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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                    to                                   
  
Commission File Number: 001-35565
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=12
AbbVie Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
32-0375147
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number) 
 
1 North Waukegan Road
North ChicagoIllinois 60064
Telephone: (847) 932-7900
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
ABBV
 
New York Stock Exchange
 
 
 
 
Chicago Stock Exchange
1.375% Senior Notes due 2024
 
ABBV24
 
New York Stock Exchange
0.750% Senior Notes due 2027
 
ABBV27
 
New York Stock Exchange
2.125% Senior Notes due 2028
 
ABBV28
 
New York Stock Exchange
1.250% Senior Notes due 2031
 
ABBV31
 
New York Stock Exchange
As of October 29, 2019, AbbVie Inc. had 1,478,821,109 shares of common stock at $0.01 par value outstanding.




AbbVie Inc. and Subsidiaries
Table of Contents

 
 
Page
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.


2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
1




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Net revenues
 
$
8,479

 
$
8,236

 
$
24,562

 
$
24,448

 
 
 
 
 
 
 
 
 
Cost of products sold
 
1,920

 
1,835

 
5,433

 
5,696

Selling, general and administrative
 
1,657

 
1,919

 
4,991

 
5,470

Research and development
 
2,285

 
1,268

 
4,865

 
3,834

Acquired in-process research and development
 

 
55

 
246

 
124

Other expense
 

 

 

 
500

Total operating costs and expenses
 
5,862

 
5,077

 
15,535

 
15,624

Operating earnings
 
2,617

 
3,159

 
9,027

 
8,824

 
 
 
 
 
 
 
 
 
Interest expense, net
 
420

 
302

 
1,054

 
825

Net foreign exchange loss
 
19

 
2

 
31

 
18

Other expense, net
 
177

 
94

 
2,590

 
411

Earnings before income tax expense
 
2,001

 
2,761

 
5,352

 
7,570

Income tax expense
 
117

 
14

 
271

 
57

Net earnings
 
$
1,884

 
$
2,747

 
$
5,081

 
$
7,513

 
 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.27

 
$
1.81

 
$
3.41

 
$
4.81

Diluted earnings per share
 
$
1.26

 
$
1.81

 
$
3.41

 
$
4.79

 
 
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
 
1,481

 
1,511

 
1,480

 
1,556

Weighted-average diluted shares outstanding
 
1,483

 
1,515

 
1,483

 
1,561


The accompanying notes are an integral part of these condensed consolidated financial statements.

2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
2




AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)

 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2019
 
2018
 
2019
 
2018
Net earnings
$
1,884

 
$
2,747

 
$
5,081

 
$
7,513

 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax expense (benefit) of $(16) for the three months and $(10) for the nine months ended September 30, 2019 and $3 for the three months and $(16) for the nine months ended September 30, 2018
(256
)
 
30

 
(288
)
 
(250
)
Net investment hedging activities, net of tax expense (benefit) of $45 for the three months and $53 for the nine months ended September 30, 2019 and $(9) for the three months and $22 for the nine months ended September 30, 2018
156

 
(32
)
 
184

 
73

Pension and post-employment benefits, net of tax expense (benefit) of $7 for the three months and $19 for the nine months ended September 30, 2019 and $8 for the three months and $24 for the nine months ended September 30, 2018
33

 
28

 
78

 
99

Marketable security activities, net of tax expense (benefit) of $— for the three months and $— for the nine months ended September 30, 2019 and $— for the three months and $— for the nine months ended September 30, 2018
(1
)
 

 
10

 
(2
)
Cash flow hedging activities, net of tax expense (benefit) of $18 for the three months and $9 for the nine months ended September 30, 2019 and $1 for the three months and $18 for the nine months ended September 30, 2018
31

 
54

 
(32
)
 
248

Other comprehensive income (loss)
(37
)
 
80

 
(48
)
 
168

Comprehensive income
$
1,847

 
$
2,827

 
$
5,033

 
$
7,681


The accompanying notes are an integral part of these condensed consolidated financial statements.





2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
3




AbbVie Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(in millions, except share data)
September 30,
2019
 
December 31,
2018
 
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and equivalents
$
10,648

 
$
7,289

Short-term investments

 
772

Accounts receivable, net
5,529

 
5,384

Inventories
1,929

 
1,605

Prepaid expenses and other
2,060

 
1,895

Total current assets
20,166

 
16,945

 
 
 
 
Investments
131

 
1,420

Property and equipment, net
2,894

 
2,883

Intangible assets, net
19,036

 
21,233

Goodwill
15,537

 
15,663

Other assets
1,677

 
1,208

Total assets
$
59,441

 
$
59,352

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Short-term borrowings
$

 
$
3,699

Current portion of long-term debt and finance lease obligations
5,276

 
1,609

Accounts payable and accrued liabilities
12,217

 
11,931

Total current liabilities
17,493

 
17,239

 
 
 
 
Long-term debt and finance lease obligations
33,126

 
35,002

Deferred income taxes
1,058

 
1,067

Other long-term liabilities
15,990

 
14,490

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders’ equity (deficit)
 
 
 
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,781,429,626 shares issued as of September 30, 2019 and 1,776,510,871 as of December 31, 2018
18

 
18

Common stock held in treasury, at cost, 302,647,520 shares as of September 30, 2019 and 297,686,473 as of December 31, 2018
(24,501
)
 
(24,108
)
Additional paid-in capital
15,112

 
14,756

Retained earnings
3,673

 
3,368

Accumulated other comprehensive loss
(2,528
)
 
(2,480
)
Total stockholders’ equity (deficit)
(8,226
)
 
(8,446
)
 
 
 
 
Total liabilities and equity
$
59,441

 
$
59,352


The accompanying notes are an integral part of these condensed consolidated financial statements.

2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
4




AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Equity (unaudited)

(in millions)
Common shares outstanding
 
Common stock
 
Treasury stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive loss
 
Total
Balance at June 30, 2018
1,514

 
$
18

 
$
(20,845
)
 
$
14,596

 
$
5,495

 
$
(2,639
)
 
$
(3,375
)
Net earnings

 

 

 

 
2,747

 

 
2,747

Other comprehensive income, net of tax

 

 

 

 

 
80

 
80

Dividends declared

 

 

 

 
(1,453
)
 

 
(1,453
)
Purchases of treasury stock
(10
)
 

 
(1,009
)
 

 

 

 
(1,009
)
Stock-based compensation plans and other

 

 
5

 
84

 

 

 
89

Balance at September 30, 2018
1,504

 
$
18

 
$
(21,849
)
 
$
14,680

 
$
6,789

 
$
(2,559
)
 
$
(2,921
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
1,478

 
$
18

 
$
(24,505
)
 
$
15,028

 
$
3,384

 
$
(2,491
)
 
$
(8,566
)
Net earnings

 

 

 

 
1,884

 

 
1,884

Other comprehensive loss, net of tax

 

 

 

 

 
(37
)
 
(37
)
Dividends declared

 

 

 

 
(1,595
)
 

 
(1,595
)
Purchases of treasury stock

 

 
(3
)
 

 

 

 
(3
)
Stock-based compensation plans and other
1

 

 
7

 
84

 

 

 
91

Balance at September 30, 2019
1,479


$
18


$
(24,501
)

$
15,112


$
3,673


$
(2,528
)

$
(8,226
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
1,592

 
$
18

 
$
(11,923
)
 
$
14,270

 
$
5,459

 
$
(2,727
)
 
$
5,097

Adoption of new accounting standards

 

 

 

 
(1,733
)
 

 
(1,733
)
Net earnings

 

 

 

 
7,513

 

 
7,513

Other comprehensive income, net of tax

 

 

 

 

 
168

 
168

Dividends declared

 

 

 

 
(4,450
)
 

 
(4,450
)
Purchases of treasury stock
(95
)
 

 
(9,956
)
 

 

 

 
(9,956
)
Stock-based compensation plans and other
7

 

 
30

 
410

 

 

 
440

Balance at September 30, 2018
1,504

 
$
18

 
$
(21,849
)
 
$
14,680

 
$
6,789

 
$
(2,559
)
 
$
(2,921
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
1,479

 
$
18

 
$
(24,108
)
 
$
14,756

 
$
3,368

 
$
(2,480
)
 
$
(8,446
)
Net earnings

 

 

 

 
5,081

 

 
5,081

Other comprehensive loss, net of tax

 

 

 

 

 
(48
)
 
(48
)
Dividends declared

 

 

 

 
(4,776
)
 

 
(4,776
)
Purchases of treasury stock
(5
)
 

 
(425
)
 

 

 

 
(425
)
Stock-based compensation plans and other
5

 

 
32

 
356

 

 

 
388

Balance at September 30, 2019
1,479

 
$
18

 
$
(24,501
)
 
$
15,112

 
$
3,673

 
$
(2,528
)
 
$
(8,226
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
5




AbbVie Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)

 
Nine months ended
September 30,
(in millions) (brackets denote cash outflows)
2019
 
2018
Cash flows from operating activities
 
 
 
Net earnings
$
5,081

 
$
7,513

Adjustments to reconcile net earnings to net cash from operating activities:
 
 
 
Depreciation
346

 
349

Amortization of intangible assets
1,162

 
974

Change in fair value of contingent consideration liabilities
2,653

 
432

Stock-based compensation
351

 
351

Upfront costs and milestones related to collaborations
341

 
711

Intangible asset impairment
1,030

 

Other, net
92

 
423

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(207
)
 
(806
)
Inventories
(401
)
 
(367
)
Prepaid expenses and other assets
183

 
(426
)
Accounts payable and other liabilities
(582
)
 
881

Cash flows from operating activities
10,049

 
10,035

 
 
 
 
Cash flows from investing activities
 
 
 
Acquisitions and investments
(476
)
 
(541
)
Acquisitions of property and equipment
(389
)
 
(515
)
Purchases of investment securities
(579
)
 
(1,581
)
Sales and maturities of investment securities
2,655

 
1,914

Cash flows from investing activities
1,211

 
(723
)
 
 
 
 
Cash flows from financing activities
 
 
 
Net change in commercial paper borrowings
(699
)
 
(400
)
Proceeds from issuance of other short-term borrowings

 
3,002

Repayments of other short-term borrowings
(3,000
)
 

Proceeds from issuance of long-term debt
1,534

 
5,963

Repayments of long-term debt and finance lease obligations
(5
)
 
(5,021
)
Debt issuance costs
(248
)
 
(34
)
Dividends paid
(4,771
)
 
(4,129
)
Purchases of treasury stock
(627
)
 
(9,956
)
Proceeds from the exercise of stock options
6

 
66

Payments of contingent consideration liabilities
(120
)
 
(78
)
Other, net
36

 
16

Cash flows from financing activities
(7,894
)
 
(10,571
)
Effect of exchange rate changes on cash and equivalents
(7
)
 
(29
)
Net change in cash and equivalents
3,359

 
(1,288
)
Cash and equivalents, beginning of period
7,289

 
9,303

 
 
 
 
Cash and equivalents, end of period
$
10,648

 
$
8,015


The accompanying notes are an integral part of these condensed consolidated financial statements.

2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
6




AbbVie Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1    Basis of Presentation
 

Basis of Historical Presentation
The unaudited interim condensed consolidated financial statements of AbbVie Inc. (AbbVie or the company) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2018.
It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the company’s financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. Certain reclassifications were made to conform the prior period interim condensed consolidated financial statements to the current period presentation.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU No. 2016-02
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The standard outlined a comprehensive lease accounting model that superseded the previous lease guidance and required lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The guidance also changed the definition of a lease and expanded the disclosure requirements of lease arrangements. AbbVie adopted the standard in the first quarter of 2019 using the modified retrospective method. Results for reporting periods beginning after December 31, 2018 have been presented in accordance with the standard, while results for prior periods have not been adjusted and continue to be reported in accordance with AbbVie's historical accounting. The cumulative effect of initially applying the new leases standard was recognized as an adjustment to the opening condensed consolidated balance sheet as of January 1, 2019.
The company elected a package of practical expedients for leases that commenced prior to January 1, 2019 and did not reassess historical conclusions on: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs capitalization for any existing leases.
Under the new standard, on January 1, 2019, the company recognized a cumulative-effect adjustment to its condensed consolidated balance sheet primarily related to the recognition of liabilities and corresponding right-of-use assets for operating leases. The adjustment to the condensed consolidated balance sheet included: (i) a $405 million increase to other assets; (ii) a $115 million increase to accounts payable and accrued liabilities; and (iii) a $290 million increase to other long-term liabilities. Other cumulative-effect adjustments to the condensed consolidated balance sheet were insignificant.
Adoption of the standard did not have a significant impact on AbbVie's condensed consolidated statements of earnings for the three and nine months ended September 30, 2019.
ASU No. 2018-02
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allowed a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects related to adjustments to deferred taxes resulting from the December 2017 enactment of the Tax Cuts and Jobs Act (the Act). AbbVie adopted the standard in the first quarter of 2019. Upon adoption, the company made an election to not reclassify the income tax effects of the Act from AOCI to retained earnings. Therefore, the adoption of the standard had no impact on AbbVie's consolidated financial statements.

2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
7




Recent Accounting Pronouncements Not Yet Adopted
ASU No. 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The standard changes how credit losses are measured for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, the standard requires the use of a new forward-looking "expected credit loss" model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. Additionally, the standard requires new disclosures and will be effective for AbbVie starting with the first quarter of 2020. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact to retained earnings as of the beginning of the fiscal year of adoption. AbbVie is currently assessing the impact of adopting this guidance but does not expect a material impact on its consolidated financial statements based on the company’s current portfolio of financial assets.
Note 2    Supplemental Financial Information
 

Interest Expense, Net
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
 
2019
 
2018
 
2019
 
2018
Interest expense
 
$
480

 
$
339

 
$
1,225

 
$
968

Interest income
 
(60
)
 
(37
)
 
(171
)
 
(143
)
Interest expense, net
 
$
420

 
$
302

 
$
1,054

 
$
825


Inventories
(in millions)
September 30, 2019
 
December 31, 2018
Finished goods
$
449

 
$
473

Work-in-process
1,120

 
862

Raw materials
360

 
270

Inventories
$
1,929

 
$
1,605


Property and Equipment
(in millions)
September 30, 2019
 
December 31, 2018
Property and equipment, gross
$
8,492

 
$
8,396

Accumulated depreciation
(5,598
)
 
(5,513
)
Property and equipment, net
$
2,894

 
$
2,883


Depreciation expense was $114 million for the three months and $346 million for the nine months ended September 30, 2019 and $115 million for the three months and $349 million for the nine months ended September 30, 2018.
Note 3    Earnings Per Share
 

AbbVie grants certain restricted stock units (RSUs) that are considered to be participating securities. Due to the presence of participating securities, AbbVie calculates earnings per share (EPS) using the more dilutive of the treasury stock or the two-class method. For all periods presented, the two-class method was more dilutive.


2019 Form 10-Q | http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13184271&doc=13
8




The following table summarizes the impact of the two-class method:

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Basic EPS
 
 
 
 
 
 
 
 
Net earnings
 
$
1,884

 
$
2,747

 
$
5,081

 
$