax beginning in 2011 on certain products manufactured in Puerto Rico. The tax is levied on gross inventory purchases from entities in Puerto Rico and is included in cost of products sold in the consolidated statements of earnings. The majority of the tax is creditable for U.S. income tax purposes. 2014 Form 10-K 13NOV201221352027 93 Deferred Tax Assets and Liabilities as of December 31 (in millions) Deferred tax assets Compensation and employee benefits Accruals and reserves Chargebacks and rebates Deferred revenue Depreciation State income taxes Other Net operating losses and other credit carryforwards Total deferred tax assets Valuation allowances Total net deferred tax assets Deferred tax liabilities Excess of book basis over tax basis of intangible assets Repatriation of foreign earnings Total deferred tax liabilities Net deferred tax asset 2014 2013 $ 627 376 297 382 53 62 230 125 $ 279 252 333 348 64 67 122 115 2,152 (172) 1,580 (43) $1,980 $ 1,537 $ (331) $ (508) (606) (326) $ (657) $(1,114) $1,323 $ 423 Gross federal net operating loss carryforwards as of December 31, 2014 were $19 million and are available for use through 2030. Gross state net operating loss and tax credit carryforwards as of December 31, 2014 were $1.1 billion and $91 million, respectively. The state tax carryforwards expire in periods between 2017 and 2034. As of December 31, 2014, foreign net operating loss carryforwards were $113 million. The majority of the foreign loss carryforwards do not have an expiration period. As of December 31, 2014 and 2013, the company had valuation allowances of $172 million and $43 million, respectively, principally related to state net operating losses and credit carryforwards that are not expected to be realized. Deferred income taxes have not been provided on approximately $23 billion of the undistributed earnings of foreign subsidiaries as these earnings have been indefinitely reinvested for continued use in foreign operations. Due to the complexities in tax laws and assumptions that would have to be made, it is not practicable to estimate the amount of income taxes that would be due if these earnings were distributed. Unrecognized Tax Benefits years ended December 31 (in millions) Balance as of January 1 Increase due to current year tax positions Increase due to prior year tax positions Decrease due to prior year tax positions Settlements Lapse of statutes of limitations Separation-related adjustments Balance as of December 31 94 13NOV201221352027 2014 Form 10-K 2014 2013 2012 $ 1,140 $247 195 115 — 67 — (6) — — — (2) — (1,088) $1,039 370 1 (220) (50) — — $421 $ 247 $1,140 AbbVie and Abbott entered into a tax sharing agreement, effective on the date of separation, which provides that Abbott is liable for and has indemnified AbbVie against all income tax liabilities for periods prior to the separation. The table above reflects the 2013 reduction of $1.1 billion relating to tax periods prior to the separation for which Abbott is the primary obligor. However, under U.S. Treasury Regulations, each member of a consolidated group is severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Accordingly, with respect to periods in which AbbVie was included in Abbott’s consolidated group, AbbVie could be liable to the U.S. government for any U.S. federal income tax liability incurred by the consolidated group, to the extent not discharged by any other member. However, if any such liability were imposed, AbbVie would be entitled to be indemnified by Abbott pursuant to the tax sharing agreement. AbbVie will be responsible for unrecognized tax benefits and related interest and penalties for periods after separation or in instances where an existing entity was transferred to AbbVie upon separation. As a result, AbbVie has continued to account for these tax uncertainties. To the extent that these obligations relate to periods prior to the separation, a reimbursement receivable of approximately $41 million has been recorded within other assets at December 31, 2014. If recognized, the net amount of potential tax benefits that would impact the company’s effective tax rate is $389 million and $218 million in 2014 and 2013, respectively. The company is routinely audited by the tax authorities in significant jurisdictions, and a number of audits are currently underway. It is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. Due to the potential for resolution of federal, state, and foreign examinations, and the expiration of various statutes of limitation, the company’s gross unrecognized tax benefits balance may change within the next twelve months up to $31 million. All significant federal, state, local, and international matters have been concluded for years through 2005. The company believes adequate provision has been made for all income tax uncertainties. AbbVie recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. The amounts expensed and the liabilities accrued are immaterial as of and for the years ended December 31, 2014, 2013, and 2012. Uncertain tax positions are generally included as a long-term liability on the consolidated balance sheets. Note 14 Legal Proceedings and Contingencies ..................................................................................................................................................................................................................................................................................................................................................... Subject to certain exceptions specified in the separation agreement, AbbVie assumed the liability for, and control of, all pending and threatened legal matters related to its business, including liabilities for any claims or legal proceedings related to products that had been part of its business but were discontinued prior to the distribution, as well as assumed or retained liabilities, and will indemnify Abbott for any liability arising out of or resulting from such assumed legal matters. AbbVie is involved in various claims, legal proceedings and investigations, including those described below. The recorded accrual balance for litigation at December 31, 2014 was not significant. Within the next year, other legal proceedings may occur that may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to predict the outcome of all other proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on AbbVie’s consolidated financial position, cash flows, or results of operations. Several pending lawsuits filed against Unimed Pharmaceuticals, Inc., Solvay Pharmaceuticals, Inc. (a company Abbott acquired in February 2010 and now known as AbbVie Products LLC) and others were consolidated for pre-trial purposes in the United States District Court for the Northern District of Georgia under the Multi-District Litigation Rules as In re AndroGel Antitrust Litigation, MDL No. 2084. These cases, brought by private plaintiffs and the Federal Trade Commission (FTC), generally allege Solvay’s 2006 patent litigation involving AndroGel was sham litigation and the patent litigation settlement agreement and related 2014 Form 10-K 13NOV201221352027 95 agreements with three generic companies violate federal and state antitrust laws and state consumer protection and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys’ fees. MDL 2084 includes: (a) three individual plaintiff lawsuits; (b) seven purported class actions; and (c) Federal Trade Commission v. Watson Pharmaceuticals, Inc. et al., filed in May 2009 in the United States District Court for the Northern District of Georgia. Following the district court’s dismissal of all plaintiffs’ claims, appellate proceedings led to the reinstatement of the claims regarding the patent litigation settlement, which are proceeding in discovery in the district court. In September 2014, the Federal Trade Commission (FTC) filed suit in the United States District Court for the Eastern District of Pennsylvania against AbbVie and others, alleging that 2011 patent litigation with two generic companies regarding AndroGel was sham litigation and the patent litigation settlement with one of those generic companies violates federal antitrust laws. The FTC’s complaint seeks monetary damages and injunctive relief. In August 2013, a putative class action lawsuit, Sidney Hillman Health Center of Rochester, et al. v. AbbVie Inc., et al., was filed against AbbVie in the United States District Court for the Northern District of Illinois by three healthcare benefit providers alleging violations of federal RICO statutes and state deceptive business practice and unjust enrichment laws in connection with reimbursements for certain uses of Depakote from 1998 to 2012. Plaintiffs seek monetary damages and/or equitable relief and attorneys’ fees. On August 14, 2014, the district court dismissed all of the plaintiffs’ claims with prejudice. Plaintiffs have appealed the district court’s decision to the United States Court of Appeals for the Seventh Circuit, where the matter is currently pending. Lawsuits have been filed against AbbVie and others generally alleging that the 2005 patent litigation settlement involving Niaspan(cid:2) entered into between Kos Pharmaceuticals, Inc. (a company acquired by Abbott Laboratories in 2006 and presently a subsidiary of AbbVie) and a generic company violates federal and state antitrust laws and state unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys’ fees. In September 2013, all of these pending putative class action lawsuits were centralized for consolidated or coordinated pre-trial proceedings in the United States District Court for the Eastern District of Pennsylvania under the Multi- District Litigation Rules as In re Niaspan Antitrust Litigation, MDL No. 2460. In November 2007, GlaxoSmithKline filed a lawsuit against Abbott Laboratories in the United States District Court for the Northern District of California alleging that Abbott violated antitrust laws in connection with the 2003 Norvir re-pricing. In March 2011, a jury found that Abbott did not violate antitrust laws, but breached its license agreement with the plaintiff. In January 2014, a 3-judge panel of the United States Court of Appeals for the Ninth Circuit reversed this verdict and remanded the case for a new trial due to the alleged improper exclusion of a potential juror. The case has been returned to the trial court for further proceedings. AbbVie assumed the liability for and control of this proceeding in connection with its separation from Abbott. AbbVie is seeking to enforce its patent rights relating to testosterone gel (a drug AbbVie sells under the trademark AndroGel(cid:2) 1.62%). In a case filed in the United States District Court for the District of Delaware in February 2013, AbbVie alleges that Perrigo Company’s and Perrigo Israel Pharmaceutical Ltd.’s proposed generic product infringes AbbVie patents and seeks declaratory and injunctive relief. In a second case filed in the United States District Court for the District of Delaware in March 2013, AbbVie alleges that Watson Laboratories Inc.’s and Actavis Inc.’s proposed generic product infringes AbbVie’s patents and seeks declaratory and injunctive relief. In November 2014, AbbVie, Watson and Actavis entered into a confidential settlement and license agreement. The litigation was dismissed by stipulation of the parties. AbbVie is seeking to enforce its patent rights relating to ritonavir/lopinavir tablets (a drug AbbVie sells under the trademark Kaletra(cid:2)). In a case filed in the United States District Court for the Northern District of Illinois in March 2009, AbbVie alleges that Matrix Laboratories, Inc.’s, Matrix Laboratories, Ltd.’s, and Mylan, Inc.’s proposed generic products infringe AbbVie’s patents and seeks declaratory and injunctive relief. 96 13NOV201221352027 2014 Form 10-K Upon Matrix’s motion in November 2009, the court granted a five-year stay of the litigation unless good cause to lift the stay is shown. On July 1, 2014, the stay was lifted pursuant to the original terms of the court order entered in 2009. AbbVie is seeking to enforce its patent rights relating to ritonavir tablets (a drug AbbVie sells under the trademark Norvir(cid:2)). In a case pending in the United States District Court for the Southern District of Ohio since April 2012, AbbVie alleges that Roxane Laboratories, Inc.’s (Roxane) proposed generic product infringes AbbVie’s patents and seeks declaratory and injunctive relief. In another case filed in the United States District Court for the Southern District of Ohio in July 2013, AbbVie alleges that Roxane’s proposed generic ritonavir product infringes additional AbbVie patents and seeks declaratory and injunctive relief on these additional patents. In September 2014, AbbVie and Roxane entered into a settlement and license agreement, the date of which license is confidential. The parties entered into a stipulation to dismiss the Ohio litigation. In a separate case filed in the United States District Court for the District of Delaware in May 2013, AbbVie alleges that Hetero USA Inc.’s and Hetero Labs Limited’s proposed generic ritonavir tablets product infringes AbbVie’s patents and seeks declaratory and injunctive relief. In November 2014, AbbVie and Hetero entered into a confidential settlement and license agreement and the litigation was dismissed by stipulation of the parties. In a separate case filed in the United States District Court for the District of Delaware in July 2014, AbbVie alleges that Aurobindo Pharma Limited and Aurobindo Pharma USA Inc.’s proposed generic ritonavir tablets product infringes AbbVie’s patents and seeks declaratory and injunctive relief. In December 2014, AbbVie and Aurobindo entered into a confidential settlement and license agreement and the litigation was dismissed by stipulation of the parties. In a separate case filed in the United States District Court for the District of Delaware in October 2014, AbbVie alleges that Mylan Pharmaceutical Inc.’s proposed generic ritonavir tablets product infringes AbbVie’s patents and seeks declaratory and injunctive relief. AbbVie is seeking to enforce certain patent rights that cover the use of fully human anti-TNF alpha antibodies with methotrexate to treat rheumatoid arthritis. In a case filed in the United States District Court for the District of Massachusetts in May 2009, AbbVie alleges Centocor Ortho Biotech, Inc.’s (now Janssen Biotech, Inc.’s) product Simponi(cid:2) infringes AbbVie’s patents and seeks damages and injunctive relief. In December 2014, the parties entered into a settlement and license agreement, the terms of which are confidential. The litigation was dismissed with prejudice. In November 2014, five individuals filed a putative class action lawsuit on behalf of purchasers and sellers of certain Shire plc securities between June 20 and October 14, 2014, against AbbVie and its chief executive officer in the United States District Court for the Northern District of Illinois alleging that the defendants made and/or are responsible for material misstatements in violation of federal securities laws in connection with AbbVie’s proposed transaction with Shire. The complaint seeks unspecified monetary damages and injunctive relief. In November 2014, a putative class action lawsuit, Medical Mutual of Ohio v. AbbVie Inc., et al., was filed against several manufacturers of testosterone replacement therapies (‘‘TRTs’’), including AbbVie, in the United States District Court for the Northern District of Illinois on behalf of all insurance companies, health benefit providers, and other third-party payors who paid for TRTs, including AndroGel. The claims asserted include violations of the federal Racketeer Influenced and Corrupt Organizations Act and state consumer fraud and deceptive trade practices laws. The complaint seeks unspecified monetary and injunctive relief. In December 2014, a shareholder derivative lawsuit, Plumbers & Steamfitters Local 60 Pension Plans v. J.P. Morgan Securities LLC, et al., was filed in Delaware Chancery Court, alleging that AbbVie’s directors breached their fiduciary duties in connection with the Shire transaction approval and termination. The lawsuit seeks unspecified compensatory damages for AbbVie, among other relief. 2014 Form 10-K 13NOV201221352027 97 Note 15 Segment and Geographic Area Information ..................................................................................................................................................................................................................................................................................................................................................... AbbVie operates in one business segment—pharmaceutical products. Substantially all of AbbVie’s U.S. sales are to three wholesalers. Outside the United States, products are sold primarily to health care providers or through distributors, depending on the market served. Worldwide net sales of key products were as follows: years ended December 31 (in millions) 2014 2013 2012 HUMIRA AndroGel Kaletra Synagis Lupron Synthroid Sevoflurane Creon Dyslipidemia products Duodopa VIEKIRA All other Net sales $12,543 934 870 835 778 709 550 516 328 220 48 1,629 $10,659 1,035 962 827 785 622 568 412 1,076 178 — 1,666 $ 9,265 1,152 1,013 825 800 551 602 353 2,145 149 — 1,525 $19,960 $18,790 $18,380 Net sales to external customers, based on the country that sold the product, were as follows: years ended December 31 (in millions) United States Germany The Netherlands United Kingdom France Japan Canada Spain Brazil Italy All other countries Net sales 2014 2013 2012 $10,845 1,035 969 722 584 581 551 534 435 432 3,272 $10,181 911 858 606 540 625 538 543 439 404 3,145 $10,435 756 776 552 500 718 500 525 434 408 2,776 $19,960 $18,790 $18,380 Long-lived assets include net property and equipment of $2.5 billion and $2.3 billion as of December 31, 2014 and 2013, of which $1.8 billion and $1.6 billion, respectively, was located in the United States and Puerto Rico and $551 million and $591 million, respectively, was located in Europe. 98 13NOV201221352027 2014 Form 10-K Note 16 Quarterly Financial Data (unaudited) ..................................................................................................................................................................................................................................................................................................................................................... (in millions except per share data) First Quarter Net sales Gross margin Net earnings Basic earnings per share Diluted earnings per share Cash dividends declared per common share Second Quarter Net sales Gross margin Net earnings Basic earnings per share Diluted earnings per share Cash dividends declared per common share Third Quarter Net sales Gross margin Net earnings Basic earnings per share Diluted earnings per share Cash dividends declared per common share Fourth Quarter Net sales Gross margin Net (loss) earnings Basic (loss) earnings per share Diluted (loss) earnings per share Cash dividends declared per common share 2014 2013 $4,563 3,463 980 0.61 0.61 0.42 $4,926 3,813 1,098 0.69 0.68 0.42 $5,019 3,925 506 0.32 0.31 0.42 $5,452 4,333 (810) (0.51) (0.51) 0.49 (b) (c) (c) $4,329 3,176 968 0.61 0.60 0.80(a) $4,692 3,638 1,068 0.67 0.66 0.40 $4,658 3,566 964 0.60 0.60 0.40 $5,111 3,829 1,128 0.70 0.70 0.40 (a) On January 4, 2013, a cash dividend of $0.40 per share of common stock was declared from pre-separation earnings and was recorded as a reduction of additional paid-in capital. Refer to Note 12 for additional information regarding cash dividends declared in 2013. (b) Results for the fourth quarter of 2014 include transaction and financing-related and other costs incurred in connection with the terminated proposed combination with Shire, a $750 million after-tax charge related to a research and development collaboration agreement with Calico, and a $173 million after-tax charge as a result of entering into a global collaboration with Infinity. Refer to Notes 4 and 6 for further information relating to the termination of the proposed combination with Shire and the collaborations with Calico and Infinity, respectively. (c) Basic loss per share for the fourth quarter of 2014 was calculated under the treasury-stock method as it was more dilutive. Approximately 36 million common shares were excluded from the computation of diluted (loss) per share assuming dilution because the effect would have been anti-dilutive. 2014 Form 10-K 13NOV201221352027 99 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of AbbVie Inc. We have audited the accompanying consolidated balance sheet of AbbVie Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of earnings, comprehensive income, equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AbbVie Inc. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AbbVie Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Chicago, Illinois February 20, 2015 100 13NOV201221352027 2014 Form 10-K REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of AbbVie Inc.: We have audited the accompanying combined statements of earnings, comprehensive income, equity and cash flows of AbbVie Inc. and subsidiaries (the ‘‘Company’’) for the year ended December 31, 2012. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, the accompanying combined financial statements have been derived from the consolidated financial statements and accounting records of Abbott Laboratories. The combined financial statements also include expense allocations for certain corporate functions historically provided by Abbott Laboratories. These allocations may not be reflective of the actual expense which would have been incurred had the Company operated as a separate entity apart from Abbott Laboratories. /s/ Deloitte & Touche LLP Chicago, Illinois March 15, 2013 2014 Form 10-K 13NOV201221352027 101 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ..................................................................................................................................................................................................................................................................................................................................................... None. ITEM 9A. CONTROLS AND PROCEDURES ..................................................................................................................................................................................................................................................................................................................................................... Disclosure Controls and Procedures Evaluation of disclosure controls and procedures. The Chief Executive Officer, Richard A. Gonzalez, and the Chief Financial Officer, William J. Chase, evaluated the effectiveness of AbbVie’s disclosure controls and procedures as of the end of the period covered by this report, and concluded that AbbVie’s disclosure controls and procedures were effective to ensure that information AbbVie is required to disclose in the reports that it files or submits with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by AbbVie in the reports that it files or submits under the Exchange Act is accumulated and communicated to AbbVie’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal Control Over Financial Reporting Management’s annual report on internal control over financial reporting. Management’s report on internal control over financial reporting is included on page 103 hereof. The report of AbbVie’s independent registered public accounting firm related to its assessment of the effectiveness of internal control over financial reporting is included on page 104 hereof. Changes in internal control over financial reporting. As part of its separation from Abbott, AbbVie began a phased global implementation of a new enterprise resource planning system, related technology infrastructure and transaction processing services to replace the information technology infrastructure and transactional services provided to AbbVie by Abbott under various transition services agreements. These initiatives, which are expected to be completed in 2015, will include modifications to the design and operation of controls over financial reporting. AbbVie reviews these controls for design effectiveness prior to the implementation of each phase. There were no other changes in AbbVie’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, AbbVie’s internal control over financial reporting during the quarter ended December 31, 2014. Inherent Limitations on Effectiveness of Controls. AbbVie’s management, including its Chief Executive Officer and its Chief Financial Officer, do not expect that AbbVie’s disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. ITEM 9B. OTHER INFORMATION ..................................................................................................................................................................................................................................................................................................................................................... None. 102 13NOV201221352027 2014 Form 10-K Management’s Report on Internal Control over Financial Reporting Management of AbbVie is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. AbbVie’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting. Management assessed the effectiveness of AbbVie’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on that assessment, management concluded that AbbVie maintained effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria. The effectiveness of AbbVie’s internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report appearing on page 104 hereof, which expresses an unqualified opinion on the effectiveness of AbbVie’s internal control over financial reporting as of December 31, 2014. 2014 Form 10-K 13NOV201221352027 103 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of AbbVie Inc. We have audited AbbVie Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). AbbVie Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, AbbVie Inc. and subsidiaries’ maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2014 and 2013, and the related consolidated statements of earnings, comprehensive income, equity and cash flows for the years then ended, and our report dated February 20, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Chicago, Illinois February 20, 2015 104 13NOV201221352027 2014 Form 10-K PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ..................................................................................................................................................................................................................................................................................................................................................... Incorporated herein by reference are ‘‘Information Concerning Director Nominees,’’ ‘‘The Board of Directors and its Committees—Committees of the Board of Directors,’’ ‘‘Section 16(a) Beneficial Ownership Reporting Compliance,’’ and ‘‘Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting’’ to be included in the 2015 AbbVie Inc. Proxy Statement. The 2015 Proxy Statement will be filed on or about March 20, 2015. Also incorporated herein by reference is the text found under the caption, ‘‘Executive Officers of the Registrant’’ on pages 27 and 28 hereof. AbbVie’s code of business conduct requires all its business activities to be conducted in compliance with laws, regulations, and ethical principles and values. All directors, officers, and employees of AbbVie are required to read, understand, and abide by the requirements of the code of business conduct applicable to them. AbbVie’s code of business conduct is available in the corporate governance section of AbbVie’s investor relations website at www.abbvieinvestor.com. Any waiver of the code of business conduct for directors or executive officers may be made only by AbbVie’s audit committee. AbbVie will disclose any amendment to, or waiver from, a provision of the code of conduct for the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on its website within four business days following the date of the amendment or waiver. In addition, AbbVie will disclose any waiver from the code of business conduct for the other executive officers and for directors on the website. AbbVie has a chief ethics and compliance officer who reports to the chief executive officer and to the public policy committee. The chief ethics and compliance officer is responsible for overseeing, administering, and monitoring AbbVie’s compliance program. ITEM 11. EXECUTIVE COMPENSATION ..................................................................................................................................................................................................................................................................................................................................................... The material to be included in the 2015 Proxy Statement under the headings ‘‘Director Compensation,’’ ‘‘Executive Compensation,’’ and ‘‘Compensation Committee Report’’ is incorporated herein by reference. The 2015 Proxy Statement will be filed on or about March 20, 2015. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ..................................................................................................................................................................................................................................................................................................................................................... (a) Equity Compensation Plan Information. The following table presents information as of December 31, 2014 about AbbVie’s equity compensation plans under which AbbVie common stock has been authorized for issuance. Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) 39,352,086 — 39,352,086 (b) Weighted- average exercise price of outstanding options, warrants and rights(2) $28.53 — $28.53 (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 91,010,677 — 91,010,677 2014 Form 10-K 13NOV201221352027 105 (1) Includes 28,203,371 shares issuable under AbbVie’s Incentive Stock Program pursuant to awards granted by Abbott and adjusted into AbbVie awards in connection with AbbVie’s separation from Abbott. (2) The weighted-average exercise price does not include outstanding restricted stock units and restricted stock awards that have no exercise price. (b) Information Concerning Security Ownership. Incorporated herein by reference is the material under the heading ‘‘Securities Ownership—Securities Ownership of Executive Officers and Directors’’ in the 2015 Proxy Statement. The 2015 Proxy Statement will be filed on or about March 20, 2015. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR ..................................................................................................................................................................................................................................................................................................................................................... INDEPENDENCE The material to be included in the 2015 Proxy Statement under the headings ‘‘The Board of Directors and its Committees,’’ ‘‘Corporate Governance Materials,’’ and ‘‘Procedures for Approval of Related Person Transactions’’ is incorporated herein by reference. The 2015 Proxy Statement will be filed on or about March 20, 2015. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ..................................................................................................................................................................................................................................................................................................................................................... The material to be included in the 2015 Proxy Statement under the headings ‘‘Audit Fees and Non-Audit Fees’’ and ‘‘Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm’’ is incorporated herein by reference. The 2015 Proxy Statement will be filed on or about March 20, 2015. 106 13NOV201221352027 2014 Form 10-K PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ..................................................................................................................................................................................................................................................................................................................................................... (a) Documents filed as part of this Form 10-K. (1) Financial Statements: See Item 8, ‘‘Financial Statements and Supplementary Data,’’ on page 56 hereof, for a list of financial statements. (2) Financial Statement Schedules: All schedules omitted are inapplicable or the information required is shown in the consolidated financial statements or notes thereto. (3) Exhibits Required by Item 601 of Regulation S-K: The information called for by this paragraph is incorporated herein by reference to the Exhibit Index on pages 109 through 111 of this Form 10-K. (b) Exhibits filed (see Exhibit Index on pages 109 through 111). (c) Financial Statement Schedules: None applicable. 2014 Form 10-K 13NOV201221352027 107 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, AbbVie Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES AbbVie Inc. By: /s/ RICHARD A. GONZALEZ Name: Richard A. Gonzalez Title: Chairman of the Board and Chief Executive Officer Date: February 20, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of AbbVie Inc. on February 20, 2015 in the capacities indicated below. /s/ WILLIAM J. CHASE William J. Chase Executive Vice President, Chief Financial Officer (Principal Financial Officer) /s/ ROXANNE S. AUSTIN Roxanne S. Austin Director of AbbVie Inc. /s/ EDWARD M. LIDDY Edward M. Liddy Director of AbbVie Inc. /s/ ROY S. ROBERTS Roy S. Roberts Director of AbbVie Inc. /s/ FREDERICK H. WADDELL Frederick H. Waddell Director of AbbVie Inc. /s/ RICHARD A. GONZALEZ Richard A. Gonzalez Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ THOMAS A. HURWICH Thomas A. Hurwich Vice President, Controller (Principal Accounting Officer) /s/ ROBERT J. ALPERN, M.D. Robert J. Alpern, M.D. Director of AbbVie Inc. /s/ WILLIAM H.L. BURNSIDE William H.L. Burnside Director of AbbVie Inc. /s/ EDWARD J. RAPP Edward J. Rapp Director of AbbVie Inc. /s/ GLENN F. TILTON Glenn F. Tilton Director of AbbVie Inc. 108 13NOV201221352027 2014 Form 10-K EXHIBIT INDEX ABBVIE INC. ANNUAL REPORT FORM 10-K 2014 Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be ‘‘filed’’ under the Securities Exchange Act of 1934. Exhibit Number 2.1 3.1 3.2 4.1 4.2 10.1 10.2 10.3 10.4 10.5 10.6 Exhibit Description *Separation and Distribution Agreement dated as of November 28, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 2.1 of Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on November 30, 2012). *Amended and Restated Certificate of Incorporation of AbbVie Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Amended and Restated By-Laws of AbbVie Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Indenture dated as of November 8, 2012 between AbbVie Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Amendment No. 5 to the Company’s Registration Statement on Form 10 filed on November 16, 2012). *Supplemental Indenture No. 1 dated as of November 8, 2012 among AbbVie Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 of Amendment No. 5 to the Company’s Registration Statement on Form 10 filed on November 16, 2012). *U.S. Transition Services Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Ex-U.S. Transition Services Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Tax Sharing Agreement entered into as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Special Products Master Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Employee Matters Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on January 2, 2013). *Information Technology Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed on January 2, 2013). 10.11 *Transitional Trademark License Agreement dated as of December 31, 2012 by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed on January 2, 2013). 2014 Form 10-K 13NOV201221352027 109 Exhibit Number 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 Exhibit Description *Form of Finished Goods Supply Agreements by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 2 to the Company’s Registration Statement on Form 10 filed on September 4, 2012). *Form of Contract Manufacturing Agreements by and between Abbott Laboratories and AbbVie Inc. (incorporated by reference to Exhibit 10.12 of Amendment No. 2 to the Company’s Registration Statement on Form 10 filed on September 4, 2012). *Form of Agreement Regarding Change in Control by and between AbbVie Inc. and its named executive officers (incorporated by reference to Exhibit 10.13 of Amendment No. 5 to the Company’s Registration Statement on Form 10 filed on November 16, 2012).** *AbbVie 2013 Incentive Stock Program (incorporated by reference to Exhibit A to the AbbVie Inc. Definitive Proxy Statement on Schedule 14A dated March 15, 2013).** *AbbVie 2013 Management Incentive Plan (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *AbbVie 2013 Performance Incentive Plan (incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *AbbVie Deferred Compensation Plan (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *AbbVie Non-Employee Directors’ Fee Plan (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *AbbVie Supplemental Pension Plan (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *AbbVie Supplemental Savings Plan (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K filed on March 15, 2013).** *Purchase Agreement dated November 5, 2012 between AbbVie Inc., Abbott Laboratories, as guarantor, and Morgan Stanley & Co. LLC, Barclays Capital Inc., J.P. Morgan Securities LLC, and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 10.21 of Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on November 30, 2012). *Form of AbbVie Inc. Non-Employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Form of AbbVie Inc. Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Form of AbbVie Inc. Performance Restricted Stock Agreement (CEO/Chairman) (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Form of AbbVie Inc. Performance Restricted Stock Agreement (Annual) (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** 110 13NOV201221352027 2014 Form 10-K Exhibit Number 10.27 10.28 10.29 10.30 12 21 23.1 23.2 31.1 31.2 32.1 32.2 101 Exhibit Description *Form of AbbVie Inc. Performance Restricted Stock Agreement (Interim) (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Form of AbbVie Inc. Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Form of AbbVie Inc. Non-Qualified Replacement Stock Option Agreement (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013).** *Revolving Credit Agreement, dated as of August 18, 2014, among AbbVie, New AbbVie, Foreign HoldCo, JPMorgan Chase Bank, N.A. and the lenders and other parties party thereto (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 21, 2014). Ratio of Earnings to Fixed Charges Subsidiaries of AbbVie Inc. Consent of Independent Registered Public Accounting Firm. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The following financial statements and notes from the AbbVie Inc. Annual Report on Form 10-K for the year ended December 31, 2014 filed on February 20, 2015, formatted in XBRL: (i) Consolidated Statements of Earnings; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The AbbVie Inc. 2015 Proxy Statement will be filed with the Securities and Exchange Commission under separate cover on or about March 20, 2015. * Incorporated herein by reference. Commission file number 001-35565. ** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. AbbVie will furnish copies of any of the above exhibits to a stockholder upon written request to the Secretary, AbbVie Inc., 1 North Waukegan Road, North Chicago, Illinois 60064. 2014 Form 10-K 13NOV201221352027 111 (This page has been left blank intentionally.) 13NOV201221352027 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 14FEB201503004075 Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 8, 2015 The Annual Meeting of the Stockholders of AbbVie Inc. will be held at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601, on Friday, May 8, 2015, at 9:00 a.m. CT for the following purposes: • • • • To elect 3 directors to hold office until the next Annual Meeting or until their successors are elected (Item 1), To ratify the appointment of Ernst & Young LLP as AbbVie’s independent registered public accounting firm for 2015 (Item 2), To vote on an advisory vote on the approval of executive compensation (Item 3), and To transact such other business as may properly come before the meeting. Your Vote Is Important Please promptly vote your shares by telephone, using the Internet, or by signing and returning your proxy in the enclosed envelope if you received a printed version. The board of directors recommends that you vote FOR Items 1, 2, and 3 on the proxy card. The close of business on March 11, 2015, has been fixed as the record date for determining the stockholders entitled to receive notice of and to vote at the Annual Meeting. AbbVie’s 2015 Proxy Statement and 2014 Annual Report on Form 10-K are available at www.abbvieinvestor.com. If you are a registered stockholder, you may access your proxy card by either: • • Going to the following website: www.proxyvote.com, entering the information requested on your computer screen and following the simple instructions, or Calling (in the United States, U.S. territories, and Canada) toll free 1-800-690-6903 on a touch-tone telephone and following the simple instructions provided by the recorded message. Admission to the meeting will be by admission card only. If you plan to attend, please complete and return the reservation form in the back of these materials and an admission card will be sent to you. Due to space limitations, reservation forms must be received before May 1, 2015. Each admission card, along with photo identification, admits one person. A stockholder may request two admission cards, but a guest must be accompanied by a stockholder. By order of the board of directors. Laura J. Schumacher Secretary March 20, 2015 13NOV201221352027 PROXY STATEMENT 14FEB201503004427 Table of Contents Proxy Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information about the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Who Can Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notice and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voting by Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revoking a Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discretionary Voting Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quorum and Vote Required to Approve Each Item on the Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of Broker Non-Votes and Abstentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inspectors of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Soliciting Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AbbVie Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information Concerning Director Nominees (Item 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Board of Directors and its Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communicating with the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 Outstanding Equity Awards at Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ratification of Ernst & Young LLP as AbbVie’s Independent Registered Public Accounting Firm (Item 2) . . . . . . . . . Audit Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Say on Pay—Advisory Vote on the Approval of Executive Compensation (Item 3) . . . . . . . . . . . . . . . . . . . . . . . . Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 5 5 5 5 5 6 6 6 6 6 6 7 11 14 15 17 19 19 32 32 33 37 38 40 40 44 44 48 49 50 51 52 13NOV201221352027 PROXY STATEMENT SUMMARY 14FEB201503004602 The accompanying proxy is solicited on behalf of the board of directors for use at the Annual Meeting of Stockholders. The meeting will be held on May 8, 2015, at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601. This summary highlights selected information in the Proxy Statement. Please review the entire Proxy Statement and the AbbVie 2014 Annual Report before voting. 2015 Annual Meeting of Stockholders ................................................................................................................................................................................................................................................................................................................................................................................................ Date and Time: May 8, 2015 9:00 a.m. CT Location: Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601 Record Date: March 11, 2015 How to Vote: Stockholders as of the record date are entitled to vote via Internet at www.proxyvote.com; by telephone at 1-800-690-6903; by returning a completed proxy card; or in person at the Annual Meeting of Stockholders. Voting Items and Board Recommendations ................................................................................................................................................................................................................................................................................................................................................................................................ Item 1 Item 2 Item 3 Election of Directors Ratification of Independent Auditor Say on Pay—Advisory Vote on the Approval of Executive Compensation Board Recommendations FOR All Nominees FOR FOR Business Overview and Performance Highlights ................................................................................................................................................................................................................................................................................................................................................................................................ Business Overview. AbbVie is a global, research-based biopharmaceutical company that develops and markets advanced therapies for some of the world’s most complex and serious diseases. Our products support the treatment of conditions such as chronic autoimmune disease (including rheumatoid arthritis, psoriasis, and Crohn’s disease), hepatitis C virus (HCV), human immunodeficiency virus (HIV), endometriosis, thyroid disease, Parkinson’s disease, complications associated with cystic fibrosis, and other health conditions. Our pipeline includes more than 40 compounds or indications in development across important medical specialties such as immunology, virology/liver disease, oncology, renal disease, neurological diseases, and women’s health. 13FEB201501375473 2015 Proxy Statement 13NOV201221352027 1 PROXY STATEMENT SUMMARY Performance Highlights. In 2014, AbbVie continued to deliver on our commitment to stockholders by growing our sales and earnings, significantly increasing our quarterly dividend, and delivering top quartile returns. The measures set forth below were calculated as of December 31, 2014. 105.7% 2-year total shareholder return since 2013 incep(cid:2)on 28% total shareholder return in 2014 $49BN Increase in market cap since AbbVie launch Added significant stockholder value with a market cap over $100 billion 22.5% Increase in quarterly dividend since AbbVie launch Raised quarterly dividend to $0.49 per share from $0.40 per share at separa(cid:2)on 7.1% 5.7% 40+ Adjusted opera(cid:2)onal sales growth vs. 2013* Delivered growth a year ahead of schedule Adjusted earnings per share growth vs. 2013* Significantly outperformed original guidance to deliver 2014 adjusted EPS of $3.32/share Ac(cid:2)ve clinical development programs Most robust pipeline in company history 17MAR201515325913 *Adjusted sales and adjusted earnings per share are reported and reconciled in our Form 8-K dated January 30, 2015. Additional Highlights: • • In 2014, AbbVie delivered Humira sales of $12.5 billion, an increase of nearly 19% compared to 2013 on a constant currency basis. Humira’s performance was driven by market growth across therapeutic categories and geographies, approval of new indications, and market share gains. Sales growth also was driven by strong performance from other key brands including Synagis, Synthroid, Creon and Duodopa. In December 2014, we secured U.S. Food and Drug Administration (FDA) approval for our interferon-free HCV regimen, Viekira Pak. • With a record number of programs currently in mid- and late-stage development spanning large and growing specialty categories, in 2014 we continued to advance our compelling R&D pipeline. This includes numerous data and regulatory milestones and phase transitions. • We further enhanced our pipeline by announcing a strategic collaboration with Infinity Pharmaceuticals, Inc. to develop and commercialize duvelisib (IPI-145) for the treatment of blood cancers, and we entered into a novel R&D collaboration with Calico Life Sciences LLC, a life sciences company backed by Google Inc., to discover, develop, and bring to market new therapies for patients with age-related diseases. 13FEB201501375473 2 13NOV201221352027 2015 Proxy Statement Corporate Governance Highlights ................................................................................................................................................................................................................................................................................................................................................................................................ Our board of directors is committed to strong corporate governance tailored to meet the needs of AbbVie and its stockholders to enhance stockholder value. Highlights of our governance include: Governance Practice For more information PROXY STATEMENT SUMMARY Independent lead director with robust responsibilities is selected by the Board 8 of 9 directors are independent and regularly meet in executive session All members of the audit, compensation, nominations and governance and public policy committees are independent Policy prohibiting hedging and pledging Robust stock ownership guidelines Disclosure of our corporate political contributions and our trade association dues and oversight process Clawback authority in the event of financial restatement to recover incentive plan awards Related person transaction policy to ensure appropriate oversight We do not have a shareholder rights plan or ‘‘poison pill’’ Our directors are elected by a majority vote of our stockholders for uncontested elections and we have a resignation policy if the director fails to receive a majority of the votes cast We hold an annual say-on-pay advisory vote on executive compensation Our governance guidelines restrict the number of boards our directors may serve on to prevent overboarding Annual board and committee self-assessments and annual succession planning We are guided by strong ethics programs and supplier guidelines For inclusion on the Board, the Nominations and Governance Committee considers diversity of ethnicity, gender, and geography p. 11 p. 11 p. 12 p. 31 p. 31 http://www.abbvie.com/responsibility/ transparency-policies/corporate-political- participation.html p. 31 p. 52 Certificate of Incorporation and By-Laws p. 7 p. 51 Corporate Governance Guidelines Corporate Governance Guidelines http://www.abbvie.com/responsibility/ home.html pp. 13-14 Executive Compensation Highlights ................................................................................................................................................................................................................................................................................................................................................................................................ At AbbVie, the board believes a well-designed compensation program should align executive interests with the drivers of profitable growth and stockholder returns, support achievement of the company’s primary business goals, and attract and retain world-class executives whose talents and contributions sustain the growth in long-term stockholder value. Consequently, the compensation committee of the board has designed and implemented an executive compensation program in which a substantial majority of named executive officer (NEO) compensation at AbbVie is performance-based. When determining the compensation levels of the NEOs, the committee first considers the median of the competitive marketplace (as derived primarily from the health care peer group approved by the committee) as an initial benchmark for assessing compensation. The committee then takes into account the company’s overall performance against the financial, operating and strategic objectives that were established at the start of the performance period. Finally, specific pay determinations are made for each NEO based on his or her individual performance and contributions to the short- and long-term performance of the company. 13FEB201501375473 2015 Proxy Statement 13NOV201221352027 3 PROXY STATEMENT SUMMARY Three primary components make up AbbVie’s executive pay program: base salary, short-term incentives and long-term incentives. The structure of each component is tailored to serve a specific function and purpose. Base Salary Individual salaries are established rela(cid:2)ve to market median based on each NEO's performance, skills and experience, and internal equity Short-Term Incen(cid:2)ves Long-Term Incen(cid:2)ves Plan u(cid:2)lizes financial and non- financial goals, as well as an assessment of individual performance against strategic objec(cid:2)ves, such as: — Adjusted diluted EPS — Adjusted net sales — Adjusted income before taxes — Adjusted return on assets — Strategic and leadership goals • Long-term incen(cid:2)ve awards are granted in the form of: — Performance-vested restricted stock (75% of NEO's LTI award) — Non-qualified stock op(cid:2)ons (25% of NEO's LTI award) • Levels of awards NEOs receive vary according to plan design and performance as reviewed by our compensa(cid:2)on commi(cid:3)ee • Awards are based on historical peer and company performance, expecta(cid:2)ons for our pipeline products, and expected business, market and regulatory condi(cid:2)ons • Compensa(cid:2)on commi(cid:3)ee establishes maximum award alloca(cid:2)ons for plan par(cid:2)cipants each year as a percentage of consolidated net earnings (in addi(cid:2)on, awards are capped at 200% of target beginning in 2015) • Awards are based on LTI program goals and company business performance, as well as individual factors • Commi(cid:3)ee determines grants for each NEO based on its assessment of performance and progress against strategic milestones 9MAR201523042881 4 13NOV201221352027 2015 Proxy Statement 13FEB201501375473 INFORMATION ABOUT THE ANNUAL MEETING 14FEB201503003551 Who Can Vote Stockholders of record at the close of business on March 11, 2015 will be entitled to notice of and to vote at the Annual Meeting. As of March 11, 2015, AbbVie had 1,592,145,669 outstanding shares of common stock, which are AbbVie’s only outstanding voting securities. Each stockholder has one vote per share. Stockholders do not have the right to vote cumulatively in electing directors. Notice and Access In accordance with the Securities and Exchange Commission (SEC) e-proxy rules, AbbVie mailed a Notice of Internet Availability of Proxy Materials (the ‘‘Notice’’) to stockholders in March 2015. The Notice describes the matters to be considered at the Annual Meeting and how stockholders can access the proxy materials online. It also provides instructions on how stockholders can vote their shares. If you received the Notice, you will not receive a printed version of the proxy materials unless you request one. If you would like to receive a printed version of the proxy materials, free of charge, please follow the instructions on the Notice. Voting by Proxy AbbVie’s stockholders may vote their shares by telephone, the Internet, or at the Annual Meeting. If you vote by telephone or the Internet, you do not need to return your proxy card. The instructions for voting can be found on the Notice, on the website listed in the Notice, and, if you received one, on your proxy card. If you requested a printed version of the proxy card, you may also vote by mail. Revoking a Proxy You may revoke your proxy by voting in person at the Annual Meeting or, at any time prior to the meeting: • • • by delivering a written notice to the secretary of AbbVie, by delivering an authorized proxy with a later date, or by voting by telephone or the Internet after you have given your proxy. Discretionary Voting Authority Unless authority is withheld in accordance with the instructions on the proxy, the persons named in the proxy will vote the shares of AbbVie common stock covered by proxies they receive to elect the 3 nominees named in Item 1 on the proxy card. If a nominee becomes unavailable to serve, the shares will be voted for a substitute designated by the board of directors or for fewer than 3 nominees if, in the judgment of the proxy holders, such action is necessary or desirable. Where a stockholder has specified a choice for or against the ratification of the appointment of Ernst & Young LLP as AbbVie’s independent registered public accounting firm or the advisory vote on the approval of executive compensation, the shares of AbbVie common stock represented by the proxy will be voted (or not voted) as specified. Where no choice has been specified, the proxy will be voted FOR the ratification of Ernst & Young LLP as auditors and FOR the approval of executive compensation. The board of directors is not aware of any other issue which may properly be brought before the meeting. If other matters are properly brought before the meeting, the accompanying proxy will be voted in accordance with the judgment of the proxy holders. 2015 Proxy Statement 13NOV201221352027 5 INFORMATION ABOUT THE ANNUAL MEETING Quorum and Vote Required to Approve Each Item on the Proxy A majority of the outstanding shares entitled to vote generally in the election of directors, represented in person or by proxy, constitutes a quorum. The affirmative vote of a majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the stockholders with respect to that matter. Effect of Broker Non-Votes and Abstentions A proxy submitted by an institution such as a broker or bank that holds shares for the account of a beneficial owner may indicate that all or a portion of the shares represented by that proxy are not being voted with respect to a particular matter. This could occur, for example, when the broker or bank is not permitted to vote those shares in the absence of instructions from the beneficial owner of the stock. These ‘‘non-voted shares’’ will be considered shares not present and, therefore, not entitled to vote on those matters, although these shares may be considered present and entitled to vote for other purposes. Brokers and banks have discretionary authority to vote shares in the absence of instructions on matters the New York Stock Exchange considers ‘‘routine,’’ such as the ratification of the appointment of the auditors. They do not have discretionary authority to vote shares in absence of instructions on ‘‘non-routine’’ matters. The election of directors and the advisory vote on the approval of executive compensation are considered ‘‘non- routine’’ matters. Non-voted shares will not affect the determination of the outcome of the vote on any matter to be decided at the meeting. Shares represented by proxies that are present and entitled to vote on a matter but which have elected to abstain from voting on that matter, other than the election of directors, will have the effect of votes against that matter. Inspectors of Election The inspectors of election and the tabulators of all proxies, ballots, and voting tabulations that identify stockholders are independent and are not AbbVie employees. Cost of Soliciting Proxies AbbVie will bear the cost of making solicitations from its stockholders and will reimburse banks and brokerage firms for out-of-pocket expenses incurred in connection with this solicitation. Proxies may be solicited by mail, telephone, Internet, or in person by directors, officers, or employees of AbbVie and its subsidiaries. AbbVie has retained Georgeson Inc. to aid in the solicitation of proxies, at an estimated cost of $19,500 plus reimbursement for reasonable out-of-pocket expenses. AbbVie Savings Plan Participants in the AbbVie Savings Plan will receive a voting instruction card for their shares of AbbVie common stock held in the AbbVie Savings Plan Trust. The Trust is administered by both a trustee and an investment committee. The trustee is Mercer Trust Company. The members of the investment committee are Amarendra Duvvur, William H.S. Preece and Michael J. Thomas, employees of AbbVie. The voting power with respect to the shares is held by and shared between the investment committee and the participants. The investment committee must solicit voting instructions from the participants and follow the voting instructions it receives. The investment committee may use its own discretion with respect to those shares of AbbVie common stock for which no voting instructions are received. Corporate Governance Materials AbbVie’s corporate governance guidelines with the outline of directorship qualifications; director independence guidelines; code of business conduct; and audit committee, compensation committee, nominations and governance committee, and public policy committee charters are all available in the corporate governance section of AbbVie’s investor relations website at www.abbvieinvestor.com. 6 13NOV201221352027 2015 Proxy Statement INFORMATION CONCERNING DIRECTOR NOMINEES (ITEM 1) 14FEB201503003896 The board of directors consists of three classes with each class currently comprised of three directors. Directors of one class are elected each year for a term of three years. The Class III directors are presented for re-election to hold office until the expiration of their term at the 2018 annual meeting of stockholders and until their successors are elected and qualified or until their earlier death or resignation. Directors are elected by stockholders if a majority of the votes cast are ‘‘for’’ a director’s re-election at the Annual Meeting, excluding abstentions and broker non-votes. For more information on the director majority vote standard, see AbbVie’s By-Laws as listed as an exhibit to AbbVie’s 2014 Annual Report on Form 10-K. Class III—Directors Whose Terms Expire in 2015 ................................................................................................................................................................................................................................................................................................................................................................................................ Roxanne S. Austin President, Austin Investment Advisors Ms. Austin is president of Austin Investment Advisors, a private investment and consulting firm, a position she has held since 2004. From July 2009 through July 2010, Ms. Austin also served as the president and chief executive officer of Move Networks, Inc., a provider of Internet television services. Ms. Austin previously served as president and chief operating officer of DIRECTV, Inc. Ms. Austin also previously served as executive vice president and chief financial officer of Hughes Electronics Corporation and as a partner of Deloitte & Touche LLP. Ms. Austin is also a director of Abbott Laboratories, Target Corporation, Teledyne Technologies, Inc. and Telefonaktiebolaget LM Ericsson. Through her extensive management and operating roles, including her financial roles, Ms. Austin contributes significant oversight and leadership experience, including financial expertise and knowledge of financial statements, corporate finance and accounting matters. 17JAN201314185859 Committees: Audit Compensation Director since: 2013 Age: 54 15MAR201411192791 Director since: 2013 Age: 61 Richard A. Gonzalez Chairman of the Board and Chief Executive Officer, AbbVie Inc. Mr. Gonzalez is the chairman and chief executive officer of AbbVie. He served as Abbott’s executive vice president of the pharmaceutical products group from July 2010 to December 2012, and was responsible for Abbott’s worldwide pharmaceutical business, including commercial operations, research and development, and manufacturing. He also served as president, Abbott Ventures Inc., Abbott’s medical technology investment arm, from 2009 to 2011. Mr. Gonzalez joined Abbott in 1977 and held various management positions before briefly retiring in 2007, including: Abbott’s president and chief operating officer; president, chief operating officer of Abbott’s Medical Products Group; senior vice president and president of Abbott’s former Hospital Products Division (now Hospira, Inc.); vice president and president of Abbott’s Health Systems Division; and divisional vice president and general manager for Abbott’s Diagnostics Operations in the United States and Canada. As a result of his service as Abbott’s executive vice president, Pharmaceutical Products Group since July 2010, his previous service as Abbott’s president and chief operating officer and his more than 30-year career at Abbott, Mr. Gonzalez has developed valuable business, management and leadership experience, as well as extensive knowledge of AbbVie and its global operations. Mr. Gonzalez’s experience and knowledge enable him to contribute to AbbVie’s board key insights into strategic, management, and operational matters. 2015 Proxy Statement 13NOV201221352027 7 INFORMATION CONCERNING DIRECTOR NOMINEES Glenn F. Tilton 17JAN201314185103 Committees: Compensation Nominations & Governance Director since: 2013 Age: 66 Retired Chairman and Chief Executive Officer of the UAL Corporation Mr. Tilton was chairman of the Midwest for JPMorgan Chase & Co. from 2011 until his retirement in 2014. From October 2010 to December 2012, Mr. Tilton also served as the non-executive chairman of the board of United Continental Holdings, Inc. From September 2002 to October 2010, he served as chairman, president and chief executive officer of UAL Corporation, and chairman and chief executive officer of United Air Lines, Inc., its wholly owned subsidiary. Prior to becoming the vice chairman of Chevron Texaco following the merger of Texaco Inc. and Chevron Corp., Mr. Tilton enjoyed a 30-year multi-disciplinary career with Texaco Inc., culminating in his election as chairman and chief executive officer. Mr. Tilton is also a director of Abbott Laboratories and Phillips 66. Mr. Tilton also served on the board of directors of Lincoln National Corporation from 2002 to 2007, of TXU Corporation from 2005 to 2007, of Corning Incorporated from 2010 to 2012, and of United Continental Holdings, Inc. from 2010 to 2012. As chairman of the Midwest for JPMorgan Chase & Co. and having previously served as non-executive chairman of the board of United Continental Holdings, Inc., and chairman, president, and chief executive officer of UAL Corporation and United Air Lines, vice chairman of Chevron Texaco and as interim chairman of Dynegy, Inc., Mr. Tilton acquired strong management experience overseeing complex multinational businesses operating in highly regulated industries, as well as expertise in finance and capital markets matters. Class I—Directors Whose Terms Expire in 2016 ................................................................................................................................................................................................................................................................................................................................................................................................ William H.L. Burnside Retired Senior Vice President and Director at The Boston Consulting Group Mr. Burnside is a retired senior vice president and director at The Boston Consulting Group (BCG), where he currently serves as an advisor. Prior to becoming managing partner of BCG’s Los Angeles office in 1987, he worked in BCG’s London and Chicago offices, servicing clients in telecommunications, media, defense, financial services, and manufacturing. Mr. Burnside is a director at Executive Service Corps of Southern California and Audubon California. Through his experience with The Boston Consulting Group, Mr. Burnside acquired knowledge and understanding of corporate finance and capital markets matters, as well as global and domestic strategic advisory experience across a broad base of industries. 6FEB201522131611 Committees: Audit Nominations & Governance Director since: 2013 Age: 63 8 13NOV201221352027 2015 Proxy Statement INFORMATION CONCERNING DIRECTOR NOMINEES Edward J. Rapp Group President for Resource Industries of Caterpillar Inc. Mr. Rapp was appointed in late 2014 as the Caterpillar Inc. group president for resource industries. He previously served at Caterpillar as group president based in Singapore in 2013 and 2014 and as the chief financial officer from 2010 to 2013, and he was named a group president in 2007. Mr. Rapp is presently a board member for FM Global and Junior Achievement USA. He is currently a member of the University of Missouri College of Business Strategic Development Board and a board member of the U.S.-China Business Council. As a result of his tenure as group president and chief financial officer at Caterpillar Inc., Mr. Rapp has acquired management, operational, and financial expertise with extensive global experience and provides the board with an informed perspective on financial and operational matters faced by a complex international company. 17JAN201314183678 Committees: Audit Public Policy Director since: 2013 Age: 57 Roy S. Roberts Retired Group Vice President for North American Vehicle Sales, Service and Marketing of General Motors Corporation Mr. Roberts was the emergency financial manager for Detroit Public Schools from 2011 until his retirement in 2013. Previously, he served as managing director of Reliant Equity Investors from 2000 to 2011. Mr. Roberts retired from General Motors in April 2000. At the time of his retirement, he was group vice president for North American Vehicle Sales, Service and Marketing of General Motors Corporation, having been elected to that position in October 1998. Mr. Roberts has served as director on the following boards: Thermon Manufacturing Company 2007-2010, Enova Systems, Inc., 2008-2011, Burlington Northern Santa Fe, 1991-2010, and Abbott Laboratories, 1998-2011. As a former executive of a major international corporation, Mr. Roberts has a strong record of valuable business, leadership, operational, and management experience which he brings to the board. 17JAN201314194544 Committees: Nominations & Governance Public Policy Director since: 2013 Age: 75 Class II—Directors Whose Terms Expire in 2017 ................................................................................................................................................................................................................................................................................................................................................................................................ Robert J. Alpern, M.D. Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine Dr. Alpern has served as the Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine since June 2004. From July 1998 to June 2004, Dr. Alpern was the Dean of The University of Texas Southwestern Medical Center. Dr. Alpern also serves as a director of Abbott Laboratories and as a director on the Board of Yale—New Haven Hospital. As the Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine, Dean of The University of Texas Southwestern Medical Center, and as a director on the Board of Yale—New Haven Hospital, Dr. Alpern contributes valuable insights to the board through his medical and scientific expertise and his knowledge of the health care environment and the scientific nature of AbbVie’s key research and development initiatives. 17JAN201314181230 Committees: Nominations & Governance Public Policy Director since: 2013 Age: 64 2015 Proxy Statement 13NOV201221352027 9 INFORMATION CONCERNING DIRECTOR NOMINEES Edward M. Liddy 17JAN201314191789 Committees: Compensation Public Policy Director since: 2013 Age: 69 Partner, Clayton, Dubilier & Rice, LLC Mr. Liddy has been a partner in the private equity investment firm Clayton, Dubilier & Rice, LLC since January 2010, having also been a partner at such firm from April to September 2008. From September 2008 to August 2009, Mr. Liddy was the interim chairman and chief executive officer of American International Group, Inc. (AIG). He served at AIG at the request of the U.S. Department of the Treasury. From January 1999 to April 2008, Mr. Liddy served as chairman of the board of the Allstate Corporation. He served as chief executive officer of Allstate from January 1999 to December 2006, President from January 1995 to May 2005, and chief operating officer from August 1994 to January 1999. Mr. Liddy currently serves on the board of directors of Abbott Laboratories, 3M Company, and The Boeing Company. In addition, Mr. Liddy formerly served on the board of The Boeing Company from 2007 to 2008. As the chairman and chief executive officer of Allstate Corporation and American International Group, Inc., Mr. Liddy brings valuable insights from the perspective of the insurance industry into AbbVie’s business. As a partner of Clayton, Dubilier & Rice, LLC, Mr. Liddy gained significant knowledge and understanding of finance and capital markets matters as well as global and domestic strategic advisory experience. Frederick H. Waddell Chairman of the Board and Chief Executive Officer of Northern Trust Corporation and The Northern Trust Company Mr. Waddell has served as the chief executive officer of Northern Trust Corporation and The Northern Trust Company since January 2008 and as chairman of the board since November 2009. He served as president from February 2006 through September 2011, and as chief operating officer from February 2006 to January 2008. Mr. Waddell served as a board member of Northern Trust from February 2006 to November 2009 prior to becoming the chairman of the board. As chairman and chief executive officer of Northern Trust Corporation and The Northern Trust Company, Mr. Waddell possesses broad financial services experience with a strong record of leadership in a highly regulated industry. 17JAN201314192826 Committees: Audit Compensation Director since: 2013 Age: 61 10 13NOV201221352027 2015 Proxy Statement THE BOARD OF DIRECTORS AND ITS COMMITTEES 14FEB201503005232 The Board of Directors ................................................................................................................................................................................................................................................................................................................................................................................................ The board of directors held seventeen meetings in 2014. The average attendance of all incumbent directors at board and committee meetings in 2014 was ninety-five percent and each director attended at least seventy-five percent of the total number of board meetings and meetings of the committees on which he or she served. AbbVie encourages its board members to attend the annual stockholder meeting. All of AbbVie’s directors attended the 2014 annual stockholder meeting. The board has determined that each of the following directors is independent in accordance with the New York Stock Exchange (NYSE) listing standards: Dr. Alpern, Ms. Austin, Mr. Burnside, Mr. Liddy, Mr. Rapp, Mr. Roberts, Mr. Tilton, and Mr. Waddell. To determine independence, the board applied the AbbVie Inc. director independence guidelines. The board also considered whether a director has any other material relationships with AbbVie or its subsidiaries and concluded that none of these directors had a relationship that impaired the director’s independence. This included consideration of the fact that some of the directors are officers or serve on boards of companies or entities to which AbbVie sold products or made contributions or from which AbbVie purchased products and services during the year. This also included consideration of the fact that some of the directors serve on the board of Abbott Laboratories (Abbott), AbbVie’s former parent. In making its determination, the board relied on both information provided by the directors and information developed internally by AbbVie. The board has risk oversight responsibility for AbbVie and administers this responsibility both directly and with assistance from its committees. The board has determined that the current leadership structure, in which the offices of chairman of the board and chief executive officer are held by one individual and the chair of the nominations and governance committee is appointed to be the lead director, ensures the appropriate level of oversight, independence, and responsibility is applied to all board decisions, including risk oversight, and is in the best interests of AbbVie and its stockholders. The lead independent director is chosen by and from the independent members of the board of directors. The lead independent director responsibilities include: 1. 2. facilitates communication with the board and presides over regularly conducted executive sessions of the independent directors or sessions where the chairman of the board is not present; reviews and approves matters, such as agenda items, schedule sufficiency, and, where appropriate, information provided to other board members; 3. serves as the liaison between the chairman of the board and the independent directors; 4. has the authority to call meetings of the independent directors; 5. if requested by major stockholders, ensures that he or she is available for consultation and direct communication as needed; and 6. performs such other duties as the board may determine from time to time. All directors are encouraged to, and in fact do, consult with the chairman on each of the above topics, as well. The lead director, and each of the other directors, communicates regularly with the chairman of the board and chief executive officer regarding appropriate agenda topics and other board related matters. 2015 Proxy Statement 13NOV201221352027 11 THE BOARD OF DIRECTORS AND ITS COMMITTEES AbbVie directors have backgrounds that when combined provide a portfolio of experience and knowledge that serve AbbVie’s governance and strategic needs. Director nominees are considered on the basis of a range of criteria including broad-based business knowledge and relationships, prominence and excellent reputations in their primary fields of endeavor, as well as a global business perspective and commitment to good corporate citizenship. They must have demonstrated experience and ability that is relevant to the board’s oversight role with respect to AbbVie’s business and affairs. Each director’s biography includes the particular experience and qualifications that led the board to conclude that the director should serve on the board. The directors’ biographies are in the section of this proxy statement captioned ‘‘Information Concerning Director Nominees.’’ Committees of the Board of Directors ................................................................................................................................................................................................................................................................................................................................................................................................ The board of directors has five committees established in AbbVie’s By-Laws: the audit committee, compensation committee, nominations and governance committee, public policy committee, and executive committee. Each of the members of the audit committee, compensation committee, nominations and governance committee, and public policy committee is independent. Audit Committee Compensation Committee R. Alpern R. Austin 7FEB201503212306 W. Burnside E. Liddy E. Rapp R. Roberts 7FEB201503212429 G. Tilton F. Waddell 7FEB201503211904 7FEB201503212552 7FEB201503212552 7FEB201503212552 Number of meetings 6 7FEB201503212552 7FEB201503211904 7FEB201503212552 7FEB201503212552 3 Nominations and Governance Committee Public Policy Committee 7FEB201503212552 7FEB201503212552 7FEB201503212552 7FEB201503212552 7FEB201503211904 7FEB201503212552 7FEB201503212552 7FEB201503211904 4 4 7FEB201503212429 7FEB201503211904 7FEB201503212552 7FEB201503212306 Lead Director Chairperson Member Financial Expert Audit Committee The audit committee is governed by a written charter. This committee assists the board of directors in fulfilling its oversight responsibility with respect to AbbVie’s accounting and financial reporting practices and the audit process, the quality and integrity of AbbVie’s financial statements, the independent auditors’ qualifications, independence, and performance, the performance of AbbVie’s internal audit function and internal auditors, certain areas of legal and regulatory compliance, and enterprise risk management. Each of the members of the audit committee is financially literate, as required of audit committee members by the NYSE, and the independence requirements set forth in Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). The board of directors has determined that Ms. Austin, the committee’s chair, is an ‘‘audit committee financial expert.’’ Compensation Committee The compensation committee is governed by a written charter. This committee assists the board of directors in carrying out the board’s responsibilities relating to the compensation of AbbVie’s executive officers and directors. The compensation committee annually reviews the compensation paid to the directors and gives its recommendations to the full board regarding both the amount of director compensation that should be paid and the allocation of that 12 13NOV201221352027 2015 Proxy Statement THE BOARD OF DIRECTORS AND ITS COMMITTEES compensation between equity-based awards and cash. In recommending director compensation, the compensation committee takes into account director fees paid by companies in AbbVie’s peer groups and reviews any arrangement that could be viewed as indirect director compensation. The processes and procedures used for the consideration and determination of executive compensation are described in the ‘‘Compensation Discussion and Analysis’’ section of this proxy statement. The committee also reviews, approves, and administers the incentive compensation plans in which the AbbVie executive officers participate and all of AbbVie’s equity-based plans. It may delegate the responsibility to administer and make grants under these plans to management, except to the extent that such delegation would be inconsistent with applicable law or regulations or with the listing rules of the New York Stock Exchange. The compensation committee has the sole authority, under its charter, to select, retain and/or terminate independent advisors who may assist the committee in carrying out its responsibilities. The compensation committee reviews and discusses with management and its independent compensation advisor potential risks associated with AbbVie’s compensation policies and practices as discussed in the ‘‘Compensation Risk Assessment’’ section of this proxy statement. Each member of the committee qualifies as a ‘‘non-employee director’’ for purposes of Rule 16b-3 under the Exchange Act and as an ‘‘outside director’’ for purposes of Internal Revenue Code Section 162(m). Effective April 1, 2014, the committee engaged Compensation Advisory Partners (CAP) as its independent compensation consultant due to the retirement of the committee’s prior principal compensation consultant from Aon Hewitt. The independent compensation consultant provides counsel and advice to the committee on executive and non- employee director compensation matters. CAP, and its principal, report directly to the chair of the committee. The principal meets regularly, and as needed, with the committee in executive sessions, has direct access to the chair during and between meetings, and performs no other services for AbbVie or its senior executives. The committee determines what variables it will instruct CAP to consider, including: peer groups against which performance and pay should be examined, metrics to be used in incentive plans to assess AbbVie’s performance, competitive short- and long-term incentive practices in the marketplace, and compensation levels relative to market benchmarks. The committee negotiates and approves all fees paid to CAP for these services. AbbVie did not engage CAP to perform any other services during 2014. Through March 31, 2014, the committee had engaged Aon Hewitt as its independent compensation consultant. Aon Hewitt, and its principal, reported directly to the chair of the committee and performed duties similar to those described above for CAP. The principal performed no other services for AbbVie or its senior executives. The committee instructed Aon Hewitt on the variables to consider, which consisted of the same variables listed above in the description of CAP’s engagement. The committee negotiated and approved all fees paid to Aon Hewitt for these services. Through March 31, 2014, the committee authorized payment of approximately $40,000 to Aon Hewitt for services rendered to the committee relating to executive compensation. Separately, AbbVie management engaged Aon Hewitt to perform unrelated services and, through March 31, 2014, paid approximately $960,000 for those services, including actuarial work, pension design and administration, insurance, and general consulting. The committee was informed about these services, but its formal approval was not requested. Based on an assessment of internally developed information and information provided by CAP and Aon Hewitt, respectively, the committee has determined that its independent compensation advisors do not have a conflict of interest. A copy of the compensation committee report is included in the ‘‘Compensation Committee Report’’ section of this proxy statement. Nominations and Governance Committee The nominations and governance committee is governed by a written charter. This committee assists the board of directors in identifying individuals qualified to become board members and recommends to the board the nominees for election as directors at the next annual meeting of stockholders, recommends to the board the persons to be elected as executive officers of AbbVie, recommends to the board the corporate governance guidelines applicable to AbbVie, oversees the evaluation of the board and management, and serves in an advisory capacity to the board and the chairman of the board on matters of organization, management succession plans, major changes in the organizational structure of AbbVie, and the conduct of board activities. The process used by this committee to identify a nominee to serve as a member of the board of directors depends on the qualities being sought. From time to time, AbbVie engages an executive search firm to assist the committee in identifying individuals qualified to be board members. Board 2015 Proxy Statement 13NOV201221352027 13 THE BOARD OF DIRECTORS AND ITS COMMITTEES members should have backgrounds that when combined provide a portfolio of experience and knowledge that will serve AbbVie’s governance and strategic needs. In the process of identifying nominees to serve as a member of the board of directors, the nominations and governance committee considers the board’s diversity of ethnicity, gender, and geography and assesses the effectiveness of the process in achieving that diversity. Board candidates will be considered on the basis of a range of criteria, including broad-based business knowledge and relationships, prominence and excellent reputations in their primary fields of endeavor, as well as a global business perspective, commitment to good corporate citizenship, and ability to commit sufficient time and attention to the activities of the board. Directors should have demonstrated experience and ability that is relevant to the board of directors’ oversight role with respect to AbbVie’s business and affairs. Public Policy Committee The public policy committee is governed by a written charter. This committee assists the board of directors in fulfilling its oversight responsibility with respect to AbbVie’s public policy, certain areas of legal and regulatory compliance, and governmental affairs and health care compliance matters that affect AbbVie by discharging the responsibilities set forth in its charter. Executive Committee The executive committee members are Mr. Gonzalez, chair, Ms. Austin, Mr. Liddy, Mr. Roberts, and Mr. Tilton. This committee may exercise all of the authority of the board in the management of AbbVie, except for matters expressly reserved by law for board action. Communicating with the Board of Directors ................................................................................................................................................................................................................................................................................................................................................................................................ Stockholders and other interested parties may communicate with the board of directors by writing a letter to the chairman of the board, to the lead director, or to the independent directors c/o AbbVie Inc., 1 North Waukegan Road, AP34, North Chicago, Illinois 60064, Attention: corporate secretary. The corporate secretary regularly forwards to the addressee all letters other than mass mailings, advertisements, and other materials not relevant to AbbVie’s business. In addition, directors regularly receive a log of all correspondence received by the company that is addressed to a member of the board and may request any correspondence on that log. 14 13NOV201221352027 2015 Proxy Statement DIRECTOR COMPENSATION 14FEB201503003186 AbbVie employees are not compensated for serving on the board or board committees. AbbVie’s non-employee directors are compensated for their service under the AbbVie Non-Employee Directors’ Fee Plan and the AbbVie 2013 Incentive Stock Program. The following table sets forth the non-employee directors’ 2014 compensation. Fees Earned or Paid in Cash ($)(1) Stock Awards ($)(2) $126,000 $142,954 144,000 142,954 132,000 142,954 138,000 142,954 132,000 142,954 138,000 142,954 138,000 142,954 132,000 142,954 Option Awards ($)(3) $0 0 0 0 0 0 0 0 Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) All Other Compensation ($)(5) Total ($) $4,298 $15,000 $288,252 0 0 0 0 0 0 0 3,351 290,305 25,000 299,954 0 280,954 25,000 299,954 0 280,954 25,000 25,000 305,954 299,954 Name R. Alpern R. Austin W. Burnside E. Liddy E. Rapp R. Roberts G. Tilton F. Waddell (1) Under the AbbVie Non-Employee Directors’ Fee Plan, non-employee directors earn $10,500 for each month of service as a director and $1,000 for each month of service as a chair of a board committee, other than the chair of the audit committee. The chair of the audit committee receives $1,500 for each month of service as a chair of that committee and the other members of the audit committee receive $500 for each month of service as a committee member. Fees earned under the AbbVie Non-Employee Directors’ Fee Plan are, at the director’s election, paid in cash, delivered in the form of vested non-qualified stock options (based on an independent appraisal of their fair value), deferred until retirement (as an unfunded AbbVie obligation), or paid currently into an individual grantor trust established by the director. The distribution of deferred fees and amounts held in a director’s grantor trust generally commences at the later of when the director reaches age 65 or upon retirement from the board of directors. The director may elect to have fees deposited in a trust and credited to a stock equivalent account that earns the same return as if the fees were invested in AbbVie stock or to a guaranteed interest account. If necessary, AbbVie contributes funds to a director’s trust so that as of year end the stock equivalent account balance (net of taxes) is not less than seventy-five percent of the market value of the related AbbVie common stock at year end. (2) The amounts in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718. AbbVie determines the grant date fair value of stock unit awards by multiplying the number of restricted stock units granted by the average of the high and low market prices of one share of AbbVie common stock on the award grant date. In addition to the fees described in footnote (1), each non-employee director elected to or serving on the board of directors at the annual stockholder meeting receives under the AbbVie 2013 Incentive Stock Program vested restricted stock units with a value of $143,000 (rounded down). In 2014, this was 2,764 units. The non-employee 2015 Proxy Statement 13NOV201221352027 15 DIRECTOR COMPENSATION directors receive cash payments equal to the dividends paid on the shares covered by the units at the same rate as other stockholders. Upon termination or retirement from the board, death, or a change in control of the company, a non-employee director will receive one common share for each restricted stock unit outstanding under the Incentive Stock Program. The following AbbVie restricted stock units were outstanding as of December 31, 2014: R. Alpern, 13,858; R. Austin, 21,521; W. Burnside, 5,299; E. Liddy, 9,285; E. Rapp, 5,299; R. Roberts, 5,299; G. Tilton, 17,505; F. Waddell, 5,299. These numbers include, where applicable, AbbVie restricted stock units issued with respect to Abbott Laboratories restricted stock units outstanding when AbbVie separated from Abbott on January 1, 2013. (3) No AbbVie stock options were outstanding as of December 31, 2014. (4) The totals in this column include reportable interest credited under the AbbVie Non-Employee Directors’ Fee Plan during 2014. (5) Charitable contributions made by AbbVie’s non-employee directors are eligible for a matching contribution (up to $25,000). For 2014 contributions, the AbbVie Foundation made charitable matching contributions on behalf of the following AbbVie directors: R. Alpern, $15,000; W. Burnside, $25,000; E. Rapp, $25,000; G. Tilton, $25,000; F. Waddell, $25,000. This column also includes reimbursement for certain taxes. 16 13NOV201221352027 2015 Proxy Statement SECURITIES OWNERSHIP 14FEB201503005075 Securities Ownership of Executive Officers and Directors ................................................................................................................................................................................................................................................................................................................................................................................................ The table below reflects the number of shares of AbbVie common stock beneficially owned as of January 31, 2015, by each director, the chief executive officer, the chief financial officer, and the three other most highly paid executive officers (NEOs), and by all directors and executive officers of AbbVie as a group. It also reflects the number of stock equivalent units and restricted stock units held by non-employee directors under the AbbVie Non-Employee Directors’ Fee Plan. Name R. Gonzalez R. Alpern R. Austin W. Burnside E. Liddy E. Rapp R. Roberts G. Tilton F. Waddell C. Alban W. Chase L. Schumacher M. Severino Shares Beneficially Owned(1)(2)(3) Stock Options Exercisable within 60 days of January 31, 2015 Stock Equivalent Units 386,328 588,663 13,858 28,365 5,299 10,420 7,799 25,299 24,855 7,299 245,580 180,980 272,797 141,625 0 0 0 0 0 0 0 0 198,287 205,034 394,293 0 0 3,887 0 0 11,963 5,432 0 20,068 0 0 0 0 0 All directors and executive officers as a group(4) 1,546,372 1,550,644 41,350 (1) The table includes shares held in the executive officers’ accounts in the AbbVie Savings Plan as follows: all executive officers as a group, 1,738. Each executive officer has shared voting power and sole investment power with respect to the shares held in his or her account. (2) The table includes 1,650 restricted stock units held by the executive officers as a group. The table also includes restricted stock units held by the non-employee directors. The directors’ units are payable in stock as described in footnote (2) to the Director Compensation table. (3) The table includes shared voting and/or investment power over shares as follows: G. Tilton, 350; C. Alban, 40,442; W. Chase, 501; and all directors and executive officers as a group, 42,211. (4) The directors and executive officers as a group together own less than one percent of the outstanding shares of AbbVie. 2015 Proxy Statement 13NOV201221352027 17 SECURITIES OWNERSHIP Securities Ownership of Principal Stockholders ................................................................................................................................................................................................................................................................................................................................................................................................ The table below reports the number of shares of AbbVie common stock beneficially owned as of December 31, 2014 by BlackRock, Inc., Capital Research Global Investors and The Vanguard Group (directly or through subsidiaries), respectively, the only persons known to AbbVie to own beneficially more than 5% of AbbVie’s outstanding common stock. It is based on information contained in Schedules 13G filed with the Securities and Exchange Commission by BlackRock, Inc. on February 9, 2015, by Capital Research Global Investors on February 13, 2015, and by The Vanguard Group on February 10, 2015. BlackRock, Inc. reported that it had sole voting power with respect to 97,202,991 shares, shared voting power with respect to 18,417 shares, sole dispositive power with respect to 114,430,028 shares and shared dispositive power with respect to 22,987 shares. Capital Research Global Investors reported that it had sole voting and sole dispositive power with respect to 100,552,589 shares. The Vanguard Group reported that it had sole voting power with respect to 2,754,958 shares, sole dispositive power with respect to 86,236,459 shares and shared dispositive power with respect to 2,606,938 shares. Name and Address of Beneficial Owner Shares Beneficially Owned Percent of Class BlackRock, Inc. 40 East 52nd Street New York, NY 10022 Capital Research Global Investors 333 South Hope Street 55th Floor Los Angeles, CA 90071 The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 114,453,015 7.2% 100,552,589 6.3% 88,843,397 5.57% 18 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION 14FEB201503003355 Compensation Discussion and Analysis ................................................................................................................................................................................................................................................................................................................................................................................................ This Compensation Discussion and Analysis (CD&A) describes the pay philosophy established for AbbVie’s named executive officers (NEOs), the design of our compensation programs, the process used to examine performance in the context of executive pay decisions, and the performance goals and results for each NEO: Richard A. Gonzalez Chairman of the Board and Chief Executive Officer Michael E. Severino Executive Vice President, Research & Development and Chief Scientific Officer Carlos Alban Executive Vice President, Commercial Operations Laura J. Schumacher Executive Vice President, Business Development, External Affairs and General Counsel William J. Chase Executive Vice President, Chief Financial Officer Although we describe our programs in the context of the NEOs, it is important to note that our programs generally have broad eligibility and therefore in most cases apply to employee populations outside the NEO group as well. CD&A Table of Contents The CD&A is organized as follows: I. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of our Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholder Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Program Governance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Executive Compensation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitment to Performance-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Committee Process for Setting Total Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Peer Group Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Role of the Compensation Consultant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Compensation Plan Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in Control Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clawback Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-Hedging and Anti-Pledging Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20 20 20 22 23 24 24 24 24 25 25 26 26 26 26 26 28 29 30 30 31 31 31 31 2015 Proxy Statement 13NOV201221352027 19 EXECUTIVE COMPENSATION I. Executive Summary Compensation Philosophy At AbbVie, the board believes a well-designed compensation program should align executive interests with the drivers of profitable growth and shareholder returns, support achievement of the company’s primary business goals, and attract and retain world-class executives whose talents and contributions sustain the growth in long-term stockholder value. Consequently, the board believes the substantial majority of NEO compensation at AbbVie should be performance- based. Business Overview AbbVie is a global, research-based biopharmaceutical company that develops and markets advanced therapies for some of the world’s most complex and serious diseases. Our products support the treatment of conditions such as chronic autoimmune disease (including rheumatoid arthritis, psoriasis, and Crohn’s disease), hepatitis C virus (HCV), human immunodeficiency virus (HIV), endometriosis, thyroid disease, Parkinson’s disease, complications associated with cystic fibrosis, and other health conditions. Our pipeline includes more than 40 compounds or indications in development across important medical specialties such as immunology, virology/liver disease, oncology, renal disease, neurological diseases, and women’s health. Business Performance Highlights 2014 was a very successful year for AbbVie financially and operationally and in our pipeline development efforts. AbbVie continued to deliver on our commitment to stockholders in 2014 by growing our sales and earnings and delivering top quartile returns. The measures set forth below were calculated as of December 31, 2014. 105.7% 2-year total shareholder return since 2013 incep(cid:2)on 28% total shareholder return in 2014 $49BN Increase in market cap since AbbVie launch Added significant stockholder value with a market cap over $100 billion 22.5% Increase in quarterly dividend since AbbVie launch Raised quarterly dividend to $0.49 per share from $0.40 per share at separa(cid:2)on 7.1% 5.7% 40+ Adjusted opera(cid:2)onal sales growth vs. 2013* Delivered growth a year ahead of schedule Adjusted earnings per share growth vs. 2013* Significantly outperformed original guidance to deliver 2014 adjusted EPS of $3.32/share Ac(cid:2)ve clinical development programs Most robust pipeline in company history *Adjusted sales and adjusted earnings per share are reported and reconciled in our Form 8-K dated January 30, 2015. 17MAR201515325913 20 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Total shareholder return (TSR) continued to significantly outperform external indices. Since AbbVie became an independent company at the beginning of 2013, its TSR is 105.7% through the end of 2014, which places AbbVie at the top of its Health Care Peer Group, and 52 percentage points above the NYSE Arca Pharmaceuticals Index and 55.2 percentage points above the Standard & Poor’s 500 Index over the same time period. In 2014 alone, AbbVie’s TSR was 28%, which places AbbVie in the top quartile of its Health Care Peer Group, and 11.4 and 14.3 percentage points above the NYSE Arca Pharmaceuticals and Standard & Poor’s 500 indices, respectively. The following graph compares the cumulative total returns of AbbVie, the Standard & Poor’s 500 Index and the NYSE Arca Pharmaceuticals Index. The graph covers the period from January 2, 2013 (the day AbbVie’s common stock began ‘‘regular-way’’ trading on the NYSE) through December 31, 2014. The graph assumes $100 was invested in the stock or the index on January 2, 2013 and also assumes the reinvestment of dividends. The stock price performance in the following graph is not necessarily indicative of future stock price performance. Total Shareholder Return Since Separation $225 $200 $175 $150 $125 $100 1/2/2013 6/30/2013 12/31/2013 6/30/2014 12/31/2014 AbbVie Inc. S&P 500 Index NYSE Arca Pharmaceu(cid:2)cal Index 17MAR201518111135 The company also generated strong operational results during 2014. Net sales were $19.9 billion, up 7.1% globally, excluding roughly 1.3% negative impact from foreign exchange. AbbVie also exceeded its original EPS guidance range and raised guidance twice during 2014, which demonstrates the strength of the company’s business, management’s performance and pipeline advancement. Adjusted Net Sales in millions US$ $19,879 $20,000 $19,000 $18,790 $18,000 Adjusted EPS in US$ $3.32 $3.14 $3.50 $3.00 $2.50 2013 2014 17MAR201518110996 2013 2014 17MAR201518110855 2015 Proxy Statement 13NOV201221352027 21 EXECUTIVE COMPENSATION In addition to our exceptional financial performance, AbbVie delivered operational efficiencies and improvements in gross margin. Further, AbbVie continued to execute on our commercial, regulatory and clinical objectives, including obtaining U.S. Food and Drug Administration (FDA) approval in December 2014 for our interferon-free HCV program for genotype one patients. AbbVie also made significant progress advancing our pipeline, including: the successful completion of several late-stage clinical trials, including the daclizumab and Humira hidradenitis suppurativa registrational programs; the initiation of a number of promising Phase 3 programs, including several Phase 3 studies of our PARP-inhibitor, veliparib, in solid tumors such as breast and lung cancer, and our Bcl-2 inhibitor, ABT-199, in hematologic malignancies. We also made significant advancements with our next-generation HCV program, initiating a broad Phase 2b program. We also advanced a number of early-stage assets into mid-stage development, including our DVD-Ig platform. Additional Highlights • In 2014, AbbVie delivered Humira sales of $12.5 billion, an increase of nearly 19% compared to 2013 on a constant currency basis. Humira’s performance was driven by market growth across therapeutic categories and geographies, approval of new indications, and market share gains. Sales growth also was driven by strong performance from other key brands including Synagis, Synthroid, Creon and Duodopa. • With a record number of programs currently in mid- and late-stage development spanning large and growing specialty categories, in 2014 we continued to advance our compelling R&D pipeline. This includes numerous data and regulatory milestones and phase transitions. • We further enhanced our pipeline by announcing a strategic collaboration with Infinity Pharmaceuticals, Inc. to develop and commercialize duvelisib (IPI-145) for the treatment of blood cancers, and we entered into a novel R&D collaboration with Calico Life Sciences LLC, a life sciences company backed by Google Inc., to discover, develop, and bring to market new therapies for patients with age-related diseases. Components of our Compensation Program The compensation committee oversees our executive compensation program, which includes several compensation elements that have each been tailored to incentivize and reward a specific aspect of company performance the board believes is central to delivering long-term stockholder value. Key components of our compensation program are listed below. Base Salary Established rela(cid:2)ve to market median based on each NEO's performance, skills and experience, and internal equity Short-Term Incen(cid:2)ves Adjusted diluted EPS Performance Incen(cid:2)ve Plan (PIP) Based on performance measures such as: • • Adjusted net sales • Adjusted income before taxes • Adjusted return on assets • Strategic and leadership goals Long-Term Incen(cid:2)ves 75% Performance-vested restricted stock • Adjusted return on equity 25% Non-qualified stock op(cid:2)ons 16MAR201518185354 22 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION The committee is committed to ensuring that a substantial portion of executive compensation is ‘‘at-risk’’ and variable. As such, 90% of the CEO’s total direct compensation and, on average, more than 85% of our other NEOs’ total direct compensation, is variable and directly affected by both the company’s and the NEO’s performance. 2014 Performance Results The performance targets established under our annual and long-term incentive plans are designed to be challenging yet achievable, with above target payouts for strong performance and below target payouts (including no payout) for below target performance. Targets are based on historical peer and company performance, expectations for our pipeline products, and expected business, market, and regulatory conditions. Financial Goals Name Goal and Expected Result Richard A. Gonzalez Michael E. Severino Carlos Alban Laura J. Schumacher William J. Chase Adjusted Diluted EPS of $3.05 Adjusted Net Sales of $19.0BN Adjusted Income Before Taxes of $6.3BN A. B. C. D. Adjusted Return on Assets of 21.9% A. B. A. B. C. A. B. A. B. Adjusted Diluted EPS of $3.05 Adjusted Net Sales of $19.0BN Adjusted Diluted EPS of $3.05 Adjusted Net Sales of $19.0BN Adjusted Income Before Taxes of $6.3BN Adjusted Diluted EPS of $3.05 Adjusted Net Sales of $19.0BN Adjusted Diluted EPS of $3.05 Adjusted Net Sales of $19.0BN Results Achieved Achieved—$3.32 A. Achieved—$19.9BN B. Achieved—$6.9BN C. D. Achieved—26.3% A. B. A. B. C. A. B. A. B. Achieved—$3.32 Achieved—$19.9BN Achieved—$3.32 Achieved—$19.9BN Achieved—$6.9BN Achieved—$3.32 Achieved—$19.9BN Achieved—$3.32 Achieved—$19.9BN Each of our NEOs also has individual performance goals that the committee reviews and ensures are appropriately rigorous and in line with the long-term success of the company. Each NEO achieved or exceeded his or her 2014 goals, which are listed below: • Richard A. Gonzalez: Successfully advance mid- and late-stage pipeline assets; execute key strategic initiatives to drive top tier, sustainable long-term business performance; deliver strong value to our stockholders, building investor confidence and credibility; drive exceptional business performance; continue to drive strong employee engagement and motivation around AbbVie’s mission and future prospects; and advance our transformation to a biopharmaceutical culture. • Michael E. Severino: Achieve key research and development milestones per company strategy; and achieve proprietary pipeline enhancement objectives. • • Carlos Alban: Achieve key product milestones; secure pipeline assets for sourced innovation; advance existing pipeline assets by achieving key milestones; successfully adapt market strategies to external considerations. Laura J. Schumacher: Successfully continue to develop and implement strategies to effectively resolve key litigation matters; achieve proprietary pharmaceutical pipeline enhancement objectives; execute biologics strategic development initiatives; and support research and development initiatives per company strategy. • William J. Chase: Achieve proprietary pharmaceutical pipeline enhancement objectives; and successfully transition corporate services infrastructure to a standalone model. 2015 Proxy Statement 13NOV201221352027 23 EXECUTIVE COMPENSATION Stockholder Engagement 2014 Say on Pay Results At our 2014 Annual Meeting, our say on pay proposal received support from 96% of stockholders. The board and compensation committee are encouraged by the substantial level of stockholder support received for our executive compensation program. Nevertheless, the company intends to engage proactively with stockholders to ensure that we continue to understand stockholder feedback and to enable us to take that feedback into consideration for our compensation decisions. To that end, in early 2015, AbbVie approached and engaged stockholders holding approximately 35% of the company’s outstanding shares. In these discussions, the aggregate feedback was generally supportive of the compensation program, consistent with the level of stockholder support for our say on pay proposals in the last two years, and was not prescriptive about our compensation plan design. Going forward, we intend to continue to engage our stockholders in meaningful discussions about our compensation programs and other key matters of interest to them. Compensation Program Governance Summary In addition to strong alignment of pay with the performance of the company and our NEOs, we maintain and are committed to good governance practices, including the following: (cid:2) Majority of NEO compensation tied to long-term performance (cid:2) Short- and long-term incentive programs closely align pay with performance (cid:2) Robust stock ownership guidelines of 6x salary for CEO, 3x for NEOs, and 4x annual fees for non-employee directors (cid:2) NEOs must hold and not sell equity until the minimum stock ownership requirement is satisfied. (cid:2) Double-trigger requirements for equity acceleration and other benefits in the event of a change in control (cid:2) No tax gross-ups in executive compensation program (cid:2) No duplication of performance metrics in short- and long-term incentives (cid:2) No repricing of stock options without express stockholder approval (cid:2) No employment contracts (cid:2) No guaranteed short-term incentives or equity awards, and short-term incentives are capped at 200% of target (cid:2) Anti-hedging and anti-pledging policies (cid:2) Independent compensation consultant that performs no other work for the company (cid:2) Committee has broad discretion to claw back incentive awards in the unlikely event of a restatement of earnings (cid:2) Proactive stockholder engagement process II. Executive Compensation Process Commitment to Performance-Based Awards The vast majority of NEO pay is performance-based. Specific goals and targets are the foundation of our pay-for- performance process, and this section describes how they apply to each pay component. Though quantitative metrics such as financial and operational results are a central part of our performance assessment, some goals such as leadership and progress against strategic and long-term objectives are difficult to measure using numeric or formulaic criteria. As such, the compensation committee also conducts a qualitative assessment of individual performance to ensure the overall assessment of performance and pay decisions are aligned with the company’s true performance over a period of time. A discussion of the decision-making criteria for each pay component follows. 24 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Committee Process for Setting Total Compensation Each February, the committee, with the assistance of its independent compensation consultant and AbbVie’s management team, determines target pay levels for NEOs. The process starts with a consideration of peer compensation levels and the mix of compensation for comparable executives at peer companies (particularly health care peers), which are listed below in the section captioned ‘‘Peer Group Benchmarking.’’ After this benchmark review, the committee establishes NEO compensation relative to the peer median (as derived primarily from the health care peer group approved by the committee) based on several factors, including company performance and stockholder value creation, as well as how a particular NEO’s responsibilities and individual performance helped drive those results. Awards are further differentiated based on each NEO’s contributions to long-term strategic performance. With respect to long-term incentive awards, the committee considers the extent to which the peer-group NEOs’ pay mix consists of long-term incentives and adjusts based on two primary factors. First, the committee considers the company’s short- and long-term returns to stockholders and relative performance against financial and/or operating measures that drive stockholder returns, as well as performance against measurable strategic objectives. Second, the committee considers each NEO’s performance and relative contribution to the company’s long-term success. Peer Group Benchmarking To provide the appropriate context for executive pay decisions for 2014, the committee, in consultation with its independent compensation consultant, assessed the compensation practices and pay levels of two designated peer groups. In addition to competing for executive talent, the peer companies also operate complex business operations with significant global reach. The peer groups used for establishing compensation for 2014 were as follows: Health Care Peer Group Amgen, Inc. Bristol-Myers Squibb Company Eli Lilly and Company GlaxoSmithKline plc Johnson & Johnson Merck & Company, Inc. Novartis AG Pfizer Inc. High-Performing Peer Group 3M Company Bristol-Myers Squibb Company Caterpillar Inc. The Coca-Cola Company Colgate-Palmolive Company General Dynamics Corporation General Mills, Inc. H.J. Heinz Company Kellogg Company Kimberly-Clark McDonald’s Corporation Merck & Company, Inc. PepsiCo Inc. The Procter & Gamble Company Members of the Health Care Peer Group are AbbVie’s primary competitors for executive talent and are companies the committee believes chiefly represent our competitive market. Generally, members of the High-Performing Peer Group have a five-year average return on equity (ROE) of at least 18% and are similar to AbbVie in size, performance and/or scope of global operations. The committee believes this ROE metric over a five-year period is a rigorous threshold that correlates well with long-term stockholder value creation. The committee periodically reviews the company’s peer groups to ensure the companies continue to be appropriate peers for compensation benchmarking purposes. In 2014, the committee approved the addition of Gilead Sciences to the Health Care Peer Group. General Dynamics, H.J. Heinz, Merck, and The Procter & Gamble Company were removed from the High-Performing Peer Group. These updated peer groups will be used to determine compensation in 2015. 2015 Proxy Statement 13NOV201221352027 25 EXECUTIVE COMPENSATION Role of the Compensation Consultant The compensation committee had an engagement with Aon Hewitt through March 2014 to serve as its independent compensation consultant to provide counsel and advice on executive and non-employee director compensation matters. Due to the retirement of Aon Hewitt’s principal compensation consultant to the committee, the committee engaged Compensation Advisory Partners as its independent compensation consultant beginning in April 2014. The committee’s independent consultant reports directly to the chair of the committee. The consultant meets regularly, and as needed, with the committee in executive sessions, has direct access to the chair during and between meetings, and performs no other services for AbbVie or its senior executives. The committee determines what variables it will instruct its consultant to consider, which include: peer groups against which performance and pay should be examined, metrics to be used to assess AbbVie’s performance, competitive incentive practices in the marketplace, and compensation levels relative to market benchmarks. Compensation Risk Oversight The company has established, and the compensation committee endorses, several controls to address and mitigate compensation-related risk, such as employing a diverse set of performance metrics, maintaining robust stock ownership guidelines for its executives and non-employee directors, and retaining broad discretion to recover incentive awards in the unlikely event that incentive plan award decisions are based on earnings that are subsequently restated. The committee identified no material risks in AbbVie’s compensation programs in 2014. III. Compensation Plan Elements Three primary components make up AbbVie’s executive pay program: (1) base salary, (2) short-term incentives and (3) long-term incentives. The structure of each component is tailored to serve a specific function and purpose. CEO Pay Mix All Other NEO Average Pay Mix 69% Long-term Incen(cid:2)ves 10% Base Salary 21% Short-term Incen(cid:2)ves 61% Long-term Incen(cid:2)ves 14% Base Salary 25% Short-term Incen(cid:2)ves 5MAR201520111144 5MAR201520111268 Base Salary The compensation committee sets appropriate levels of base salary to ensure that AbbVie can attract and retain a leadership team that will continue to meet our commitments to customers and patients and sustain long-term profitable growth for our stockholders. Generally, the committee considers the median of the Health Care Peer Group as an initial benchmark, but also references the High-Performance Peer Group for additional context. Specific pay rates are then established for each NEO relative to his or her market benchmark based on the NEO’s performance, experience, unique skills, internal equity with others at AbbVie, and the company’s operating budget. In this sense, base pay is performance-based as well as aligned with each individual’s relative skills, experience, and contributions to AbbVie’s overall performance. Short-Term Incentives Performance Incentive Plan Annual cash incentives are paid to NEOs through AbbVie’s Performance Incentive Plan (PIP), which rewards executives for achieving key financial and non-financial goals that are measured at the company and individual levels. 26 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Annual cash incentives are calculated as follows: Target Short-Term Incen(cid:2)ve Opportunity % Established using: • Market-based peer group benchmarks • Internal calibra(cid:2)on X Base Salary Determined by reviewing: • Internal and market-based peer group benchmarks • Individual performance Performance against Annual Goals (set based on internal and market peer group expecta(cid:2)ons) Adjusted Diluted EPS X Financial metrics (e.g., sales, income before taxes, and ROA) Opera(cid:2)onal / strategic goaIs (e.g., innova(cid:2)on, pipeline, leadership-oriented goals) = Preliminary Incen(cid:2)ve Award Amount 10FEB201519481475 While the compensation committee relies heavily on objective, quantitative metrics to determine short-term incentive awards, the performance review also includes a qualitative element to ensure the review is comprehensive and inclusive of all individual, strategic, and leadership goals whose assessment is not solely dictated by numeric or formulaic applications. Moreover, while each participant has predetermined goals, the committee also considers relative achievements and/or developments in the company, the marketplace, and the global economy that could not have been foreseen when individual goals were established. Annual Metrics and Goal Assessment AbbVie’s short-term incentive structure is intended to align NEOs’ interests directly with AbbVie’s annual operating strategies, financial goals, and leadership behaviors. In doing so, it provides a direct link between the NEOs’ short-term incentives and the company’s and the NEOs’ annual performance results through measurable financial and operational performance and qualitative assessments of clearly defined strategic progress and leadership behaviors. The compensation committee approves pre-established goals at the beginning of each year. The qualitative assessment reflects NEOs’ overall leadership, progress on strategic initiatives, advancement of the pipeline, and enhancement of AbbVie’s biopharmaceutical culture. The financial and strategic/leadership goals and their respective weightings are summarized in the chart below. The specific goals and weightings for each NEO, other than the CEO, are established at the start of each performance year based on the NEO’s role and anticipated contributions to the company’s annual objectives. The CEO’s goals are similarly established at the start of each performance year; however, to reflect the CEO’s overall accountability for company financial performance and strategic outcomes, the committee considers all financial and non-financial goals holistically, without specific weightings, when evaluating CEO performance. Financial Goals EPS Sales Margin Total Tied to Financial Goals Strategic/Leadership Goals R&D/Biosimilars Business Development Other (including strategic initiatives, etc.) Total Tied to Strategic/Leadership Goals % Weighting 20% to 40% 10% to 20% 0% to 40% 40% to 70% % Weighting 0% to 60% 0% to 20% 0% to 30% 30% to 70% Assessments of performance against financial results consider the effect of specified adjustments and/or events, and the appropriateness of these adjustments is reviewed annually by the committee. In 2014, specified adjustments consisted of other revenue, intangible asset amortization, research and development, acquired in process research and 2015 Proxy Statement 13NOV201221352027 27 EXECUTIVE COMPENSATION development, collaboration and transaction costs, separation costs, and other items, as described in Exhibit 99.1 to AbbVie’s Form 8-K filed on January 30, 2015. The PIP is intended to comply with the requirements of Internal Revenue Code Section 162(m) for performance- based compensation. 2014 PIP Awards Richard A. Gonzalez Michael E. Severino Carlos Alban Laura J. Schumacher William J. Chase Long-Term Incentives Target Bonus Actual Bonus Paid Actual Bonus as % of Target $3,100,000 $ 929,500 $ 935,000 $1,023,000 $1,017,500 $3,500,000 $1,200,000 $1,300,000 $1,490,000 $1,490,000 113% 129% 139% 146% 146% Performance-Vested Restricted Stock Performance-vested restricted stock is 75% of the total long-term incentive (LTI) value delivered to NEOs each year. AbbVie’s performance-vested restricted stock awards (or restricted stock units where required outside the U.S.) are subject to the following terms, including a challenging performance metric that prevents awards from vesting if pre- established goals are not met: • • • • Term. Each award has a five-year term. Return on Equity (ROE) Performance Metric. During the term of the award, one-third of the award vests in each year that AbbVie’s prior year ROE is at least 18%. Unlike performance-based awards that can increase or decrease relative to a target amount, these are performance-vested awards that cannot be released to the NEO unless the ROE performance goal is achieved during the term of the award. If the thresholds are met in three of the five years, 100% of the performance-vested shares vest. If the thresholds are missed in all five years, 100% of the performance- vested shares will be forfeited. Setting the ROE Performance Target. The compensation committee considers the company’s operating plan, historic performance, peer-group performance (particularly the High-Performing Peer Group), the company’s pipeline, and anticipated business and market conditions when setting the ROE target. The committee concluded that the High- Performing Peer Group five-year average return on equity of 18% is an appropriate target for AbbVie that will require successful execution of the company’s long-term strategic objectives. Dividends. These awards receive dividends (or dividend-equivalent payments in the case of restricted stock units) during the vesting term. Non-Qualified Stock Options Stock options are 25% of the total LTI value delivered to NEOs each year. AbbVie’s stock options are subject to the following terms: • • • Term. Each option has a ten-year term. Price. The option exercise price is set at or above fair market value on the date of grant. AbbVie has never granted discounted stock options. Vesting. 1/3 of the award vests each year after the date of the grant. 28 13NOV201221352027 2015 Proxy Statement 2014 LTI Grants Richard A. Gonzalez Michael E. Severino Carlos Alban Laura J. Schumacher William J. Chase EXECUTIVE COMPENSATION Stock Options (#) Performance-vested Restricted Stock Awards (#) 281,030 74,309 81,500 94,140 92,740 162,960 141,625* 47,260 54,590 53,770 * This number includes the award issued to Dr. Severino to replace prior employer stock awards that were forfeited when he joined AbbVie. LTI Grant Cycle AbbVie’s policy with respect to its annual equity award for all eligible employees, including the NEOs, is to grant the award and set the grant price at the compensation committee’s regularly scheduled February meeting each year. These meeting dates generally are the third Thursday of February and are scheduled two years in advance. The grant price is the average of the highest and lowest trading prices of a common share on the date of the grant (rounded up to the next even penny). The grant price for the 2014 annual grant was $51.42. The high, low and closing prices of an AbbVie common share on the grant date (February 20, 2014) were $52.11, $50.73, and $51.86, respectively. All LTI awards are subject to a minimum vesting period of 12 months. Benefits Benefits are an important part of retention and capital preservation for all employees, helping to protect against the impact of unexpected catastrophic loss of health and/or earnings potential, as well as providing a means to save and accumulate for retirement or other post-employment needs. Each of the benefits described below supports the company’s objective of providing a market competitive total rewards program. Individual benefits do not directly affect decisions regarding other benefits or pay components, except to the extent that all benefits and pay components must, in aggregate, be competitive, as previously discussed. Retirement Benefits All eligible U.S. employees, including NEOs, participate in the AbbVie Pension Plan, the company’s qualified defined benefit plan. NEOs and certain other employees also participate in the AbbVie Supplemental Pension Plan. These plans are described in greater detail in the section of this proxy statement captioned ‘‘Pension Benefits.’’ The Supplemental Pension Plan is a non-qualified defined benefit plan that cannot be secured in a manner similar to a qualified plan, for which assets are held in trust, so NEOs receive an annual cash payment equal to the increase in the present value of their Supplemental Pension Plan benefit. NEOs have the option of depositing the annual payment into an individually established grantor trust, net of tax withholdings. Deposited amounts may be credited with the difference between the NEO’s actual annual trust earnings and the rate used to calculate trust funding (currently 8 percent). Amounts deposited in the individual trusts are not tax-deferred and the NEOs personally pay the taxes on those amounts without gross-ups. The manner in which the grantor trust assets are to be distributed to an NEO upon retirement from the company generally follows the distribution method elected by the NEO under the AbbVie Pension Plan. If an NEO (or the NEO’s spouse, depending on the pension distribution method elected by the NEO under the AbbVie Pension Plan) lives beyond the actuarial life expectancy age used to determine the Supplemental Pension Plan benefit, and therefore exhausts the trust balance, the Supplemental Pension Plan benefit will be paid to the NEO (or his or her spouse) by AbbVie. 2015 Proxy Statement 13NOV201221352027 29 EXECUTIVE COMPENSATION Savings Plans All U.S. employees, including NEOs, are eligible to defer a portion of their annual base salary to the AbbVie Savings Plan, the company’s qualified defined contribution plan, up to the IRS contribution limits. NEOs also are eligible to defer up to 18 percent of their base salary, less contributions to the AbbVie Savings Plan, to the AbbVie Supplemental Savings Plan, which is a non-qualified defined contribution plan. Up to 100 percent of annual bonus awards earned by the NEOs also are eligible for deferral to the Supplemental Savings Plan. NEOs may defer these amounts to unfunded book accounts or choose to have the amounts paid in cash on a current basis and deposited into individually established grantor trusts, net of tax withholdings. These amounts are credited annually with earnings. Amounts deposited in the individual trusts are not tax-deferred and the NEOs personally pay the taxes on those amounts without gross-ups. NEOs elect the manner in which the assets held in their grantor trusts will be distributed to them upon retirement or other separation from the company. These arrangements are described in greater detail in this proxy statement beginning with the section captioned ‘‘Summary Compensation Table.’’ Financial Planning NEOs are eligible for a $10,000 annualized benefit associated with estate planning advice, tax preparation and general financial planning fees. If an NEO chooses to utilize this benefit, fees for such services are paid by the company and are treated as imputed income to the NEO, who then is responsible for payment of all taxes due on the fees paid by the company without gross-ups. Company-Provided Transportation NEOs are eligible for transportation perquisites that are designed to improve the effectiveness and efficiency of their work, including the use of a company-leased vehicle and access to company-provided air travel, as appropriate. In very limited circumstances, these benefits may be used for personal travel, which would then be considered part of the NEO’s total compensation and treated as taxable income to them under applicable tax laws. The NEOs pay the taxes on such income without gross-ups. Disability Benefits In addition to AbbVie’s standard disability benefits, NEOs are eligible for a monthly long-term disability benefit, which is described in greater detail in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control.’’ Employment Agreements AbbVie does not have employment agreements with any of its NEOs. Change in Control Agreements AbbVie has entered into change in control agreements with its NEOs to aid in retention and recruitment, encourage continued attention and dedication to assigned duties during periods involving a possible change in control of the company, and to protect the earned benefits of the NEOs against potential adverse changes resulting from a change in control. The change in control agreements contain a double-trigger feature, meaning that if the NEO’s employment is terminated other than for cause or permanent disability, or if the NEO elects to terminate employment for good reason, within two years following a change in control, he or she is entitled to receive certain pay and benefits as described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control.’’ 30 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION IV. Other Matters Stock Ownership Guidelines AbbVie’s stock ownership guidelines are designed to further promote sustained stockholder return and to ensure the company’s senior executives remain focused on both short- and long-term objectives. Each senior executive has five years from the date of election or appointment to his or her position to achieve the ownership level associated with his or her position. NEOs are not allowed to sell stock, except for tax withholding at vesting or exercise, if they do not satisfy the minimum stock ownership requirement. The minimum stock ownership guidelines for the CEO and other NEOs are as follows: Executive Richard A. Gonzalez Michael E. Severino Carlos Alban Laura J. Schumacher William J. Chase Stock Ownership Requirement Requirement Met? 6x Base Salary 3x Base Salary 3x Base Salary 3x Base Salary 3x Base Salary Yes Yes Yes Yes Yes In addition, AbbVie’s non-employee directors are required to own AbbVie stock valued at four times (4x) the annual fee for service as a director under the AbbVie Non-Employee Directors’ Fee Plan within five years of joining the Board or as soon as practicable thereafter. Clawback Policy While the committee does not anticipate there would ever be circumstances where a restatement of earnings upon which any incentive plan award decisions were based would occur, the committee, in evaluating such circumstances, has broad discretion to take all actions necessary to protect the interests of stockholders up to and including actions to recover such incentive awards. Anti-Hedging and Anti-Pledging Policies In 2013, AbbVie reiterated its position with respect to hedging and pledging transactions. The company instituted a formal policy prohibiting directors and officers subject to Section 16 of the Exchange Act, including all of the NEOs, from entering into or engaging in the purchase or sale of financial instruments that are designed to hedge or offset any decrease in the market value of AbbVie equity securities they hold. AbbVie also instituted a formal policy prohibiting directors and officers subject to Section 16 of the Exchange Act, including all of the NEOs, from pledging AbbVie common stock as collateral for a loan. In addition, the AbbVie Incentive Stock Program provides that no long-term incentive award may be assigned, alienated, sold or transferred other than by will or by the laws of descent and distribution or as permitted by the compensation committee for estate planning purposes, and no award and no right under any award may be pledged, alienated, attached or otherwise encumbered. All members of senior management, including the company’s NEOs and certain other employees, are required to clear any transaction involving company stock with the General Counsel prior to entering into such transaction. 2015 Proxy Statement 13NOV201221352027 31 EXECUTIVE COMPENSATION Compensation Committee Report ................................................................................................................................................................................................................................................................................................................................................................................................ The compensation committee of the board of directors is primarily responsible for reviewing, approving and overseeing AbbVie’s compensation plans and practices, and works with management and the committee’s independent compensation consultant to establish AbbVie’s executive compensation philosophy and programs. The committee reviewed and discussed the Compensation Discussion and Analysis with management and recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement. Compensation Committee E. Liddy, Chairman, R. Austin, G. Tilton, and F. Waddell Compensation Risk Assessment ................................................................................................................................................................................................................................................................................................................................................................................................ During 2014, in collaboration with the compensation committee’s independent compensation consultant, AbbVie conducted an in-depth risk assessment of its compensation policies and practices, including those related to executive compensation programs for NEOs. The risk assessment included a quantitative and qualitative analysis of AbbVie’s executive compensation programs and broader employee incentive compensation plans. AbbVie also considered how these programs compare, from a design perspective, to programs maintained by other companies. Based on this assessment, it was determined that AbbVie’s executive compensation programs are balanced and appropriately incent employees, and any risks arising from the compensation policies and practices are not reasonably likely to have a material adverse effect on AbbVie. The following factors were among those considered in making this determination: • • • • • • AbbVie’s compensation structure contributes to a corporate culture that encourages our NEOs to regard AbbVie as a long-term employer. For example, equity awards vest over multi-year periods, which encourages NEOs to consider the long-term impact of their decisions and align their interests with those of AbbVie’s stockholders. AbbVie’s annual incentive program is based on multiple performance measures, balancing earnings achievement with other factors. Since earnings are a key component of stock price performance, this aspect of AbbVie’s compensation plan also promotes alignment with stockholder interests. AbbVie does not include certain pay design features that may have the potential to encourage excessive risk-taking, such as: over-weighting toward annual incentives, highly leveraged payout curves, unreasonable thresholds or dramatic changes in payout opportunity at certain performance levels that may encourage inappropriate short-term business decisions to meet payout thresholds. In addition, effective for 2015, the committee has placed a limit of 200% of target on any awards made under the NEO short-term incentive plan. AbbVie’s long-term incentive program focuses NEOs on longer-term operating performance and stockholder returns. In 2014, AbbVie’s NEOs received roughly two-thirds of their total direct compensation in the form of long-term incentives (25% of which are stock options that vest over a multi-year period, and 75% of which are performance-vested awards that vest over a period of up to five years with not more than one- third of the award vesting in any one year). AbbVie makes equity awards and sets grant prices at the same time each year, at the compensation committee’s regularly scheduled meeting in February. In addition, AbbVie does not award discounted stock options or immediately vesting equity awards. AbbVie has robust stock ownership guidelines for its senior executives, which promotes alignment with stockholder interests, and other good governance equity practices such as anti-hedging and anti-pledging policies. 32 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION • • • AbbVie’s compensation committee has the ability to exercise downward discretion in determining annual incentive plan payouts. In 2014, the compensation committee exercised its discretion to deliver annual incentive plan awards below the maximum amounts allowable according to the plan formula. AbbVie’s compensation committee has broad discretion to claw back incentive compensation that was awarded based on financials that were later restated. AbbVie requires mandatory training on its code of conduct and policies and procedures to educate its employees on appropriate behaviors and the consequences of taking inappropriate actions. The risk assessment results were presented to the compensation committee by its independent compensation consultant. Summary Compensation Table ................................................................................................................................................................................................................................................................................................................................................................................................ This section contains compensation information for AbbVie’s NEOs for the fiscal year ended December 31, 2014. Four of AbbVie’s NEOs were employed by Abbott Laboratories (Abbott) prior to AbbVie’s separation from Abbott on January 1, 2013 (the ‘‘Separation’’), so the information provided for periods prior to January 1, 2013 reflects compensation earned at Abbott and the design and objectives of Abbott executive compensation programs. All references in the following tables to stock options, restricted stock and restricted stock units granted prior to January 1, 2013 relate to awards granted by Abbott in respect of Abbott common shares. Pursuant to the Employee Matters Agreement dated December 31, 2012 by and between AbbVie and Abbott, these equity awards, other than performance- vested restricted shares granted to NEOs on December 1, 2012, were converted into awards in respect of AbbVie common stock and awards in respect of Abbott common shares reflecting the respective post-Separation values of AbbVie and Abbott. The performance-vested restricted shares granted to NEOs on December 1, 2012 were converted entirely into performance-vested awards of restricted AbbVie common stock. The following table summarizes compensation awarded to, earned by, or paid to AbbVie’s NEOs in connection with their service to AbbVie during 2014 and 2013 and, as applicable, to Abbott during 2012. Dr. Severino joined AbbVie in 2014. The section of this proxy statement captioned ‘‘Executive Compensation Process’’ describes in greater detail the information reported in this table. Salary ($) Bonus ($) Stock Awards ($)(1) Option Awards ($)(2)(3) Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)(5) Non-Equity Incentive Plan Compensation ($)(4) All Other Compensation ($)(6) Total ($) $1,595,961 1,500,000 863,942 $0 0 0 $8,379,403 9,246,994 3,341,844 $2,762,525 3,616,574 729,640 $3,500,000 3,300,000 2,500,000 $5,044,809(7) 41,612 64,503 $723,573 471,614 449,288 $22,006,271 18,176,794 7,949,217 503,750 1,000,000(8) 7,710,065 734,916 1,200,000 188,911(7) 205,104 11,542,746 844,461 710,000 615,769 957,577 900,000 831,682 923,711 790,000 398,942 0 0 300,000(9) 0 0 1,100,000(9) 0 0 500,000(9) 2,430,109 2,034,396 2,702,141 2,807,018 2,555,732 4,486,690 2,764,853 2,034,396 2,113,216 801,145 795,752 331,473 925,396 1,035,626 576,809 911,634 795,752 162,079 1,300,000 1,030,000 675,000 1,490,000 1,290,000 1,270,000 1,490,000 1,100,000 500,000 2,297,655(7) 416,924 1,801,009 2,465,919(7) 944,548 1,771,306 1,710,772(7) 315,787 498,991 1,589,491 148,097 104,278 402,095 270,392 156,261 9,262,861 5,135,169 6,529,670 9,048,005 6,996,298 10,192,748 121,925 76,788 45,689 7,922,895 5,112,723 4,218,917 Name and Principal Position Richard A. Gonzalez Chairman of the Board and Chief Executive Officer Michael E. Severino Executive Vice President, Research & Development and Chief Scientific Officer Carlos Alban Executive Vice President, Commercial Operations Year 2014 2013 2012 2014 2014 2013 2012 Laura J. Schumacher 2014 2013 Executive Vice President, Business Development, External 2012 Affairs and General Counsel William J. Chase Executive Vice President, Chief Financial Officer 2014 2013 2012 (1) In accordance with Securities and Exchange Commission (SEC) rules, the amounts in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718. AbbVie determines the grant date fair value of stock awards by multiplying 2015 Proxy Statement 13NOV201221352027 33 EXECUTIVE COMPENSATION the number of shares granted by the average of the high and low market prices of one share of AbbVie common stock on the award grant date. (2) In accordance with SEC rules, the amounts in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board ASC Topic 718. (3) These amounts were determined as of the option grant date using a Black-Scholes stock option valuation model. These amounts are being reported solely for the purpose of comparative disclosure in accordance with the SEC rules. There is no certainty that the amount determined using a Black-Scholes stock option valuation model would be the value at which employee stock options would be traded for cash. The weighted-average assumptions used to estimate the grant date fair value of options, along with the weighted-average grant date fair value, are shown below: Assumption Risk-free interest rate Average life of options (years) Volatility Dividend yield Fair value per stock option All Other NEOs Severino 1.91% 6.0 27.01% 3.19% $9.83 1.94% 6.0 25.44% 3.10% $9.89 The assumptions for Dr. Severino’s stock options differ from those for the other NEOs because they were granted on different dates. (4) The compensation reported in this column for 2014 was earned as a performance-based incentive bonus pursuant to the AbbVie Performance Incentive Plan. Additional information regarding the plan can be found in the section of this proxy statement captioned ‘‘Executive Compensation Process.’’ (5) Except as provided below, the plan amounts shown below are reported in this column. The amounts shown beside each NEO’s name are for 2014, 2013, and 2012, respectively, as applicable. The amounts shown for Dr. Severino are for 2014. Negative amounts under the AbbVie Pension Plan and the AbbVie Supplemental Pension Plan are excluded from this column in accordance with SEC rules. AbbVie Pension Plan R. Gonzalez: $142,324 / $3,002 / $(426,732); M. Severino: $18,610; C. Alban: $189,552 / $(42,843) / $204,199; L. Schumacher: $166,274 / $33,119 / $129,541; and W. Chase: $148,641 / $(43,043) / $96,217. AbbVie Supplemental Pension Plan R. Gonzalez: $4,794,683 / $(717,929) / $(4,420,361); M. Severino: $170,007; C. Alban: $1,992,235 / $401,517 / $1,521,110; L. Schumacher: $2,072,222 / $783,337 / $1,464,372; and W. Chase: $1,500,464 / $336,946 / $378,802. The changes in pension value result primarily from the following factors: (i) the effect of changes in the actuarial assumptions AbbVie uses to calculate plan liability for financial reporting purposes; (ii) additional pension benefit accrual under the Pension Plan and the Supplemental Pension Plan; and (iii) the impact of the time value of money on the pension value. Non-Qualified Defined Contribution Plan Earnings The totals in this column include reportable interest credited under the AbbVie Performance Incentive Plan and the AbbVie Supplemental Savings Plan. R. Gonzalez: $107,802 / $41,612 / $64,503; M. Severino: $294; C. Alban: $115,868 / $58,250 / $75,700; L. Schumacher: $227,423 / $128,092 / $177,393; and W. Chase: $61,667 / $21,884 / $23,972. (6) The amounts shown below are reported in this column. The amounts shown beside each NEO’s name are for 2014, 2013, and 2012, respectively, as applicable. 34 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Earnings and Pre-2013 Tax Payments for Non-Qualified Defined Benefit and Non-Qualified Defined Contribution Plans (net of the reportable interest included in footnote (5)). R. Gonzalez: $94,209 / $73,532 / $154,681; M. Severino: $0; C. Alban: $137,370 / $79,626 / $42,667; L. Schumacher: $302,097 / $188,374 / $97,801; and W. Chase: $50,968 / $22,474 / $13,526. Each of the NEOs’ awards under the AbbVie Performance Incentive Plan is paid in cash to the NEO on a current basis and may be deposited into a grantor trust established by the NEO, net of maximum tax withholdings. Each of the NEOs has also established grantor trusts in connection with the AbbVie Supplemental Pension Plan and the AbbVie Supplemental Savings Plan. These amounts include the earnings (net of the reportable interest included in footnote (5)) and (for years before 2013) fees and tax payments paid in connection with these grantor trusts. Employer Contributions to Defined Contribution Plans R. Gonzalez: $79,798 / $75,000 / $0; M. Severino: $25,188; C. Alban: $42,223 / $35,500 / $30,788; L. Schumacher: $47,879 / $45,000 / $41,584; and W. Chase: $46,186 / $39,500 / $19,947. These amounts include AbbVie contributions to the AbbVie Savings Plan and the AbbVie Supplemental Savings Plan. The Supplemental Savings Plan permits the NEOs to contribute amounts in excess of the annual limit set by the Internal Revenue Code for employee contributions to 401(k) plans up to the excess of (i) 18 percent of their base salary over (ii) the amount contributed to AbbVie’s tax-qualified 401(k) plan. AbbVie matches participant contributions at the rate of 250 percent of the first 2 percent of compensation contributed to the plan. The NEOs have these amounts paid to them in cash on a current basis and deposited into a grantor trust established by the NEO, net of maximum tax withholdings. Other 2014 Compensation The totals shown in the table include the cost of providing a corporate automobile less the amount reimbursed by the NEO: R. Gonzalez: $13,680; M. Severino: $7,152; C. Alban: $17,622; L. Schumacher: $15,205; and W. Chase: $17,216. The totals shown in the table include the following costs associated with financial planning services: R. Gonzalez: $10,000; M. Severino: $0; C. Alban: $9,488; L. Schumacher: $7,500; and W. Chase: $7,555. The totals shown in the table include the following costs for non-business-related air travel: R. Gonzalez: $525,886; and L. Schumacher: $29,414. AbbVie determines the incremental cost for flights based on the direct cost to AbbVie, including fuel costs, parking, handling and landing fees, catering, travel fees, and other miscellaneous direct costs. AbbVie also imputes income to the NEO for these costs and the NEO pays taxes on that income in accordance with tax regulations. For Dr. Severino, the total includes $172,764 for relocation costs. For Mr. Alban, the total includes income tax equalization of $1,382,788 related to stock options he received as long-term incentive awards in 2007, 2008 and 2009 during his expatriate assignment in France. French law taxes income on equity awards granted while an employee is working on assignment in France, regardless of the employee’s home country or location when the awards vest or are exercised, and regardless of whether the employee pays taxes on such awards in another country. AbbVie provides tax equalization expatriate benefits to all AbbVie employees who take an international assignment to mitigate differences in tax laws between the employees’ home and assignment countries. During 2013, Mr. Alban exercised the options he received during his expatriate assignment in France and the resulting French taxes were due in 2014, which triggered the income tax equalization benefit. Mr. Alban personally paid the U.S. taxes associated with the exercise of the stock options. The NEOs also are eligible to participate in an executive disability benefit described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination—Generally.’’ (7) This number includes the change in pension value during 2014, which is attributable to changes in actuarial assumptions (primarily discount rate and mortality tables) and other factors based on plan design (primarily pay, service and age). The present value of a pension benefit is determined, in part, by the discount rate used for accounting purposes. As required by the Financial Accounting Standards Board, the discount rate is determined by reference to the 2015 Proxy Statement 13NOV201221352027 35 EXECUTIVE COMPENSATION prevailing market rate of interest. In 2014, interest rates declined and the discount rate used for the Pension Plan and the Supplemental Pension Plan was reduced to reflect that decline. A reduction in the discount rate increases the present value of participants’ pensions while actual payments to be made to participants are not changed. The discount rate used for 2014 was 4.45%, and the discount rate used for 2013 was 5.36%. The mortality assumptions that apply for actuarial purposes also affect pension values. During 2014, the Society of Actuaries released new mortality tables reflecting longer life expectancies, which are now in use for Pension Plan and Supplemental Pension Plan accounting. This increase in assumed life expectancy results in an increase in the present value of participants’ pensions. In addition to the effect of the changes in actuarial assumptions, other factors built into the plans contributed to the pension calculations. The change in pension value numbers reflect the application of the benefit formulas under the Pension Plan and the Supplemental Pension Plan, which are described in the section of this proxy statement captioned ‘‘Pension Benefits.’’ As participants’ pay increases and service credit accumulates year over year, the formulas yield greater pension values. Furthermore, as a participant ages (before he or she is eligible for unreduced pension benefits), the present value of his or her pension benefits increases, even without changes to actuarial assumptions. The effects of the actuarial changes and other factors are summarized in the following table. Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase 2014 Change in Pension Value Attributable to Attributable to Other Factors ($) Changes in Actuarial Assumptions ($) $1,193,401 43,227 1,056,243 1,381,330 786,806 $3,743,606 145,390 1,125,544 857,166 862,299 (8) As part of Dr. Severino’s hiring package, this amount was paid to replace a prior employer incentive award. (9) Bonus paid in recognition of performance related to the separation from Abbott. 36 13NOV201221352027 2015 Proxy Statement 2014 Grants of Plan-Based Awards ................................................................................................................................................................................................................................................................................................................................................................................................ The following table summarizes the AbbVie equity awards granted under the AbbVie 2013 Incentive Stock Program to the NEOs during 2014. EXECUTIVE COMPENSATION Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Grant Date Target Maximum ($) ($) Estimated Future Payouts Under Equity Incentive Plan Awards Target (#)(2)(3) All Other Option Awards: Numbers of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/Sh.) Closing Market Price on Grant Date 02/20/14 02/20/14 06/02/14 06/02/14 02/20/14 02/20/14 02/20/14 02/20/14 02/20/14 02/20/14 162,960 141,625 47,260 54,590 53,770 281,030(5) $51.42 $51.86 74,309(5) 54.44 54.15 81,500(5) 51.42 51.86 94,140(5) 51.42 51.86 92,740(5) 51.42 51.86 Grant Date Fair Value of Stock and Option Awards $8,379,403(4) 2,762,525(6) 7,710,065(4) 734,916(6) 2,430,109(4) 801,145(6) 2,807,018(4) 925,396(6) 2,764,853(4) 911,634(6) Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase (1) During 2014, each of the NEOs participated in the AbbVie Performance Incentive Plan. The annual cash incentive award earned by the NEO in 2014 under the plan is shown in the Summary Compensation Table in the column captioned ‘‘Non-Equity Incentive Plan Compensation.’’ No future pay-outs will be made with respect to the 2014 awards under the plan. The plan is described in greater detail in the section of this proxy statement captioned ‘‘Compensation Discussion and Analysis—Compensation Plan Elements—Short-Term Incentives.’’ (2) These are performance-vested restricted stock awards that have a five-year term and vest upon AbbVie achieving a minimum return on equity target, with no more than one-third of the award vesting in any one year. In 2014, AbbVie reached its minimum return on equity target and one-third of each of the awards granted on February 20, 2014 vested on February 27, 2015. The return on equity targets are described in the section of this proxy statement captioned ‘‘Compensation Discussion and Analysis—Compensation Plan Elements—Long-Term Incentives.’’ (3) Shares of outstanding restricted stock receive dividends at the same rate as all other stockholders. In the event of a grantee’s death or disability, these awards are deemed fully earned. Upon a change in control, the treatment of these awards is determined as described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control—Equity Awards.’’ (4) The grant date fair value of stock awards is determined by multiplying the number of shares granted by the average of the high and low market prices of one share of AbbVie common stock on the award grant date. (5) One-third of the shares of common stock covered by these options are exercisable after one year, two-thirds after two years, and all after three years. The options vest in the event of the grantee’s death or disability. Upon a change in control, the treatment of these awards is determined as described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control—Equity Awards.’’ Under the AbbVie 2013 Incentive Stock Program, these options have an exercise price equal to the average of the high and low market prices (rounded up to the next even penny) of one share of AbbVie common stock on the date of grant. These options do not contain a replacement option feature. (6) The grant date fair value of option awards is determined as of the option grant date using a Black-Scholes stock option valuation model. The assumptions used to determine the grant date fair value are described in footnote (3) to the Summary Compensation Table. 2015 Proxy Statement 13NOV201221352027 37 EXECUTIVE COMPENSATION 2014 Outstanding Equity Awards at Fiscal Year End ................................................................................................................................................................................................................................................................................................................................................................................................ The following table summarizes the outstanding AbbVie equity awards held by the NEOs at year end. Option Awards(1)(2) Stock Awards(1) Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) 24.2082 29.2265 35.8800 51.4200 Option Expiration Date 02/17/2021 02/16/2022 02/13/2023 02/19/2024 35,767(3) 350,953(3) 281,030(3) 74,309(3) 54.4400 06/01/2024 16,033(3) 77,220(3) 81,500(3) 26,600(3) 97,006(3) 94,140(3) 6,533(3) 77,220(3) 92,740(3) 24.2082 29.2265 35.8800 51.4200 28.8628 28.1251 28.3122 24.2082 29.2265 35.8800 51.4200 27.2940 28.8628 28.1251 28.3122 24.2082 29.2265 35.8800 51.4200 02/17/2021 02/16/2022 02/13/2023 02/19/2024 02/14/2018 02/19/2019 02/18/2020 02/17/2021 02/16/2022 02/13/2023 02/19/2024 02/15/2017 02/14/2018 02/19/2019 02/18/2020 02/17/2021 02/16/2022 02/13/2023 02/19/2024 36,733 71,533 175,477 45,800 32,067 38,610 66,300 38,940 42,533 38,333 53,200 48,504 6,600 25,500 12,800 13,400 19,000 13,067 38,610 Number of Shares of Stock That Have Not Vested (#) Market Value of Shares of Stock That Have Not Vested ($) 35,521(3) $2,324,494 59,202(3) 3,874,179 Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Other Rights That Have Not Vested ($) 19,800(3) 171,813(3) 162,960(3) $1,295,712 11,243,443 10,664,102 141,625(3) 9,267,940 8,900(3) 582,416 37,800(3) 47,260(3) 14,733(3) 47,486(3) 54,590(3) 2,473,632 3,092,694 964,128 3,107,484 3,572,370 44,401(3) 2,905,601 3,633(3) 237,744 37,800(3) 53,770(3) 2,473,632 3,518,709 (1) When AbbVie separated from Abbott on January 1, 2013, outstanding Abbott equity awards generally converted into adjusted awards based on Abbott common shares and AbbVie common stock (except to the extent prohibited by local law or with respect to certain awards described below). Holders of Abbott restricted shares generally retained those awards and received restricted stock of AbbVie in an amount that reflected the distribution to Abbott shareholders, except for Abbott restricted stock awards granted on December 1, 2012 that converted in full into AbbVie restricted stock awards as of the Separation, as described in note (e) to footnote (3) below. Such awards are subject to substantially the same terms, vesting conditions and other restrictions that applied to the original Abbott awards immediately before the distribution. Each Abbott stock option was converted into an adjusted Abbott stock option and an AbbVie stock option, with adjustments to the stock option exercise prices that were intended to preserve the value of the original Abbott award as measured immediately before and immediately after the distribution. Each such adjusted Abbott stock option and AbbVie stock option is subject to substantially the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original Abbott stock option immediately before the distribution. 38 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION As a result of the Separation, the NEOs held the following Abbott equity awards as of December 31, 2014: • • • R. Gonzalez: Options to purchase 89,900 Abbott common shares with exercise prices ranging from $22.39 to $27.03 per share, which vested on February 17, 2015; performance-vested restricted stock awards covering 19,800 Abbott common shares with a market value of $891,396 as of December 31, 2014, which vested on February 27, 2015. C. Alban: Options to purchase 48,100 Abbott common shares with an exercise price of $27.03 per share, which vested on February 17, 2015; performance-vested restricted stock awards covering 8,900 Abbott common shares with a market value of $400,678 as of December 31, 2014, which vested on February 27, 2015. L. Schumacher: Options to purchase 265,906 Abbott common shares with exercise prices ranging from $22.39 to $27.03 per share, which vested on February 17, 2015; performance-vested restricted stock awards covering 14,733 Abbott common shares with a market value of $663,280 as of December 31, 2014, which vested on February 27, 2015. • W. Chase: Options to purchase 6,533 Abbott common shares with an exercise price of $27.03 per share, which vested on February 17, 2015; performance-vested restricted stock awards covering 3,633 Abbott common shares with a market value of $163,558 as of December 31, 2014, which vested on February 27, 2015. (2) Except as noted, the stock options are fully vested. (3) The vesting dates of AbbVie unexercisable stock options and unvested restricted stock awards outstanding at December 31, 2014 are as follows: Option Awards Number of Unexercised Shares Remaining from Original Grant Number of Option Shares Vesting— Date Vested 2015 Number of Option Shares Vesting— Date Vested 2016 Number of Option Shares Vesting— Date Vested 2017 Number of Shares of Restricted Stock Stock Awards Number of Shares of Restricted Stock Vesting— Date Vested 2015 Number of Shares of Restricted Stock Vesting— Date Vested 2016 Number of Shares of Restricted Stock Vesting— Date Vested 2017 35,767 350,953 281,030 35,767—2/17 175,476—2/14 93,677—2/20 175,477—2/14 93,676—2/20 93,677—2/20 74,309 24,770—6/02 24,769—6/02 24,770—6/02 16,033 77,220 81,500 26,600 97,006 94,140 6,533 77,220 92,740 16,033—2/17 38,610—2/14 27,167—2/20 26,600—2/17 48,503—2/14 31,380—2/20 6,533—2/17 38,610—2/14 30,914—2/20 38,610—2/14 27,166—2/20 27,167—2/20 48,503—2/14 31,380—2/20 31,380—2/20 38,610—2/14 30,913—2/20 30,913—2/20 19,800 171,813 162,960 141,625 8,900 37,800 47,260 35,521 14,733 47,486 54,590 59,202 3,633 37,800 53,770 44,401 (a) (b) (c) (d) (a) (b) (c) (e) (a) (b) (c) (e) (a) (b) (c) (e) Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase (a) These are the shares of performance-vested restricted stock that remained outstanding and unvested on December 31, 2014, from an award made on February 17, 2012. The award has a 5-year term, with no more than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on equity target, measured at the end of the relevant year. In 2014, AbbVie reached its minimum return on equity target and these shares vested on February 27, 2015. (b) These are the shares of performance-vested restricted stock that remained outstanding and unvested on December 31, 2014, from an award made on February 14, 2013. The award has a 5-year term, with no more than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on equity target, measured at the end of the relevant year. In 2014, AbbVie reached its minimum return on equity target and one-half of the unvested shares vested on February 27, 2015. 2015 Proxy Statement 13NOV201221352027 39 EXECUTIVE COMPENSATION (c) These are the shares of performance-vested restricted stock that remained outstanding and unvested on December 31, 2014, from an award made on February 20, 2014. The award has a 5-year term, with no more than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on equity target, measured at the end of the relevant year. In 2014, AbbVie reached its minimum return on equity target and one-third of the unvested shares vested on February 27, 2015. (d) These are the shares of performance-vested restricted stock that remained outstanding and unvested on December 31, 2014, from an award made on June 2, 2014. The award has a 5-year term, with no more than one-third of the original award vesting in any one year upon AbbVie achieving a minimum return on equity target. (e) These are the shares of performance-vested restricted stock that remained outstanding and unvested on December 31, 2014, from an award made on December 1, 2012. These shares will vest after January 1, 2016 subject to continued employment with AbbVie through the vesting date and AbbVie achieving a minimum return on equity target for the period 2013 through 2015. 2014 Option Exercises and Stock Vested ................................................................................................................................................................................................................................................................................................................................................................................................ The following table summarizes for each NEO the number of shares acquired on the exercise of AbbVie stock options and the number of shares acquired on the vesting of AbbVie stock awards in 2014: Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase Option Awards Stock Awards Number of Shares Acquired On Exercise (#) Value Number of Shares Realized On Acquired On Vesting (#) Exercise ($) Value Realized On Vesting ($) 0 0 0 $0 0 0 8,928 8,495 67,139 373,159 118,774 $6,046,784 0 38,633 52,110 27,033 0 1,966,806 2,652,920 1,376,250 Pension Benefits ................................................................................................................................................................................................................................................................................................................................................................................................ During 2014, the NEOs participated in two AbbVie-sponsored defined benefit pension plans: the AbbVie Pension Plan, a tax-qualified pension plan; and the AbbVie Supplemental Pension Plan, a non-qualified supplemental pension plan. The Supplemental Pension Plan also includes a benefit feature AbbVie uses to attract senior executives who are mid-career hires, which provides an additional benefit to such participants that is less valuable to participants who have spent most of their career at the company. Except as provided in AbbVie’s change in control agreements, AbbVie does not have a policy granting extra years of credited service under the plans. The change in control agreements are described in the section of this proxy statement captioned ‘‘Potential Payments upon Termination or Change in Control.’’ The compensation considered in determining the pensions payable to the NEOs is the compensation shown in the ‘‘Salary’’ and ‘‘Non-Equity Incentive Plan Compensation’’ columns of the Summary Compensation Table. Pension Plan The Pension Plan covers most AbbVie employees in the United States, age 21 or older, and provides participants with a life annuity benefit at normal retirement equal to A plus the greater of B or C below. A. 1.10% of 5-year final average earnings multiplied by years of benefit service after 2003. 40 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION B. 1.65% of 5-year final average earnings multiplied by years of benefit service prior to 2004 (up to 20); plus 1.50% of 5-year final average earnings multiplied by years of benefit service prior to 2004 in excess of 20 (but no more than 15 additional years); less 0.50% of the lesser of 3-year final average earnings (but not more than the social security wage base in any year) or the social security covered compensation level multiplied by years of benefit service. C. 1.10% of 5-year final average earnings multiplied by years of benefit service prior to 2004. The benefit for service prior to 2004 (B or C above) is reduced for the cost of preretirement surviving spouse benefit protection. The reduction is calculated using formulas based on age and employment status during the period in which coverage was in effect. Final average earnings are the average of the employee’s 60 highest-paid consecutive calendar months of compensation (salary and non-equity incentive plan compensation). The Pension Plan covers earnings up to the limit imposed by Internal Revenue Code Section 401(a)(17) and provides for a maximum of 35 years of benefit service. Participants become fully vested in their pension benefit upon the completion of five years of service. The benefit is payable on an unreduced basis at age 65. Employees hired after 2003 who terminate employment prior to age 55 with at least 10 years of service may choose to commence their benefits on an actuarially reduced basis as early as age 55. Employees hired before 2004 who terminate employment prior to age 50 with at least 10 years of service may choose to commence their benefits on an actuarially reduced basis as early as age 50. Employees hired before 2004 who terminate employment prior to age 50 with fewer than 10 years of service may choose to commence their benefits on an actuarially reduced basis as early as age 55. The Pension Plan offers several optional forms of payment, including certain and life annuities, joint and survivor annuities, and level income annuities. The benefit paid under any of these options is actuarially equivalent to the life annuity benefit produced by the formula described above. Employees who retire from AbbVie prior to their normal retirement age may receive subsidized early retirement benefits. Employees hired after 2003 are eligible for early retirement at age 55 with 10 years of service. Employees hired before 2004 are eligible for early retirement at age 50 with 10 years of service or age 55 if the employee’s age plus years of benefit service total 70 or more. Mr. Gonzalez, Mr. Alban and Ms. Schumacher are eligible for early retirement benefits under the plan. The subsidized early retirement reductions applied to the benefit payable for service after 2003 (A above) depend upon the participant’s age at retirement. If the participant retires after reaching age 55, the benefit is reduced 5 percent per year for each year that payments are made before age 62. If the participant retires after reaching age 50 but prior to reaching age 55, the benefit is actuarially reduced from age 65. The early retirement reductions applied to the benefit payable for service prior to 2004 (B and C above) depend upon age and service at retirement: • • In general, the 5-year final average earnings portions of the benefit are reduced 3 percent per year for each year that payments are made before age 62 and the 3-year final average earnings portion of the benefit is reduced 5 percent per year for each year that payments are made before age 62. Employees who participated in the plan before age 36 may elect ‘‘Special Retirement’’ on the last day of any month after reaching age 55 with age plus Seniority Service points of at least 94 or ‘‘Early Special Retirement’’ on the last day of any month after reaching age 55, provided their age plus Seniority Service points would reach at least 94 before age 65. Seniority Service includes periods of employment prior to attaining the minimum age required to participate in the plan. If Special Retirement or Early Special Retirement applies, Seniority Service is used in place of benefit service in the formulas. The 5-year final average earnings portions of the benefit in B above are reduced 12⁄3 percent for each year between ages 59 and 62 plus 21⁄2 percent for each year between ages 55 and 59. The 3-year final average earnings portion of 2015 Proxy Statement 13NOV201221352027 41 EXECUTIVE COMPENSATION the benefit is reduced 5 percent per year for each year that payments are made before age 62. Benefit C is payable on an unreduced basis at Special Retirement and is reduced 3 percent per year for each year that payments are made before age 62, if Early Special Retirement applies. Supplemental Pension Plan With the following exceptions, the provisions of the Supplemental Pension Plan are substantially the same as those of the Pension Plan: • • • • • Participants’ 5-year final average earnings are calculated using the average of the 5 highest years of base earnings and the 5 highest years of payments under AbbVie’s non-equity incentive plans. The Pension Plan does not include amounts deferred or payments received under the AbbVie Deferred Compensation Plan in its calculation of a participant’s final average earnings. To preserve the pension benefits of Deferred Compensation Plan participants, the Supplemental Pension Plan includes amounts deferred by a participant under the Deferred Compensation Plan in its calculation of final average earnings. Beginning in the year following their election or appointment as an officer, AbbVie officers are no longer eligible to defer compensation under the Deferred Compensation Plan. In addition to the benefits outlined above for the Pension Plan, the NEOs are eligible for an additional Supplemental Pension Plan benefit equal to 0.6% of 5-year final average earnings for each year of service for each of the first 20 years of service occurring after the participant attains age 35. The benefit is further limited by the maximum percentage allowed under the Pension Plan under that plan’s benefit formulas (A, B and C above). The portion of this additional benefit attributable to service before 2004 is reduced 3 percent per year for each year that payments are made before age 60. The portion attributable to service after 2003 is reduced 5 percent per year for each year that payments are made before age 60 if the participant is at least age 55 at early retirement. If the participant is under age 55 at retirement, the portion attributable to service after 2003 is actuarially reduced from age 65. The Supplemental Pension Plan provides early retirement benefits similar to those provided under the Pension Plan. The benefits provided to NEOs under the Supplemental Pension Plan are not, however, reduced for the period between age 60 and age 62, unless the benefit is being actuarially reduced from age 65. Mr. Gonzalez, Mr. Alban and Ms. Schumacher are eligible for early retirement benefits under the plan. Vested benefits accrued under the Supplemental Pension Plan may be funded through a grantor trust established by the NEO. Consistent with the distribution requirements of Internal Revenue Code Section 409A and its regulations, those NEOs who became officers prior to 2009 may have the entire amount of their vested plan benefits funded through a grantor trust. Any NEO who became an officer after 2008 may have only the vested benefits that accrue following the calendar year in which he or she is first elected as an officer funded through a grantor trust. Vested benefits accrued through December 31, 2008, to the extent not previously funded, were distributed to the participants’ individual trusts and included in the participants’ income. Benefits payable under the Supplemental Pension Plan are offset by the benefits payable from the Pension Plan, calculated as if benefits under the plans commenced at the same time. The amounts paid to an NEO’s Supplemental Pension Plan grantor trust to fund plan benefits are actuarially determined. The plan is designed to result in AbbVie paying the NEO’s Supplemental Pension Plan benefits to the extent assets held in his or her trust are insufficient. 42 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Pension Benefits Table Name R. Gonzalez M. Severino C. Alban L. Schumacher W. Chase Plan Name AbbVie Pension Plan AbbVie Supplemental Pension Plan AbbVie Pension Plan AbbVie Supplemental Pension Plan AbbVie Pension Plan AbbVie Supplemental Pension Plan AbbVie Pension Plan AbbVie Supplemental Pension Plan AbbVie Pension Plan AbbVie Supplemental Pension Plan Number of Present Value of Years Accumulated Benefit ($)(1) Credited Service (#) Payments During Last Fiscal Year ($) 34 34 <1 <1 28 28 24 24 26 26 $456,241 10,435,742 $0 319,807(2) 18,610 170,007 738,968 5,477,406 0 0 0 684,641(2) 639,023 7,372,680 0 2,829,857(2) 472,841 2,794,485 0 212,578(2) (1) AbbVie calculates these present values using: (i) a 4.45% discount rate, the same discount rate it uses for Financial Accounting Standards Board ASC Topic 715 calculations for financial reporting purposes; and (ii) each plan’s unreduced retirement age, which is age 62 under the AbbVie Pension Plan and age 60 under the AbbVie Supplemental Pension Plan for those participants who are eligible for early retirement benefits and which is age 65 under both plans for other participants. The present values shown in the table reflect postretirement mortality, based on the Financial Accounting Standards Board ASC Topic 715 assumption (the RP2014 Healthy Annuitant table with MP2014 mortality improvement scale), but do not include a factor for preretirement termination, mortality, or disability. (2) During 2014, the amounts shown, less applicable tax withholdings, were distributed and deposited into the individual grantor trusts established by the NEOs and included in the NEOs’ income. Consistent with the distribution requirements of Internal Revenue Code Section 409A and its regulations, vested Supplemental Pension Plan benefits, to the extent not previously funded, are distributed to the participants’ individual grantor trusts and included in their income. Amounts held in an NEO’s individual trust are expected to offset AbbVie’s obligations to him or her under the plan. Grantor trusts are described in greater detail in the section of this proxy statement captioned ‘‘Compensation Plan Elements—Benefits—Retirement Benefits.’’ 2015 Proxy Statement 13NOV201221352027 43 EXECUTIVE COMPENSATION Nonqualified Deferred Compensation ................................................................................................................................................................................................................................................................................................................................................................................................ The following table summarizes Ms. Schumacher’s and Mr. Chase’s non-qualified deferred compensation under the AbbVie Deferred Compensation Plan. No additional contributions have been made to their accounts under the plan since such time as Ms. Schumacher and Mr. Chase, respectively, became officers and ceased to be eligible to contribute to the plan. None of the other NEOs has any non-qualified deferred compensation under the plan. Name Plan Name Executive contributions in last FY ($) Registrant contributions in last FY ($) Aggregate Aggregate earnings withdrawals/ distributions in last FY ($) ($)(3) L. Schumacher W. Chase Deferred Compensation Plan(1)(2) Deferred Compensation Plan(1)(2) $0 0 $0 0 $27,927 4,386 $0 0 Aggregate balance at last FYE ($)(4) $383,610 71,181 (1) Ms. Schumacher’s and Mr. Chase’s contributions to the Deferred Compensation Plan ceased in 2002 and 2007, respectively. (2) The plan permits participants to defer up to 75% of their base salary and up to 100% of their annual cash incentives and credits a participant’s account with an amount equal to the employer matching contributions that otherwise would have been made for the participant under AbbVie’s tax-qualified defined contribution plan. Participants may direct the investment of their deferral accounts into one or more of several funds chosen by the administrator, and the deferral account is credited with investment returns based on the performance of the fund(s) selected. During 2014, the weighted average rate of return credited to the accounts was 7.8% for Ms. Schumacher and 6.6% for Mr. Chase. The plan provides for cash distributions in either a lump sum or installments after separation from service and permits in-service withdrawals in accordance with specific procedures. Participants make distribution elections each year that apply to the deferrals to be made in the following calendar year, in accordance with the requirements of Internal Revenue Code Section 409A. Participants may request withdrawals due to financial hardship; if a hardship withdrawal is approved, it is limited to the amount needed to address the hardship. (3) The amounts reported in this column are not included in the Summary Compensation Table of this proxy statement. (4) The amounts reported in this column have not been previously reported as compensation in AbbVie’s Summary Compensation Tables because they relate to contributions made before the applicable individual became an NEO. Potential Payments upon Termination or Change in Control ................................................................................................................................................................................................................................................................................................................................................................................................ Potential Payments upon Termination—Generally AbbVie does not have employment agreements with its NEOs. The following summarizes the payments that the NEOs would have received if their employment had terminated on December 31, 2014. Earnings would have continued to be paid for the NEO’s Performance Incentive Plan and Supplemental Savings Plan grantor trusts until the trust assets were fully distributed. The amount of these payments would depend on the period over which the trust assets were distributed and the trust earnings and fees. If the trust assets were distributed over a 10-year period and based on current earnings, the NEOs would receive the following average annual payments over such 10-year period: Mr. Gonzalez, $721,197; Mr. Alban, $388,363; Ms. Schumacher, $487,603; and Mr. Chase, $460,909. In addition, the following one-time deposits would have been made under the AbbVie Supplemental Pension Plan for each of the following NEOs, respectively: Mr. Gonzalez, $2,232,027; Mr. Alban, $1,361,973; Ms. Schumacher, $845,411; and Mr. Chase, $534,672. As of December 31, 2014, Mr. Gonzalez, Mr. Alban and Ms. Schumacher were eligible to retire, and therefore were eligible to receive the pension benefits described above. If the termination of employment had been due to disability, then the NEOs also would have received, in addition to AbbVie’s standard disability benefits, a monthly long-term disability benefit in the amount of $175,000 for 44 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION Mr. Gonzalez; $60,000 for Dr. Severino; $65,000 for Mr. Alban; $74,500 for Ms. Schumacher; and $74,500 for Mr. Chase. This long-term disability benefit would continue for up to 18 months following termination of employment. It ends if the NEO retires, recovers, dies or ceases to meet eligibility criteria. If the NEO’s employment had terminated due to death or disability, his or her unvested stock options and restricted stock or unit awards would have vested on December 31, 2014 with values as set forth below in the subsection of this proxy statement captioned ‘‘Equity Awards.’’ Potential Payments upon Change in Control In connection with the Separation from Abbott, AbbVie assumed the change in control agreements between Abbott and the officers transferring to AbbVie. AbbVie issued a similar change in control agreement to Dr. Severino when he joined the company in 2014. The agreements with Mr. Gonzalez, Dr. Severino, Mr. Alban, Ms. Schumacher, and Mr. Chase are described below. Each change in control agreement continues in effect until December 31, 2016, and can be renewed for successive two-year terms upon notice prior to the expiration date. If notice of non-renewal is given, the agreement will expire on the later of the scheduled expiration date and the one-year anniversary of the date of such notice. If no notice is given, the agreement will expire on the one-year anniversary of the scheduled expiration date. Each agreement also automatically extends for two years following any change in control (see below) that occurs while the agreement is in effect. The agreements provide that if the employee is terminated other than for cause or permanent disability or if the employee elects to terminate employment for good reason (see below) within two years following a change in control, he or she is entitled to receive a lump sum payment equal to three times his or her annual salary and annual incentive (‘‘bonus’’) award (assuming for this purpose that all target performance goals have been achieved or, if higher, based on the average bonus for the last three years), plus any unpaid bonus owing for any completed performance period and the pro rata bonus for any current bonus period (based on the highest of the bonus assuming achievement of target performance, the average bonus for the past three years or, in the case of the unpaid bonus for any completed performance period, the actual bonus earned). If the employee is terminated other than for cause or permanent disability or if the employee elects to terminate employment for good reason during a potential change in control (see below), he or she is entitled to receive a lump sum payment of the annual salary and bonus payments described above, except that the amount of the bonus to which the employee is entitled will be based on the actual achievement of the applicable performance goals. If the potential change in control becomes a ‘‘change in control event’’ (within the meaning of Internal Revenue Code Section 409A), the employee will be entitled to receive the difference between the bonus amounts the officer received upon termination during the potential change in control and the bonus amounts that would have been received had such amounts instead been based on the higher of the employee’s target bonus or the average bonus paid to the employee in the preceding three years. Bonus payments include payments made under the Performance Incentive Plan. The employee also will receive up to two years of additional employee benefits (including welfare benefits, outplacement services and tax and financial counseling) and the value of three more years of pension accruals. If change in control-related payments and benefits become subject to the excise tax imposed under Internal Revenue Code Section 4999, payments under the agreement will be reduced to prevent application of the excise tax if such a reduction would leave the employee in a better after- tax position than if the payments were not reduced and the tax applied. The agreements also limit the conduct for which awards under AbbVie’s incentive stock programs can be terminated and generally permit options to remain exercisable for the remainder of their term. The compensation committee’s independent compensation consultant has confirmed that the level of payments provided under the agreements is consistent with current market practice. 2015 Proxy Statement 13NOV201221352027 45 EXECUTIVE COMPENSATION For purposes of the agreements, the term ‘‘change in control’’ includes the following events: any person becoming the beneficial owner of AbbVie securities representing 20 percent or more of the outstanding voting power (not including an acquisition directly from AbbVie and its affiliates); a change in the majority of the members of the board of directors whose appointment was approved by a vote of at least two-thirds of the incumbent directors; and the consummation of certain mergers or similar corporate transactions involving AbbVie. A ‘‘potential change in control’’ under the agreements includes, among other things, AbbVie’s entry into an agreement that would result in a change in control. Finally, the term ‘‘good reason’’ includes: a significant adverse change in the employee’s position, duties, or authority; the company’s failure to pay the employee’s compensation or a reduction in the employee’s base pay or benefits; or the relocation of the company’s principal executive offices to a location that is more than 35 miles from the location of the offices at the time of the change in control. If a change in control had occurred on December 31, 2014, immediately followed by one of the covered circumstances described above, Mr. Gonzalez, Dr. Severino, Mr. Alban, Ms. Schumacher, and Mr. Chase would have been entitled to receive the following payments and benefits under the change in control agreements: • Mr. Gonzalez: cash termination payments—$13,950,000; additional Supplemental Pension Plan benefits— $8,394,858; welfare and fringe benefits—$72,535. • Dr. Severino: cash termination payments—$5,323,500; welfare and fringe benefits—$72,254. • Mr. Alban: cash termination payments—$5,355,000; additional Supplemental Pension Plan benefits— $4,242,486; welfare and fringe benefits—$72,842. • Ms. Schumacher: cash termination payments—$5,057,547; additional Supplemental Pension Plan benefits— $1,477,581; welfare and fringe benefits—$59,465. • Mr. Chase: cash termination payments—$5,827,500; additional Supplemental Pension Plan benefits— $1,055,192; welfare and fringe benefits—$73,123. The amounts shown for Ms. Schumacher’s cash termination payments and additional supplemental pension plan benefits reflect reductions of $1,472,453 and $430,183, respectively, which would have applied under cutback provisions in the agreement as described above. Equity Awards Under the AbbVie 2013 Incentive Stock Program, any outstanding unvested stock options and restricted stock or unit awards granted prior to February 2013 (including awards converted into adjusted awards based on Abbott common shares and AbbVie common stock in connection with the Separation) vest upon a change in control, including performance-vested restricted shares, which are deemed earned in full. This program, which was approved by AbbVie’s stockholders, covers approximately 6,500 participants, including a broad group of management and professional staff. In addition, unvested equity awards converted into adjusted awards based on Abbott common shares in connection with the Separation would vest in full upon a change in control of Abbott. Beginning with awards granted in February 2013, upon a change in control the surviving company may assume, convert or replace the awards on an equivalent basis. If the surviving company does not do so, the vesting of the awards is accelerated. If the surviving company does assume, convert or replace the awards on an equivalent basis, then accelerated vesting of the awards is limited to circumstances in which, during the period from six months before through two years after a change in control, the grantee’s employment is terminated without cause or the grantee resigns for good reason. The terms ‘‘cause’’ and ‘‘good reason’’ have the same definitions as in the change in control agreements. 46 13NOV201221352027 2015 Proxy Statement EXECUTIVE COMPENSATION If a change in control had occurred on December 31, 2014 and the surviving company did not assume, convert or replace any of the awards granted after January 2013, then the unvested equity awards of the NEOs would have vested as follows: • Mr. Gonzalez would have vested in (i) 667,750 unvested AbbVie stock options with a value of $15,609,336 and 35,767 unvested Abbott stock options with a value of $643,320, and (ii) 354,573 shares of AbbVie restricted stock with a value of $23,203,257 and 19,800 Abbott restricted shares with a value of $891,396. • Dr. Severino would have vested in (i) 74,309 unvested AbbVie stock options with a value of $817,399, and (ii) 141,625 shares of AbbVie restricted stock with a value of $9,267,940. • Mr. Alban would have vested in (i) 174,753 unvested AbbVie stock options with a value of $4,005,808 and 16,033 unvested Abbott stock options with a value of $288,376, and (ii) 129,481 shares of AbbVie restricted stock with a value of $8,473,236 and 8,900 Abbott restricted shares with a value of $400,678. • Ms. Schumacher would have vested in (i) 217,746 unvested AbbVie stock options with a value of $5,150,621 and 26,600 unvested Abbott stock options with a value of $478,438, and (ii) 176,011 shares of AbbVie restricted stock with a value of $11,518,161 and 14,733 Abbott restricted shares with a value of $663,280. • Mr. Chase would have vested in (i) 176,493 unvested AbbVie stock options with a value of $3,819,398 and 6,533 unvested Abbott stock options with a value of $117,505, and (ii) 139,604 shares of AbbVie restricted stock with a value of $9,135,686 and 3,633 Abbott restricted shares with a value of $163,558. The value of stock options shown is based on the excess of the closing price of one share of common stock on December 31, 2014 over the exercise price of such options, multiplied by the number of unvested stock options held by the NEO. The value of restricted stock shown is determined by multiplying the number of restricted shares that would vest as of December 31, 2014 and the closing price of one share of common stock on December 31, 2014. 2015 Proxy Statement 13NOV201221352027 47 RATIFICATION OF ERNST & YOUNG LLP AS ABBVIE’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2) 14FEB201503004764 AbbVie’s audit committee charter provides that the audit committee shall appoint annually AbbVie’s independent registered public accounting firm. On October 9, 2014, the audit committee appointed Ernst & Young LLP to perform independent audit services for the fiscal year ending December 31, 2015. Although the audit committee has sole authority to appoint the independent registered public accounting firm, it would like to know the opinion of the stockholders regarding its appointment of Ernst & Young LLP for 2015. For this reason, stockholders are being asked to ratify this appointment. If the stockholders do not ratify the appointment of Ernst & Young LLP for 2015, the audit committee will take that fact into consideration, but may, nevertheless, continue to retain Ernst & Young LLP. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will be given the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions. The board of directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP as AbbVie’s independent registered public accounting firm for 2015. 48 13NOV201221352027 2015 Proxy Statement AUDIT INFORMATION 14FEB201503002998 Audit Fees and Non-Audit Fees ................................................................................................................................................................................................................................................................................................................................................................................................ The following table presents fees for professional audit services rendered to AbbVie by Ernst & Young LLP for the years ended December 31, 2014 and December 31, 2013, and fees for other services rendered to AbbVie by Ernst & Young LLP for that period. Audit fees:(1) Audit related fees:(2) Tax fees:(3) All other fees:(4) Total 2014 (millions) 2013 (millions) $10.0 0.2 5.1 0.5 $8.1 0.0 4.9 0.8 $15.8 $13.8 (1) Ernst & Young LLP billed or will bill AbbVie for professional services rendered for the audit of AbbVie’s annual financial statements, the audits of AbbVie’s internal control over financial reporting, statutory and subsidiary audits, the review of documents filed with the Securities and Exchange Commission, and certain accounting consultations in connection with the audits. (2) Audit related fees include: accounting consultations, agreed upon procedures and audits of certain employee benefit plan financial statements. (3) Tax fees consist principally of professional services for corporate tax compliance, expatriate tax compliance and tax advisory services. (4) Other fees represent Independent Review Organization services. As previously disclosed in a Current Report on Form 8-K filed on March 19, 2013 with the Securities and Exchange Commission, on December 14, 2012 AbbVie’s audit committee approved (a) the dismissal of Deloitte & Touche LLP, effective as of the date of Deloitte’s completion of the audit services for the fiscal year ended December 31, 2012 and the filing of AbbVie’s 2012 Annual Report on Form 10-K, and (b) the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm to perform independent audit services beginning with the fiscal year ending December 31, 2013. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm ................................................................................................................................................................................................................................................................................................................................................................................................ The audit committee has established policies and procedures to pre-approve all audit and permissible non-audit services performed by the independent registered public accounting firm and its related affiliates. Prior to engagement of the independent registered public accounting firm for the next year’s audit, management will submit a schedule of all proposed services expected to be rendered during that year for each of four categories of services to the audit committee for approval. Prior to engagement, the audit committee pre-approves these services by category of service. The fees are budgeted and the audit committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the audit committee requires specific pre-approval before engaging the independent registered public accounting firm. 2015 Proxy Statement 13NOV201221352027 49 AUDIT INFORMATION The audit committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval decisions to the audit committee at its next scheduled meeting. Audit Committee Report ................................................................................................................................................................................................................................................................................................................................................................................................ Management is responsible for the preparation and integrity of AbbVie’s consolidated financial statements. The independent registered public accounting firm is responsible for performing an audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America. The audit committee reviews these processes on behalf of the board of directors. In this context, the audit committee has reviewed and discussed the audited financial statements contained in the 2014 Annual Report on Form 10-K with AbbVie’s management and its independent registered public accounting firm. The audit committee has discussed with the independent registered public accounting firm the matters required to be discussed pursuant to Auditing Standards Section AU 380 (Communication with Audit Committees), as amended, as adopted by the Public Company Accounting Oversight Board. The audit committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the firm’s independence. The audit committee has also considered whether the provision of non-audit services is compatible with maintaining the independence of the independent registered public accounting firm. Based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in AbbVie’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission. Audit Committee R. Austin, Chair, W. Burnside, E. Rapp, and F. Waddell 50 13NOV201221352027 2015 Proxy Statement SAY ON PAY—ADVISORY VOTE ON THE APPROVAL OF EXECUTIVE COMPENSATION (ITEM 3) 14FEB201503004916 Stockholders are being asked to approve the compensation of AbbVie’s named executive officers, as disclosed under Securities and Exchange Commission rules, including the Compensation Discussion and Analysis, the compensation tables and related material included in this proxy statement. The independent compensation committee of the board of directors, with the counsel of its independent compensation consultant, has thoroughly examined AbbVie’s programs, the company’s performance related to our industry and high-performing peer group, and market factors. The committee has determined that the specific pay decisions for the named executive officers are appropriate given the company’s performance, the executives’ contributions, and our stockholders’ interests. While this vote is advisory and non-binding, the board of directors and the compensation committee value the opinion of the stockholders and will review the voting results and take them into account when future compensation decisions are made. Accordingly, the board of directors recommends that you vote FOR the approval of the named executive officers’ compensation. 2015 Proxy Statement 13NOV201221352027 51 ADDITIONAL INFORMATION 14FEB201503002751 Procedures for Approval of Related Person Transactions ................................................................................................................................................................................................................................................................................................................................................................................................ It is AbbVie’s policy that the nominations and governance committee review, approve, ratify or disapprove of all transactions in which AbbVie participates and in which any related person has a direct or indirect material interest if such transaction involves or is expected to involve payments of $120,000 or more in the aggregate per fiscal year. Related person transactions requiring review by the nominations and governance committee pursuant to this policy are identified in: • • • questionnaires annually distributed to AbbVie’s directors and executive officers; certifications submitted annually by AbbVie executive officers related to their compliance with AbbVie’s Code of Business Conduct; or communications made directly by the related person to the chief financial officer or general counsel. In determining whether to approve or ratify a related person transaction, the nominations and governance committee will consider the following items, among others: • • • • • the related person’s relationship to AbbVie and interest in the transaction; the material facts of the transaction, including the aggregate value of such transaction or, in the case of indebtedness, the amount of principal involved; the benefits to AbbVie of the transaction; if applicable, the availability of other sources of comparable products or services; an assessment of whether the transaction is on terms that are comparable to the terms available to an unrelated third party or to employees generally; • whether a transaction has the potential to impair director independence; and • whether the transaction constitutes a conflict of interest. This process is included in the nominations and governance committee’s written charter, which is available on the corporate governance section of AbbVie’s investor relations website at www.abbvieinvestor.com. Section 16(a) Beneficial Ownership Reporting Compliance ................................................................................................................................................................................................................................................................................................................................................................................................ AbbVie believes that during 2014 its executive officers and directors timely complied with all filing requirements under Section 16(a) of the Securities Exchange Act of 1934, except that a Form 4 for Mr. Liddy reporting five exempt grants of stock equivalent units was not timely filed. Performance-Based Compensation Arrangements ................................................................................................................................................................................................................................................................................................................................................................................................ The Performance Incentive Plan and the Incentive Stock Program, which are described above, are intended to comply with Internal Revenue Code Section 162(m) to ensure deductibility of performance-based compensation. 52 13NOV201221352027 2015 Proxy Statement ADDITIONAL INFORMATION The compensation committee reserves the flexibility to take actions that may be based on considerations in addition to tax deductibility. The committee believes that stockholder interests are best served by not restricting the committee’s discretion and flexibility in crafting compensation programs, even if such programs may result in certain non- deductible compensation expenses. Accordingly, the committee may from time to time approve components of compensation for certain executive officers that are not deductible. While the compensation committee does not anticipate there would ever be circumstances where a restatement of earnings upon which any incentive plan award decisions were based would occur, the committee, in evaluating such circumstances, has discretion to take all actions necessary to protect the interests of stockholders up to and including actions to recover such incentive awards. Exclusive Forum ................................................................................................................................................................................................................................................................................................................................................................................................ AbbVie is incorporated in the state of Delaware and Delaware law governs the relationship among its directors, officers, and stockholders (also known as the internal affairs doctrine). To provide for the orderly, efficient and cost- effective resolution of Delaware-law issues affecting AbbVie, the company’s Certificate of Incorporation provides that unless the board of directors otherwise determines, Delaware courts are the exclusive forum for cases involving the internal affairs doctrine, derivative actions brought on behalf of the company, claims for breach of fiduciary duty, and other matters concerning Delaware statutory and common law. The provision does not apply to any other cases brought against AbbVie. Other Matters ................................................................................................................................................................................................................................................................................................................................................................................................ The board of directors knows of no other business to be transacted at the 2015 Annual Meeting of Stockholders, but if any other matters do come before the meeting, it is the intention of the persons named in the accompanying proxy to vote or act with respect to them in accordance with their best judgment. Date for Receipt of Stockholder Proposals for the 2016 Annual Meeting Proxy Statement ................................................................................................................................................................................................................................................................................................................................................................................................ Stockholder proposals for presentation at the 2016 Annual Meeting must be received by AbbVie no later than November 24, 2015 and must otherwise comply with the applicable requirements of the Securities and Exchange Commission to be considered for inclusion in the proxy statement and proxy for the 2016 meeting. Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting ................................................................................................................................................................................................................................................................................................................................................................................................ A stockholder may recommend persons as potential nominees for director by submitting the names of such persons in writing to the secretary of AbbVie. Recommendations must be accompanied by certain information about both the nominee and the stockholder making the nomination, as set forth in AbbVie’s Amended and Restated By-Laws. A nominee who is recommended by a stockholder following these procedures will receive the same consideration as other comparably qualified nominees. A stockholder entitled to vote for the election of directors at an Annual Meeting and who is a stockholder of record on: • • • the record date for that Annual Meeting, the date of this proxy statement, and the date of the Annual Meeting may nominate persons for director, or make proposals of other business to be brought before the Annual Meeting, by providing proper timely written notice to the secretary of AbbVie. 2015 Proxy Statement 13NOV201221352027 53 ADDITIONAL INFORMATION That notice must include certain information required by Article II of AbbVie’s Amended and Restated By-Laws, including information about the stockholder, any beneficial owner on whose behalf the nomination or proposal is being made, their respective affiliates or associates or others acting on concert with them, and any proposed director nominee. For each matter the stockholder proposes to bring before the Annual Meeting, the notice must also include a brief description of the business to be discussed, the reasons for conducting such business at the Annual Meeting, any material interest of the stockholder in such business and certain other information specified in the By-Laws. In addition, in the case of a director nomination, the notice must include a completed and signed questionnaire, representation and agreement of the nominee addressing matters specified in the By-Laws. To be timely, written notice either to directly nominate persons for director or to bring business properly before the Annual Meeting must be received at AbbVie’s principal executive offices not less than ninety days and not more than one hundred twenty days prior to the anniversary date of the preceding Annual Meeting. If the Annual Meeting is called for a date that is more than thirty days before or sixty days after such anniversary date, notice by the stockholder must be received not less than ninety days and not more than one hundred twenty days prior to the date of such Annual Meeting and not later than the close of business on the later of ninety days prior to the date of such Annual Meeting, or, if the first public announcement of the date of such Annual Meeting is less than one hundred days prior to the date of such Annual Meeting, the tenth day following the day on which public announcement of the date of such meeting is first made by AbbVie. To be timely for the 2016 Annual Meeting, this written notice must be received by AbbVie no later than February 8, 2016. In addition, the notice must be updated and supplemented, if necessary, so that the information provided or required to be provided is true and correct as of the record date for the Annual Meeting and as of the date that is ten business days prior to the meeting. Any such update or supplement must be delivered to the secretary of AbbVie at AbbVie’s principal executive offices not more than five business days after the record date for the Annual Meeting, and not less than eight business days before the date of the Annual Meeting in the case of any update or supplement required to be made as of ten business days prior to the Annual Meeting. Householding of Proxy Materials ................................................................................................................................................................................................................................................................................................................................................................................................ The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (such as brokers or banks) to satisfy the delivery requirements for proxy statements with respect to two or more security holders sharing the same address by delivering a single Notice or proxy statement addressed to those security holders. This process, which is commonly referred to as ‘‘householding,’’ potentially provides extra convenience for security holders and cost savings for companies. Several brokers and banks with accountholders who are AbbVie stockholders will be ‘‘householding’’ our proxy materials. As indicated in the notice provided by these brokers to AbbVie stockholders, a single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from an affected stockholder. Once you have received notice from your broker that it will be ‘‘householding’’ communications to your address, ‘‘householding’’ will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in ‘‘householding’’ and you prefer to receive a separate proxy statement, please notify your broker or contact Broadridge Financial Solutions 1-800-542-1061, email: sendmaterials@proxyvote.com, or write to us at Investor Relations, AbbVie Inc., 1 North Waukegan Road, North Chicago, Illinois 60064. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request ‘‘householding’’ of their communications should contact their broker or bank. 54 13NOV201221352027 2015 Proxy Statement ADDITIONAL INFORMATION General ................................................................................................................................................................................................................................................................................................................................................................................................ It is important that proxies be returned promptly. Stockholders are urged to vote, regardless of the number of shares of AbbVie common stock owned. Stockholders may vote by telephone, by Internet, or by mail if a printed version of the proxy card was received or requested. Stockholders who vote by telephone or the Internet do not need to return a proxy card. The Annual Meeting will be held at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601. Admission to the meeting will be by admission card only. A stockholder planning to attend the meeting should promptly complete and return the reservation form. Reservation forms must be received before May 1, 2015. An admission card admits only one person. A stockholder may request two admission cards, but a guest must be accompanied by a stockholder. By order of the board of directors. LAURA J. SCHUMACHER SECRETARY 2015 Proxy Statement 13NOV201221352027 55 (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) 13NOV201221352027 AbbVie Inc. 1 North Waukegan Road North Chicago, Illinois 60064 U.S.A. Notice of Annual Meeting of Stockholders and Proxy Statement Meeting Date May 8, 2015 YOUR VOTE IS IMPORTANT! Please sign and promptly return your proxy in the enclosed envelope or vote your shares by telephone or using the Internet. Reservation Form for Annual Meeting I am a stockholder of AbbVie Inc. and I plan to attend the Annual Meeting to be held at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, Illinois 60601 at 9:00 a.m. CT on May 8, 2015. Please send me an admission card for each of the following persons. Name Address City State Zip Code Name Address City State Zip Code Phone Number ( ) Phone Number ( ) If you plan to attend the meeting, please complete the Reservation Form and send it to AbbVie Inc., Annual Meeting Ticket Requests, AP34, 1 North Waukegan Road, North Chicago, Illinois 60064. Due to space limitations, Reservation Forms must be received before May 1, 2015. An admission card, along with a form of photo identification, admits one person. A stockholder may request two admission cards, but a guest must be accompanied by a stockholder. To prevent a delay in the receipt of your admission card, do not return this form with your proxy card or mail it in the enclosed business envelope. Printed on Recyclable Paper about abbvie AbbVie is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries. For further information on the company and its people, portfolio and commitments, please visit www.abbvie.com. stockholder information AbbVie Inc. Corporate Headquarters 1 North Waukegan Road North Chicago, IL 60064 847.932.7900 abbvie.com Investor Relations Dept. ZZ05, AP34 Corporate Secretary Dept. V364, AP34 Stock Listing The ticker for AbbVie’s common stock is ABBV. The principal market for AbbVie common stock is the NYSE. AbbVie common stock is also listed on the Chicago Stock Exchange, the NYSE Euronext Paris, and the SIX Swiss Exchange. Annual Meeting The Annual Meeting will be held on Friday, May 8, 2015, at 9 a.m. at the Fairmont Chicago, Millennium Park, 200 North Columbus Drive, Chicago, IL 60601. Dividend Reinvestment Plan The AbbVie Dividend Reinvestment Plan offers registered stockholders an opportunity to purchase additional shares, commission-free, through automatic dividend reinvestment and/or optional cash investments. Interested persons may contact the transfer agent. Transfer Agent Computershare Trust Co. NA P.O. Box 43078 Providence, RI 02940-3078 877.881.5970 (toll free) 732.645.4123 www.computershare.com 2200_Cover.indd 2 3/11/15 3:15 PM 2014 annual report on form 10-k 2015 notice of annual meeting and proxy statement AbbVie 1 North Waukegan Road North Chicago, IL 60064 U.S.A. abbvie.com Copyright© 2015 AbbVie. All rights reserved. 2200_Cover.indd 1 3/11/15 3:15 PM 

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