AbbVie Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Consolidated Financial Statements Consolidated Statements of Earnings 50 Consolidated Statements of Comprehensive Income 51 Consolidated Balance Sheets 52 Consolidated Statements of Equity 53 Consolidated Statements of Cash Flows 54 Notes to Consolidated Financial Statements Note 1 Background 55 Note 2 Summary of Significant Accounting Policies 55 Note 3 Supplemental Financial Information 60 Note 4 Earnings Per Share 61 Note 5 Licensing, Acquisitions and Other Arrangements 62 Note 6 Collaborations 66 Note 7 Goodwill and Intangible Assets 68 Note 8 Integration and Restructuring Plans 69 Note 9 Leases 70 Note 10 Debit, Credit Facilities and Commitments and Contingencies 72 Note 11 Financial Instruments and Fair Value Measures 74 Note 12 Post-Employment Benefits 80 Note 13 Equity 85 Note 14 Income Taxes 90 Note 15 Legal P roceedings and Contingencies 92 Note 16 Segment and Geographic Area Information 94 Note 17 Fourth Quarter Financial Results ( unaudited ) 97 Report of Independent Registered Public Account ing Firm (PCA OB ID: 42 ) 98 49 | 2022 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Statements of Earnings years ended December 31 (in millions, except per share data) 2022 2021 2020 Net revenues $ 58,054 $ 56,197 $ 45,804 Cost of products sold 17,414 17,446 15,387 Selling, general and administrative 15,260 12,349 11,299 Research and development 6,510 6,922 6,379 Acquired IPR&D and milestones 697 1,124 1,376 Other operating expense, net 56 432 — Total operating costs and expenses 39,937 38,273 34,441 Operating earnings 18,117 17,924 11,363 Interest expense, net 2,044 2,384 2,280 Net foreign exchange loss 148 51 71 Other expense, net 2,448 2,500 5,614 Earnings before income tax expense 13,477 12,989 3,398 Income tax expense (benefit) 1,632 1,440 ( 1,224 ) Net earnings 11,845 11,549 4,622 Net earnings attributable to noncontrolling interest 9 7 6 Net earnings attributable to AbbVie Inc. $ 11,836 $ 11,542 $ 4,616 Per share data Basic earnings per share attributable to AbbVie Inc. $ 6.65 $ 6.48 $ 2.73 Diluted earnings per share attributable to AbbVie Inc. $ 6.63 $ 6.45 $ 2.72 Weighted-average basic shares outstanding 1,771 1,770 1,667 Weighted-average diluted shares outstanding 1,778 1,777 1,673 The accompanying notes are an integral part of these consolidated financial statements. 2022 Form 10-K | 50 AbbVie Inc. and Subsidiaries Consolidated Statements of Comprehensive Income years ended December 31 (in millions) 2022 2021 2020 Net earnings $ 11,845 $ 11,549 $ 4,622 Foreign currency translation adjustments, net of tax expense (benefit) of $( 10 ) in 2022, $( 35 ) in 2021 and $ 28 in 2020 ( 943 ) ( 1,153 ) 1,511 Net investment hedging activities, net of tax expense (benefit) of $ 152 in 2022, $ 193 in 2021 and $( 221 ) in 2020 555 699 ( 799 ) Pension and post-employment benefits, net of tax expense (benefit) of $ 272 in 2022, $ 124 in 2021 and $( 47 ) in 2020 1,088 521 ( 102 ) Cash flow hedging activities, net of tax expense (benefit) of $ 5 in 2022, $ 20 in 2021 and $( 23 ) in 2020 — 151 ( 131 ) Other comprehensive income $ 700 $ 218 $ 479 Comprehensive income 12,545 11,767 5,101 Comprehensive income attributable to noncontrolling interest 9 7 6 Comprehensive income attributable to AbbVie Inc. $ 12,536 $ 11,760 $ 5,095 The accompanying notes are an integral part of these consolidated financial statements. 51 | 2022 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Balance Sheets as of December 31 (in millions, except share data) 2022 2021 Assets Current assets Cash and equivalents $ 9,201 $ 9,746 Short-term investments 28 84 Accounts receivable, net 11,254 9,977 Inventories 3,579 3,128 Prepaid expenses and other 4,401 4,993 Total current assets 28,463 27,928 Investments 241 277 Property and equipment, net 4,935 5,110 Intangible assets, net 67,439 75,951 Goodwill 32,156 32,379 Other assets 5,571 4,884 Total assets $ 138,805 $ 146,529 Liabilities and Equity Current liabilities Short-term borrowings $ 1 $ 14 Current portion of long-term debt and finance lease obligations 4,135 12,481 Accounts payable and accrued liabilities 25,402 22,699 Total current liabilities 29,538 35,194 Long-term debt and finance lease obligations 59,135 64,189 Deferred income taxes 2,190 3,009 Other long-term liabilities 30,655 28,701 Commitments and contingencies Stockholders' equity Common stock, $ 0.01 par value, 4,000,000,000 shares authorized, 1,813,770,294 shares issued as of December 31, 2022 and 1,803,195,293 as of December 31, 2021 18 18 Common stock held in treasury, at cost, 44,589,000 shares as of December 31, 2022 and 34,857,597 as of December 31, 2021 ( 4,594 ) ( 3,143 ) Additional paid-in capital 19,245 18,305 Retained earnings 4,784 3,127 Accumulated other comprehensive loss ( 2,199 ) ( 2,899 ) Total stockholders' equity 17,254 15,408 Noncontrolling interest 33 28 Total equity 17,287 15,436 Total liabilities and equity $ 138,805 $ 146,529 The accompanying notes are an integral part of these consolidated financial statements. 2022 Form 10-K | 52 AbbVie Inc. and Subsidiaries Consolidated Statements of Equity years ended December 31 (in millions) Common shares outstanding Common stock Treasury stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Noncontrolling interest Total Balance at December 31, 2019 1,479 $ 18 $ ( 24,504 ) $ 15,193 $ 4,717 $ ( 3,596 ) $ — $ ( 8,172 ) Net earnings attributable to AbbVie Inc. — — — — 4,616 — — 4,616 Other comprehensive income, net of tax — — — — — 479 — 479 Dividends declared — — — — ( 8,278 ) — — ( 8,278 ) Common shares and equity awards issued for acquisition of Allergan plc 286 — 23,166 1,243 — — — 24,409 Purchases of treasury stock ( 10 ) — ( 978 ) — — — — ( 978 ) Stock-based compensation plans and other 10 — 52 948 — — — 1,000 Change in noncontrolling interest — — — — — — 21 21 Balance at December 31, 2020 1,765 18 ( 2,264 ) 17,384 1,055 ( 3,117 ) 21 13,097 Net earnings attributable to AbbVie Inc. — — — — 11,542 — — 11,542 Other comprehensive income, net of tax — — — — — 218 — 218 Dividends declared — — — — ( 9,470 ) — — ( 9,470 ) Purchases of treasury stock ( 8 ) — ( 934 ) — — — — ( 934 ) Stock-based compensation plans and other 11 — 55 921 — — — 976 Change in noncontrolling interest — — — — — — 7 7 Balance at December 31, 2021 1,768 18 ( 3,143 ) 18,305 3,127 ( 2,899 ) 28 15,436 Net earnings attributable to AbbVie Inc. — — — — 11,836 — — 11,836 Other comprehensive income, net of tax — — — — — 700 — 700 Dividends declared — — — — ( 10,179 ) — — ( 10,179 ) Purchases of treasury stock ( 10 ) — ( 1,487 ) — — — — ( 1,487 ) Stock-based compensation plans and other 11 — 36 940 — — — 976 Change in noncontrolling interest — — — — — — 5 5 Balance at December 31, 2022 1,769 $ 18 $ ( 4,594 ) $ 19,245 $ 4,784 $ ( 2,199 ) $ 33 $ 17,287 The accompanying notes are an integral part of these consolidated financial statements. 53 | 2022 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Statements of Cash Flows years ended December 31 (in millions) (brackets denote cash outflows) 2022 2021 2020 Cash flows from operating activities Net earnings $ 11,845 $ 11,549 $ 4,622 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation 778 803 666 Amortization of intangible assets 7,689 7,718 5,805 Deferred income taxes ( 1,931 ) ( 898 ) ( 2,325 ) Change in fair value of contingent consideration liabilities 2,761 2,679 5,753 Stock-based compensation 671 692 753 Acquired IPR&D and milestones 697 1,124 1,376 Other charges related to collaborations — 500 — Gain on divestitures ( 172 ) ( 68 ) — Non-cash litigation reserve adjustments, net of cash payments 2,243 163 ( 31 ) Impairment of intangible assets 770 50 — Other, net ( 150 ) ( 213 ) 863 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 1,455 ) ( 1,321 ) ( 929 ) Inventories ( 686 ) ( 142 ) ( 40 ) Prepaid expenses and other assets ( 264 ) ( 197 ) 134 Accounts payable and other liabilities 1,605 1,628 1,514 Income tax assets and liabilities, net 542 ( 1,290 ) ( 573 ) Cash flows from operating activities 24,943 22,777 17,588 Cash flows from investing activities Acquisition of businesses, net of cash acquired ( 255 ) ( 525 ) ( 38,260 ) Other acquisitions and investments ( 539 ) ( 1,377 ) ( 1,350 ) Acquisitions of property and equipment ( 695 ) ( 787 ) ( 798 ) Purchases of investment securities ( 1,438 ) ( 119 ) ( 61 ) Sales and maturities of investment securities 1,530 98 1,525 Other, net 774 366 1,387 Cash flows from investing activities ( 623 ) ( 2,344 ) ( 37,557 ) Cash flows from financing activities Proceeds from issuance of long-term debt 2,000 1,000 3,000 Repayments of long-term debt and finance lease obligations ( 14,433 ) ( 9,414 ) ( 5,683 ) Debt issuance costs — — ( 20 ) Dividends paid ( 10,043 ) ( 9,261 ) ( 7,716 ) Purchases of treasury stock ( 1,487 ) ( 934 ) ( 978 ) Proceeds from the exercise of stock options 262 244 209 Payments of contingent consideration liabilities ( 1,132 ) ( 698 ) ( 321 ) Other, net 30 24 8 Cash flows from financing activities ( 24,803 ) ( 19,039 ) ( 11,501 ) Effect of exchange rate changes on cash and equivalents ( 62 ) ( 97 ) ( 5 ) Net change in cash and equivalents ( 545 ) 1,297 ( 31,475 ) Cash and equivalents, beginning of year 9,746 8,449 39,924 Cash and equivalents, end of year $ 9,201 $ 9,746 $ 8,449 Other supplemental information Interest paid, net of portion capitalized $ 2,546 $ 2,712 $ 2,619 Income taxes paid 2,988 3,648 1,674 Supplemental schedule of non-cash investing and financing activities Issuance of common shares associated with acquisitions of businesses — — 23,979 The accompanying notes are an integral part of these consolidated financial statements. 2022 Form 10-K | 54 AbbVie Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 Background Background The principal business of AbbVie Inc. (AbbVie or the company) is the discovery, development, manufacturing and sale of a broad line of therapies that address some of the world's most complex and serious diseases. 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. Certain products (including aesthetic products and devices) are also sold directly to physicians and other licensed healthcare providers. In the United States, AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to retailers, pharmacies, patients or other customers. Outside the United States, AbbVie sells products primarily to wholesalers or through distributors, and depending on the market works through largely centralized national payers system to agree on reimbursement terms. 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 % of the outstanding common stock of AbbVie to Abbott's shareholders. On May 8, 2020, AbbVie completed its acquisition of Allergan plc (Allergan). Refer to Note 5 for additional information regarding this acquisition. Note 2 Summary of Significant Accounting Policies Use of Estimates The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for rebates, pension and other post-employment benefits, income taxes, litigation, valuation of goodwill and intangible assets, contingent consideration liabilities, financial instruments and inventory and accounts receivable exposures. Basis of Consolidation The consolidated financial statements 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 expense, net in the consolidated statements of earnings. Intercompany balances and transactions are eliminated. During 2022, AbbVie revised its classification of development milestone expense associated with licensing and collaboration arrangements in the consolidated statements of earnings. Milestone payments incurred prior to regulatory approval, which were previously included in research and development (R&D) expense, are now presented as acquired IPR&D and milestones expense in the consolidated statements of earnings. The reclassification decreased R&D expense and increased acquired IPR&D and milestones expense by $ 162 million in 2021 and $ 178 million in 2020. The company believes this presentation assists users of the financial statements to better understand the total upfront and subsequent development milestone payments incurred to acquire in-process research and development projects. Prior periods have been reclassified to conform to the current period presentation. Certain other reclassifications have been made to conform the prior period consolidated financial statements to the current period presentation. Revenue Recognition AbbVie recognizes revenue when control of promised goods or services is transferred to the company’s customers, in an amount that reflects the consideration AbbVie expects to be entitled to in exchange for those goods or services. Sales, value add and other taxes collected concurrent with revenue-producing activities are excluded from revenue. AbbVie generates revenue primarily from product sales. For the majority of sales, the company transfers control, invoices the customer and recognizes revenue upon shipment to the customer. The company recognizes shipping and handling costs as an 55 | 2022 Form 10-K expense in cost of products sold when the company transfers control to the customer. Payment terms vary depending on the type and location of the customer, are based on customary commercial terms and are generally less than one year. AbbVie does not adjust revenue for the effects of a significant financing component for contracts where AbbVie expects the period between the transfer of the good or service and collection to be one year or less. Cash discounts, rebates and chargebacks, sales incentives, product returns and certain other adjustments are accounted for as variable consideration. Provisions for variable consideration are based on current pricing, executed contracts, government pricing legislation and historical data and are provided for in the period the related revenues are recorded. Rebate amounts are typically based upon the volume of purchases using contractual or statutory prices, which may vary by product and by payer. For each type of rebate, factors used in the calculation of the accrual include the identification of the products subject to the rebate, the applicable price terms and the estimated lag time between sale and payment of the rebate, which can be significant. In addition to revenue from contracts with customers, the company also recognizes certain collaboration revenues. See Note 6 for additional information related to the collaborations with Janssen Biotech, Inc. and Genentech, Inc. Additionally, see Note 16 for disaggregation of revenue by product and geography. Research and Development Expenses Internal R&D costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Acquired IPR&D and Milestones Expenses In an asset acquisition, payments incurred prior to regulatory approval to acquire rights to in-process R&D projects are expensed as acquired IPR&D and milestones expense in the consolidated statements of earnings unless the project has an alternative future use. These costs include upfront and development milestone payments related to R&D collaborations, licensing arrangements, or other asset acquisitions that provide rights to develop, manufacture and/or sell pharmaceutical products. Where contingent development milestone payments are due to third parties, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved. Regulatory and commercial milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product. Business Combinations AbbVie utilizes the acquisition method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in AbbVie's results of operations beginning on the acquisition date and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair value of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities are recognized in other expense, 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 during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred. In a business combination, the fair value of IPR&D projects acquired is 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. R&D costs incurred by the company after the acquisition are expensed to R&D as incurred. 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 and subsequent payments made to the partner for the achievement of development milestones prior to regulatory approval are expensed to acquired IPR&D and milestones expense in the consolidated statements of earnings. Regulatory and commercial 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 to cost of products sold in the consolidated statements of earnings when incurred. 2022 Form 10-K | 56 Advertising Costs associated with advertising are expensed as incurred and are included in selling, general and administrative (SG&A) expense in the consolidated statements of earnings. Advertising expenses were $ 2.0 billion in 2022, $ 2.1 billion in 2021 and $ 1.8 billion in 2020. Pension and Other Post-Employment Benefits AbbVie records annual expenses relating to its defined benefit pension and other post-employment benefit plans based on calculations which utilize various actuarial assumptions including discount rates, rates of return on assets, 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 gains and losses are deferred in accumulated other comprehensive income (loss) (AOCI), net of tax and are amortized over the remaining service attribution periods of the employees under the corridor method. Differences between the expected long-term return on plan assets and the actual annual return are generally amortized to net periodic benefit cost over a five-year period. 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 pre-tax 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 amounts 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. Cash and Equivalents Cash and equivalents include money market funds and time deposits with original maturities of three months or less. Investments Investments consist primarily of equity securities, held-to-maturity debt securities, marketable debt securities and time deposits. Investments in equity securities that have readily determinable fair values are recorded at fair value. Investments in equity securities that do not have readily determinable fair values are recorded at cost and are remeasured to fair value based on certain observable price changes or impairment events as they occur. Held-to-maturity debt securities are recorded at cost. Gains or losses on investments are included in other expense, net in the consolidated statements of earnings. Investments in marketable debt 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 AOCI on the consolidated balance sheets until realized, at which time the gains or losses are recognized in earnings. AbbVie periodically assesses its marketable debt securities for impairment and credit losses. When a decline in fair value of marketable debt security is due to credit related factors, an allowance for credit losses is recorded with a corresponding charge to other expense, net in the consolidated statements of earnings. When AbbVie determines that a non-credit related impairment has occurred, the amortized cost basis of the investment, net of allowance for credit losses, is written down with a charge to other expense, net in the consolidated statements of earnings and an available-for-sale investment's unrealized loss is reclassified from AOCI to other expense, net in the consolidated statements of earnings. Realized gains and losses on sales of investments are computed using the first-in, first-out method adjusted for any impairments and credit losses that were recorded in net earnings. Accounts Receivable Accounts receivable are stated at amortized cost less allowance for credit losses. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition and both current and forecasted economic conditions. 57 | 2022 Form 10-K Inventories Inventories are valued at the lower of cost (first-in, first-out basis) or market. Cost includes material and conversion costs. Inventories consisted of the following: as of December 31 (in millions) 2022 2021 Finished goods $ 1,162 $ 932 Work-in-process 1,417 1,193 Raw materials 1,000 1,003 Inventories $ 3,579 $ 3,128 Property and Equipment as of December 31 (in millions) 2022 2021 Land $ 286 $ 287 Buildings 2,737 2,791 Equipment 7,107 6,850 Construction in progress 856 799 Property and equipment, gross 10,986 10,727 Less accumulated depreciation ( 6,051 ) ( 5,617 ) Property and equipment, net $ 4,935 $ 5,110 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. Buildings include leasehold improvements which are amortized over the lesser of the remainder of the lease term or the useful life of the leasehold improvement. The estimated useful life for equipment ranges from 2 to 25 years. Equipment includes certain computer software and software development costs incurred in connection with developing or obtaining software for internal use and is amortized over 3 to 10 years. Depreciation expense was $ 778 million in 2022, $ 803 million in 2021 and $ 666 million in 2020. Leases Short-term leases with a term of 12 months or less are not recorded on the balance sheet. For leases commencing or modified in 2019 or later, AbbVie does not separate lease components from non-lease components. The company records lease liabilities based on the present value of lease payments over the lease term. AbbVie generally uses an incremental borrowing rate to discount its lease liabilities, as the rate implicit in the lease is typically not readily determinable. Certain lease agreements include renewal options that are under the company's control. AbbVie includes optional renewal periods in the lease term only when it is reasonably certain that AbbVie will exercise its option. Variable lease payments include payments to lessors for taxes, maintenance, insurance and other operating costs as well as payments that are adjusted based on an index or rate. The company's lease agreements do not contain any significant residual value guarantees or restrictive covenants. Litigation and Contingencies Loss contingency provisions are recorded 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. AbbVie accrues for product liability claims on an undiscounted basis. The liabilities are evaluated quarterly and adjusted if necessary as additional information becomes available. Receivables for insurance recoveries for product liability claims, if any, are recorded as assets on an undiscounted basis when it is probable that a recovery will be realized. 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 cash flows, risk, the cost of capital and terminal values of market participants. Definite-lived intangibles are amortized over their estimated useful lives using the estimated pattern of economic benefit. 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 2022 Form 10-K | 58 flows of an intangible asset are less than the carrying value, the intangible asset is written down to 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 could occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value. 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 the reporting unit is less than its carrying amount, a quantitative impairment test is performed. AbbVie tests indefinite-lived intangible assets 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 is less than its carrying amount, a quantitative impairment test is performed. 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, 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. The use of alternative estimates and assumptions could increase or decrease projected cash flows and the estimated fair value of the related intangible assets. Future changes to these estimates and assumptions could have a material impact on the company's results of operations. Actual results may differ from the company's estimates. 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 affects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive income (loss) in the consolidated statements of comprehensive 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 net foreign exchange loss in the consolidated statements of earnings. Derivatives All derivative instruments are recognized as either assets or liabilities at fair value on the consolidated balance sheets and are classified as current or long-term based on the scheduled maturity of the instrument. 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 hedged risk are recognized in earnings immediately. The effective portions of changes in the fair value of a derivative designated as a cash flow hedge are reported in AOCI and are subsequently recognized in earnings consistent with the underlying hedged item. If it is determined that a derivative is no longer highly effective as a hedge, the company discontinues hedge accounting prospectively. If a hedged forecasted transaction becomes probable of not occurring, any gains or losses are reclassified from AOCI to earnings. Derivatives that are not designated as hedges are adjusted to fair value through current earnings. The company also uses derivative instruments or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. Realized and unrealized gains and losses from these hedges are included in AOCI. Derivative cash flows, with the exception of net investment hedges, are principally classified in the operating section of the consolidated statements of cash flows, consistent with the underlying hedged item. Cash flows related to net investment hedges are classified in the investing section of the consolidated statements of cash flows. 59 | 2022 Form 10-K Note 3 Supplemental Financial Information Interest Expense, Net years ended December 31 (in millions) 2022 2021 2020 Interest expense $ 2,230 $ 2,423 $ 2,454 Interest income ( 186 ) ( 39 ) ( 174 ) Interest expense, net $ 2,044 $ 2,384 $ 2,280 Accounts Payable and Accrued Liabilities as of December 31 (in millions) 2022 2021 Sales rebates $ 10,717 $ 8,254 Dividends payable 2,680 2,543 Accounts payable 2,934 2,882 Current portion of contingent consideration liabilities 1,469 1,249 Salaries, wages and commissions 1,371 1,785 Royalty and license arrangements 412 661 Other 5,819 5,325 Accounts payable and accrued liabilities $ 25,402 $ 22,699 Other Long-Term Liabilities as of December 31 (in millions) 2022 2021 Contingent consideration liabilities $ 14,915 $ 13,638 Liabilities for unrecognized tax benefits 6,502 5,970 Income taxes payable 2,985 3,442 Pension and other post-employment benefits 1,638 3,153 Other 4,615 2,498 Other long-term liabilities $ 30,655 $ 28,701 2022 Form 10-K | 60 Note 4 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. The following table summarizes the impact of the two-class method: Years ended December 31, (in millions, except per share data) 2022 2021 2020 Basic EPS Net earnings attributable to AbbVie Inc. $ 11,836 $ 11,542 $ 4,616 Earnings allocated to participating securities 54 74 60 Earnings available to common shareholders $ 11,782 $ 11,468 $ 4,556 Weighted average basic shares of common stock outstanding 1,771 1,770 1,667 Basic earnings per share attributable to AbbVie Inc. $ 6.65 $ 6.48 $ 2.73 Diluted EPS Net earnings attributable to AbbVie Inc. $ 11,836 $ 11,542 $ 4,616 Earnings allocated to participating securities 54 74 60 Earnings available to common shareholders $ 11,782 $ 11,468 $ 4,556 Weighted average shares of common stock outstanding 1,771 1,770 1,667 Effect of dilutive securities 7 7 6 Weighted average diluted shares of common stock outstanding 1,778 1,777 1,673 Diluted earnings per share attributable to AbbVie Inc. $ 6.63 $ 6.45 $ 2.72 Certain shares issuable under stock-based compensation plans were excluded from the computation of EPS because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented. 61 | 2022 Form 10-K Note 5 Licensing, Acquisitions and Other Arrangements Acquisition of DJS Antibodies Ltd In October 2022, AbbVie entered into an agreement to acquire DJS Antibodies Ltd (DJS) including its lead program DJS-002 and proprietary HEPTAD platform. DJS-002 is an LPAR1 antagonist antibody currently in preclinical studies for the treatment of Idiopathic Pulmonary Fibrosis and other fibrotic diseases. HEPTAD platform is a potential novel approach to antibody discovery with specific capabilities targeting transmembrane protein targets. The aggregate purchase price of $ 287 million was comprised of a $ 255 million upfront cash payment and $ 32 million for the acquisition date fair value of contingent consideration liabilities, for which AbbVie may owe up to $ 95 million in future payments upon achievement of certain development milestones. The transaction was accounted for as a business combination using the acquisition method of accounting. As of the acquisition date, AbbVie acquired $ 233 million of intangible assets for in-process research and development, $ 22 million of intangible assets for developed product rights and $ 60 million of deferred tax liabilities. Other assets and liabilities assumed were insignificant. The acquisition resulted in the recognition of $ 92 million of goodwill which is not deductible for tax purposes. Acquisition of Soliton, Inc. In December 2021, AbbVie completed its previously announced acquisition of Soliton, Inc. (Soliton). Soliton's RESONIC (Rapid Acoustic Pulse device) has U.S. Food and Drug Administration (FDA) 510(k) clearance for the long-term improvement in the appearance of cellulite up to one year. The transaction was accounted for as a business combination using the acquisition method of accounting. Total consideration transferred allocated to the purchase price consisted of cash consideration of $ 535 million paid to holders of Soliton common stock, equity-based awards and warrants. As of the transaction date, AbbVie acquired $ 407 million of intangible assets for developed product rights and assumed deferred tax liabilities totaling $ 63 million. Other assets and liabilities were insignificant. The acquisition resulted in the recognition of $ 177 million of goodwill which is not deductible for tax purposes. Acquisition of Luminera In October 2020, AbbVie entered into an agreement with Luminera, a privately held aesthetics company based in Israel, to acquire Luminera's full dermal filler portfolio and R&D pipeline including HArmonyCa, a dermal filler intended for facial soft tissue augmentation. The aggregate accounting purchase price of $ 186 million was comprised of a $ 122 million upfront cash payment and $ 64 million for the acquisition date fair value of contingent consideration liabilities, for which AbbVie may owe up to $ 90 million in future payments upon achievement of certain commercial milestones. The agreement was accounted for as a business combination using the acquisition method of accounting. As of the acquisition date, AbbVie acquired $ 127 million of intangible assets for in-process research and development and $ 33 million of intangible assets for developed product rights. Other assets and liabilities assumed were insignificant. The acquisition resulted in the recognition of $ 12 million of goodwill which is not deductible for tax purposes. Acquisition of Allergan On May 8, 2020, AbbVie completed its acquisition of all outstanding equity interests in Allergan in a cash and stock transaction. Allergan is a global pharmaceutical leader focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products for patients around the world. The combination created a diverse entity with leadership positions across immunology, hematologic oncology, aesthetics, neuroscience and eye care. AbbVie's existing product portfolio and pipeline is enhanced with numerous Allergan assets and Allergan's product portfolio benefits from AbbVie's commercial strength, expertise and international infrastructure. Under the terms of the acquisition, each ordinary share of Allergan common stock was converted into the right to receive (i) $ 120.30 in cash and (ii) 0.8660 of a share of AbbVie common stock. Total consideration for the acquisition of Allergan is summarized as follows: (in millions) Cash consideration paid to Allergan shareholders (a) $ 39,675 Fair value of AbbVie common stock issued to Allergan shareholders (b) 23,979 Fair value of AbbVie equity awards issued to Allergan equity award holders (c) 430 Total consideration $ 64,084 (a) Represents cash consideration transferred of $ 120.30 per outstanding Allergan ordinary share based on 330 million Allergan ordinary shares outstanding at closing. 2022 Form 10-K | 62 (b) Represents the acquisition date fair value of 286 million shares of AbbVie common stock issued to Allergan shareholders based on the exchange ratio of 0.8660 AbbVie shares for each outstanding Allergan ordinary share at the May 8, 2020, closing price of $ 83.96 per share. (c) Represents the pre-acquisition service portion of the fair value of 11 million AbbVie stock options and 8 million RSUs issued to Allergan equity award holders. The acquisition of Allergan has been accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The valuation of assets acquired and liabilities assumed was finalized during the second quarter of 2021. Measurement period adjustments to the preliminary purchase price allocation during 2021 included (i) an increase to intangible assets of $ 710 million; (ii) an increase to deferred income tax liabilities of $ 148 million; (iii) other individually insignificant adjustments for a net increase to identifiable net assets of $ 2 million; and (iv) a corresponding decrease to goodwill of $ 564 million. The measurement period adjustments primarily resulted from the completion of the valuation of certain license agreement intangible assets based on facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. These adjustments did not have a significant impact on AbbVie's results of operations in 2021 and would not have had a significant impact on prior period results if these adjustments had been made as of the acquisition date. The following table summarizes t he final fair value of assets acquired and liabilities assumed as of the acquisition date: (in millions) Assets acquired and liabilities assumed Cash and equivalents $ 1,537 Short-term investments 1,421 Accounts receivable 2,374 Inventories 2,340 Prepaid expenses and other current assets 1,982 Investments 137 Property and equipment 2,129 Intangible assets Definite-lived intangible assets 68,190 In-process research and development 1,600 Other noncurrent assets 1,395 Short-term borrowings ( 60 ) Current portion of long-term debt and finance lease obligations ( 1,899 ) Accounts payable and accrued liabilities ( 5,852 ) Long-term debt and finance lease obligations ( 18,937 ) Deferred income taxes ( 3,940 ) Other long-term liabilities ( 4,765 ) Total identifiable net assets 47,652 Goodwill 16,432 Total assets acquired and liabilities assumed $ 64,084 The fair value step-up adjustment to inventories of $ 1.2 billion was amortized to cost of products sold when the inventory was sold to customers and was fully amortized as of December 31, 2021. Intangible assets relate to $ 68.2 billion of definite-lived intangible assets and $ 1.6 billion of IPR&D. The acquired definite-lived intangible assets consist of developed product rights and license agreements and are being amortized over a weighted-average estimated useful life of approximately twelve years using the estimated pattern of economic benefit. The estimated fair values of identifiable intangible assets were determined using the "income approach" which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product, the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, competitive trends impacting the asset and each cash flow stream, as well as other factors. 63 | 2022 Form 10-K The fair value of long-term debt was determined by quoted market prices as of the acquisition date and the total purchase price adjustment of $ 1.3 billion is being amortized as a reduction to interest expense, net over the lives of the related debt. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recognized from the acquisition of Allergan represents the value of additional growth platforms and an expanded revenue base as well as anticipated operational synergies and cost savings from the creation of a single combined global organization. The goodwill is not deductible for tax purposes. Following the acquisition date, the operating results of Allergan have been included in the consolidated financial statements. For the period from the acquisition date through December 31, 2020, net revenues attributable to Allergan were $ 10.3 billion and operating losses attributable to Allergan were $ 1.1 billion, inclusive of $ 4.0 billion of intangible asset amortization and $ 1.2 billion of inventory fair value step-up amortization. Acquisition-related expenses, which were comprised primarily of regulatory, financial advisory and legal fees, totaled $ 781 million for the year ended December 31, 2020 which were included in SG&A expenses in the consolidated statements of earnings . In the fourth quarter of 2021, AbbVie recovered certain acquisition-related regulatory fees totaling $ 401 million which was recorded as a reduction to SG&A expenses in the consolidated statement of earnings for the year ended December 31, 2021. Pro Forma Financial Information The following table presents the unaudited pro forma combined results of AbbVie and Allergan for 2020 as if the acquisition of Allergan had occurred on January 1, 2019: years ended December 31 (in millions) 2020 Net revenues $ 50,521 Net earnings 6,746 The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of AbbVie and Allergan. In order to reflect the occurrence of the acquisition on January 1, 2019 as required, the unaudited pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on the final fair values of the identifiable intangible assets acquired; the incremental cost of products sold related to the fair value adjustments associated with acquisition date inventory; the additional interest expense associated with the issuance of debt to finance the acquisition; and the reclassification of acquisition-related costs incurred during the year ended December 31, 2020 to the year ended December 31, 2019. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2019. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition. Other Licensing & Acquisitions Activity Cash outflows related to other acquisitions and investments totaled $ 539 million in 2022, $ 1.4 billion in 2021 and $ 1.4 billion in 2020. AbbVie recorded acquired IPR&D and milestones expense of $ 697 million in 2022, $ 1.1 billion in 2021 and $ 1.4 billion in 2020. Significant arrangements impacting 2022, 2021 and 2020, some of which require contingent milestone payments, are summarized below. Syndesi Therapeutics SA In February 2022, AbbVie acquired Syndesi Therapeutics SA and its portfolio of novel modulators of the synaptic vesicle protein 2A, including its lead molecule SDI-118 and accounted for the transaction as an asset acquisition. SDI-118 is a small molecule currently in Phase 1b studies, which is being evaluated to target nerve terminals to enhance synaptic efficiency. Under the terms of the agreement, AbbVie made an upfront payment of $ 130 million which was recorded to acquired IPR&D and milestones expense in the consolidated statement of earnings in the first quarter of 2022. The agreement also includes 2022 Form 10-K | 64 additional future payments of up to $ 870 million upon the achievement of certain development, regulatory and commercial milestones. Juvise Pharmaceuticals In June 2022, AbbVie and Laboratories Juvise Pharmaceuticals (Juvise) entered into an asset purchase agreement where Juvise acquired worldwide commercial rights of a mature brand Pylera, which is used for the treatment of peptic ulcers with an infection by the bacterium Helicobacter pylori. The transaction was accounted for as the sale of an asset. Upon completion of the transaction, AbbVie received net cash proceeds of $ 215 million and recognized a pre-tax gain of $ 172 million which was recorded in other operating income in the consolidated statement of earnings in the second quarter of 2022. Calico Life Sciences LLC In July 2021, AbbVie and Calico Life Sciences LLC (Calico) entered into an extension of their collaboration to discover, develop and bring to market new therapies for patients with age-related diseases, including neurodegeneration and cancer. This is the second collaboration extension and builds on the partnership established in 2014 and extended in 2018. Under the terms of the agreement, AbbVie and Calico will each contribute an additional $ 500 million, and the term is extended for an additional three years. AbbVie’s contribution is payable in two equal installments beginning in 2023. Calico will be responsible for research and early development until 2025 and will advance collaboration projects into Phase 2a through 2030. Following completion of the Phase 2a studies, AbbVie will have the option to exclusively license the collaboration compounds. Upon exercise, AbbVie would be responsible for late-stage development and commercial activities. Collaboration costs and profits will be shared equally by both parties post option exercise. During the third quarter of 2021, AbbVie recorded $ 500 million as other operating expense in the consolidated statement of earnings related to its commitments under the agreement. TeneoOne and TNB-383B In September 2021, AbbVie acquired TeneoOne, an affiliate of Teneobio, Inc., and TNB-383B, a BCMA-targeting immunotherapeutic for the potential treatment of relapsed or refractory multiple myeloma (R/R MM). In February 2019, AbbVie and TeneoOne entered a strategic transaction to develop and commercialize TNB-383B, a bispecific antibody that simultaneously targets BCMA and CD3 and is designed to direct the body's own immune system to target and kill BCMA-expressing tumor cells. AbbVie exercised its exclusive right to acquire TeneoOne and TNB-383B based on an interim analysis of an ongoing Phase 1 study and accounted for the transaction as an asset acquisition. Under the terms of the agreement, AbbVie made an exercise payment of $ 400 million which was recorded to acquired IPR&D and milestones expense in the consolidated statement of earnings in the third quarter of 2021. The agreement also included additional payments of up to $ 250 million upon the achievement of certain development, regulatory and commercial milestones. REGENXBIO Inc. In September 2021, AbbVie and REGENXBIO Inc. (REGENXBIO) entered into a collaboration to develop and commercialize RGX-314, an investigational gene therapy for wet age-related macular degeneration, diabetic retinopathy and other chronic retinal diseases. The collaboration provides AbbVie with an exclusive global license to develop and commercialize RGX-314. REGENXBIO will be responsible for completion of ongoing trials, AbbVie and REGENXBIO will collaborate and share costs of additional trials and AbbVie will lead the clinical development and commercialization of RGX-314 globally. REGENXBIO and AbbVie will share equally in pre-tax profits from net revenues of RGX-314 in the U.S. and AbbVie will pay REGENXBIO tiered royalties on net revenues outside the U.S. Upon closing in the fourth quarter of 2021, AbbVie made an upfront payment of $ 370 million to exclusively license RGX-314 which was recorded to acquired IPR&D and milestones expense in the consolidated statement of earnings for the year ended December 31, 2022 . The agreement also included additional payments of up to $ 1.4 billion upon the achievement of certain development, regulatory and commercial milestones. I-Mab Biopharma In September 2020, AbbVie and I-Mab Biopharma (I-Mab) entered into a collaboration agreement for the development and commercialization of lemzoparlimab, an anti-CD47 monoclonal antibody internally discovered and developed by I-Mab for the treatment of multiple cancers. Both companies will collaborate to design and conduct further global clinical trials to evaluate lemzoparlimab. The collaboration provides AbbVie an exclusive global license, excluding greater China, to develop and commercialize lemzoparlimab. The companies will share manufacturing responsibilities with AbbVie being the primary manufacturer for global supply. The agreement also allows for potential collaboration on future CD47-related therapeutic agents, subject to further licenses to explore each other's related programs in their respective territories. The terms of the arrangement include an initial upfront payment of $ 180 million to exclusively license lemzoparlimab along with a milestone payment of $ 20 million based on the Phase I results, for a total of $ 200 million, which was recorded to acquired IPR&D and milestones expense in the consolidated statement of earnings in the fourth quarter of 2020 after regulatory approval of the 65 | 2022 Form 10-K transaction. In addition, I-Mab will be eligible to receive up to $ 1.7 billion upon the achievement of certain clinical development, regulatory and commercial milestones, and AbbVie will pay tiered royalties from low-to-mid teen percentages on global net revenues outside of greater China. Genmab A/S In June 2020, AbbVie and Genmab A/S (Genmab) entered into a collaboration agreement to jointly develop and commercialize three of Genmab's early-stage investigational bispecific antibody therapeutics and entered into a discovery research collaboration for future differentiated antibody therapeutics for the treatment of cancer. Under the terms of the agreement, Genmab granted AbbVie an exclusive license to its epcoritamab (DuoBody-CD3xCD20), DuoHexaBody-CD37 and DuoBody-CD3x5T4 programs. For epcoritamab, the companies will share commercial responsibilities in the U.S. and Japan, with AbbVie responsible for further global commercialization. Genmab will record net revenues in the U.S. and Japan, and the parties will share equally in pre-tax profits from these sales. Genmab will receive tiered royalties on remaining global sales. For the discovery research partnership, Genmab will conduct Phase 1 studies for these programs and AbbVie retains the right to opt-in to program development. During 2020, AbbVie made an upfront payment of $ 750 million, which was recorded to acquired IPR&D and milestones expense in the consolidated statement of earnings. AbbVie could make additional payments of up to $ 3.2 billion upon the achievement of certain development, regulatory and commercial milestones for all programs. Other Arrangements In addition to the significant arrangements described above, AbbVie entered into several other arrangements resulting in charges related to upfront payments of $ 315 million in 2022, $ 192 million in 2021 and $ 248 million in 2020. In connection with the other individually insignificant early-stage arrangements entered into in 2022, AbbVie could make additional payments of up to $ 7.5 billion upon the achievement of certain development, regulatory and commercial milestones. Acquired IPR&D and milestones expense also included development milestones of $ 252 million in 2022, $ 162 million in 2021 and $ 178 million in 2020. Note 6 Collaborations The company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting 2022, 2021 and 2020. Collaboration with Janssen Biotech, Inc. In December 2011, Pharmacyclics, a wholly-owned subsidiary of AbbVie, entered into a worldwide collaboration and license agreement with Janssen Biotech, Inc. and its affiliates (Janssen), one of the Janssen Pharmaceutical companies of Johnson & Johnson, for the joint development and commercialization of Imbruvica, a novel, orally active, selective covalent inhibitor of Bruton's tyrosine kinase and certain compounds structurally related to Imbruvica, for oncology and other indications, excluding all immune and inflammatory mediated diseases or conditions and all psychiatric or psychological diseases or conditions, in the United States and outside the United States. The collaboration provides Janssen with an exclusive license to commercialize Imbruvica outside of the United States and co-exclusively with AbbVie in the United States. Both parties are responsible for the development, manufacturing and marketing of any products generated as a result of the collaboration. The collaboration has no set duration or specific expiration date and provides for potential future development, regulatory and approval milestone payments of up to $ 200 million to AbbVie. The collaboration also includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, Janssen is responsible for approximately 60 % of collaboration development costs and AbbVie is responsible for the remaining 40 % of collaboration development costs. 2022 Form 10-K | 66 In the United States, both parties have co-exclusive rights to commercialize the products; however, AbbVie is the principal in the end-customer product sales. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. Sales of Imbruvica are included in AbbVie's net revenues. Janssen's share of profits is included in AbbVie's cost of products sold. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share. Outside the United States, Janssen is responsible for and has exclusive rights to commercialize Imbruvica. AbbVie and Janssen share pre-tax profits and losses equally from the commercialization of products. AbbVie's share of profits is included in AbbVie's net revenues. Other costs incurred under the collaboration are reported in their respective expense line items, net of Janssen's share. The following table shows the profit and cost sharing relationship between Janssen and AbbVie: years ended December 31 (in millions) 2022 2021 2020 United States - Janssen's share of profits (included in cost of products sold) $ 1,607 $ 2,018 $ 2,012 International - AbbVie's share of profits (included in net revenues) 1,142 1,087 1,009 Global - AbbVie's share of other costs (included in respective line items) 268 304 295 AbbVie’s receivable from Janssen, included in accounts receivable, net, was $ 295 million at December 31, 2022 and $ 294 million at December 31, 2021. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $ 379 million at December 31, 2022 and $ 509 million at December 31, 2021. Collaboration with Genentech, Inc. AbbVie and Genentech, Inc. (Genentech), a member of the Roche Group, are parties to a collaboration and license agreement executed in 2007 to jointly research, develop and commercialize human therapeutic products containing BCL-2 inhibitors and certain other compound inhibitors which includes Venclexta, a BCL-2 inhibitor used to treat certain hematological malignancies. AbbVie shares equally with Genentech all pre-tax profits and losses from the development and commercialization of Venclexta in the United States. AbbVie pays royalties on Venclexta net revenues outside the United States. AbbVie manufactures and distributes Venclexta globally and is the principal in the end-customer product sales. Sales of Venclexta are included in AbbVie's net revenues. Genentech's share of United States profits is included in AbbVie's cost of products sold. AbbVie records sales and marketing costs associated with the United States collaboration as part of SG&A expenses and global development costs as part of R&D expenses, net of Genentech’s share. Royalties paid for Venclexta revenues outside the United States are also included in AbbVie’s cost of products sold. The following table shows the profit and cost sharing relationship between Genentech and AbbVie: years ended December 31 (in millions) 2022 2021 2020 Genentech's share of profits, including royalties (included in cost of products sold) $ 778 $ 703 $ 533 AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) 37 40 46 AbbVie's share of development costs (included in R&D) 121 140 129 67 | 2022 Form 10-K Note 7 Goodwill and Intangible Assets Goodwill The following table summarizes the changes in the carrying amount of goodwill: (in millions) Balance as of December 31, 2020 $ 33,124 Additions (a) 177 Measurement period adjustments (b) ( 564 ) Foreign currency translation adjustments and other ( 358 ) Balance as of December 31, 2021 32,379 Additions (c) 92 Foreign currency translation adjustments and other ( 315 ) Balance as of December 31, 2022 $ 32,156 (a) Goodwill additions related to the acquisition of Soliton in the fourth quarter of 2021 (see Note 5). (b) Measurement period adjustments recorded in 2021 related to the acquisition of Allergan (see Note 5). (c) Goodwill additions related to the acquisition of DJS in the fourth quarter of 2022 (see Note 5). The company performs its annual goodwill impairment assessment in the third quarter, or earlier if impairment indicators exist. As of December 31, 2022 and 2021, there were no accumulated goodwill impairment losses. Intangible Assets, Net The following table summarizes intangible assets: 2022 2021 as of December 31 (in millions) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Definite-lived intangible assets Developed product rights $ 87,698 $ ( 25,003 ) $ 62,695 $ 88,945 $ ( 18,463 ) $ 70,482 License agreements 8,474 ( 4,642 ) 3,832 8,487 ( 3,688 ) 4,799 Total definite-lived intangible assets 96,172 ( 29,645 ) 66,527 97,432 ( 22,151 ) 75,281 Indefinite-lived intangible assets 912 — 912 670 — 670 Total intangible assets, net $ 97,084 $ ( 29,645 ) $ 67,439 $ 98,102 $ ( 22,151 ) $ 75,951 Definite-Lived Intangible Assets In September 2022, the company made a strategic decision to reduce ongoing sales and marketing investment related to Vuity, an on-market product to treat presbyopia. This strategic decision contributed to a significant decrease in the estimated future cash flows for the product and represented a triggering event which required the company to evaluate the underlying definite lived-intangible asset for impairment. The company utilized a discounted cash flow analysis to estimate the fair value of the intangible asset resulting in a full impairment of both the gross and net carrying amount. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $ 770 million to cost of products sold in the consolidated statement of earnings for the third quarter of 2022. Definite-lived intangible assets are amortized over their estimated useful lives, which range between 1 to 16 years with an average of 12 years for developed product rights and 11 years for license agreements. Amortization expense was $ 7.7 billion in 2022, $ 7.7 billion in 2021 and $ 5.8 billion in 2020 and was included in cost of products sold in the consolidated statements of earnings. The anticipated annual amortization expense for definite-lived intangible assets recorded as of December 31, 2022 is as follows: (in billions) 2023 2024 2025 2026 2027 Anticipated annual amortization expense $ 7.7 $ 7.9 $ 8.0 $ 7.3 $ 5.8 2022 Form 10-K | 68 Indefinite-Lived Intangible Assets Indefinite-lived intangible assets represent acquired IPR&D associated with products that have not yet received regulatory approval. Indefinite-lived intangible assets as of December 31, 2022 primarily relate to the acquisitions of Allergan and DJS. The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist. Note 8 Integration and Restructuring Plans Allergan Integration Plan Following the closing of the Allergan acquisition, AbbVie implemented an integration plan designed to reduce costs, integrate and optimize the combined organization and incurred total cumulative charges of $ 2.3 billion through 2022. These costs consisted of severance and employee benefit costs (cash severance, non-cash severance, including accelerated equity award compensation expense, retention and other termination benefits) and other integration expenses. The following table summarizes the charges (benefits) associated with the Allergan acquisition integration plan: Severance and employee benefits Other integration year ended December 31 (in millions) 2022 2021 2020 2022 2021 2020 Cost of products sold $ ( 4 ) $ 5 $ 109 $ 121 $ 127 $ 21 Research and development — — 199 23 102 177 Selling, general and administrative ( 4 ) 64 388 403 289 237 Total charges (benefits) $ ( 8 ) $ 69 $ 696 $ 547 $ 518 $ 435 The following table summarizes the cash activity in the recorded liability associated with the integration plan: year ended December 31 (in millions) Severance and employee benefits Other integration Charges $ 594 $ 435 Payments and other adjustments ( 227 ) ( 415 ) Accrued balance as of December 31, 2020 367 20 Charges 65 461 Payments and other adjustments ( 210 ) ( 448 ) Accrued balance as of December 31, 2021 222 33 Charges (benefits) ( 8 ) 385 Payments and other adjustments ( 116 ) ( 409 ) Accrued balance as of December 31, 2022 $ 98 $ 9 Other Restructuring AbbVie continuously evaluates its operations to identify opportunities to optimize its manufacturing and R&D operations, commercial infrastructure and administrative costs and to respond to changes in its business environment. As a result, AbbVie management periodically approves individual restructuring plans to achieve these objectives. In 2022, 2021 and 2020, no such plans were individually significant. Restructuring charges recorded were $ 241 million in 2022, $ 59 million in 2021 and $ 60 million in 2020 and were primarily related to employee severance and contractual obligations. These charges were recorded in cost of products sold, R&D expense and SG&A expenses in the consolidated statements of earnings based on the classification of the affected employees or operations. 69 | 2022 Form 10-K The following table summarizes the cash activity in the restructuring reserve for 2022, 2021 and 2020: (in millions) Accrued balance as of December 31, 2019 $ 140 Restructuring charges 58 Payments and other adjustments ( 108 ) Accrued balance as of December 31, 2020 90 Restructuring charges 54 Payments and other adjustments ( 111 ) Accrued balance as of December 31, 2021 33 Restructuring charges 193 Payments and other adjustments ( 50 ) Accrued balance as of December 31, 2022 $ 176 Note 9 Leases AbbVie's lease portfolio primarily consists of real estate properties, vehicles and equipment. The following table summarizes the amounts and location of operating and finance leases on the consolidated balance sheets: as of December 31 (in millions) Balance sheet caption 2022 2021 Assets Operating Other assets $ 737 $ 762 Finance Property and equipment, net 25 33 Total lease assets $ 762 $ 795 Liabilities Operating Current Accounts payable and accrued liabilities $ 166 $ 178 Noncurrent Other long-term liabilities 754 713 Finance Current Current portion of long-term debt and finance lease obligations 17 9 Noncurrent Long-term debt and finance lease obligations 17 25 Total lease liabilities $ 954 $ 925 The following table summarizes the lease costs recognized in the consolidated statements of earnings: years ended December 31 (in millions) 2022 2021 2020 Operating lease cost $ 201 $ 226 $ 192 Short-term lease cost 67 56 59 Variable lease cost 71 71 60 Total lease cost $ 339 $ 353 $ 311 In December 2022, the company entered into an agreement to sublease a portion of its Madison, New Jersey office space through the end of the original lease maturity in 2030. As a result of this agreement, the company recognized an impairment loss on its right-of-use asset of $ 69 million and wrote-off the related leasehold improvements of $ 37 million. These losses were recorded to SG&A expense in the consolidated statements of earnings for the year ended December 31, 2022. The company used a discounted cash flows method to value the right-of-use asset to determine the impairment amount. Sublease income and finance lease costs were insignificant in 2022, 2021 and 2020. 2022 Form 10-K | 70 The following table presents the weighted-average remaining lease term and weighted-average discount rate for operating and finance leases: years ended December 31 2022 2021 2020 Weighted-average remaining lease term (years) Operating 8 7 8 Finance 2 3 3 Weighted-average discount rate Operating 2.6 % 2.4 % 2.5 % Finance 1.5 % 1.1 % 1.4 % The following table presents supplementary cash flow information regarding the company's leases: years ended December 31 (in millions) 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 212 $ 236 $ 185 Right-of-use assets obtained in exchange for new operating lease liabilities 235 66 692 Finance lease cash flows were insignificant in 2022, 2021 and 2020. Right-of-use assets obtained in exchange for new operating lease liabilities as of December 31, 2020 included $ 453 million of right-of-use assets acquired in the Allergan acquisition. The following table summarizes the future maturities of AbbVie's operating and finance lease liabilities as of December 31, 2022: (in millions) Operating leases Finance leases Total (a) 2023 $ 185 $ 17 $ 202 2024 152 7 159 2025 130 5 135 2026 113 6 119 2027 90 — 90 Thereafter 361 — 361 Total lease payments 1,031 35 1,066 Less: Interest 111 1 112 Present value of lease liabilities $ 920 $ 34 $ 954 (a) Lease payments recognized as part of lease liabilities for optional renewal periods are insignificant. 71 | 2022 Form 10-K Note 10 Debt, Credit Facilities and Commitments and Contingencies The following table summarizes long-term debt: as of December 31 (dollars in millions) 2022 Effective interest rate (a) 2022 2021 Effective interest rate (a) 2021 2.30 - 3.45 % aggregate notes due 2022 1.92 - 3.28 % $ — 0.99 - 3.45 % $ 12,428 3.75 % senior notes due 2023 3.84 % 1,250 3.84 % 1,250 2.85 % senior notes due 2023 2.91 % 1,000 2.91 % 1,000 Floating rate term loans due 2023 2.45 % 1,000 0.81 % 1,000 1.50 % senior euro notes due 2023 (€ 500 principal) 0.49 % 532 0.49 % 567 2.80 % senior notes due 2023 2.13 % 350 2.13 % 350 2.60 % senior notes due 2024 2.69 % 3,750 2.69 % 3,750 1.375 % senior euro notes due 2024 (€ 1,450 principal) 1.46 % 1,543 1.46 % 1,643 3.85 % senior notes due 2024 2.07 % 1,032 2.07 % 1,032 1.25 % senior euro notes due 2024 (€ 700 principal) 0.65 % 745 0.65 % 793 3.60 % senior notes due 2025 3.66 % 3,750 3.66 % 3,750 3.80 % senior notes due 2025 2.09 % 3,021 2.09 % 3,021 Floating rate term loans due 2025 1.39 % — 1.36 % 2,000 Floating rate term loans due 2025 2.82 % 2,000 — — 2.95 % senior notes due 2026 3.02 % 4,000 3.02 % 4,000 3.20 % senior notes due 2026 3.28 % 2,000 3.28 % 2,000 0.75 % senior euro notes due 2027 (€ 750 principal) 0.86 % 798 0.86 % 850 4.25 % senior notes due 2028 4.38 % 1,750 4.38 % 1,750 2.125 % senior euro notes due 2028 (€ 750 principal) 2.18 % 798 2.18 % 850 2.625 % senior euro notes due 2028 (€ 500 principal) 1.20 % 532 1.20 % 567 3.20 % senior notes due 2029 3.25 % 5,500 3.25 % 5,500 2.125 % senior euro notes due 2029 (€ 550 principal) 1.19 % 585 1.19 % 623 1.25 % senior euro notes due 2031 (€ 650 principal) 1.30 % 691 1.30 % 737 4.55 % senior notes due 2035 3.52 % 1,789 3.52 % 1,789 4.50 % senior notes due 2035 4.58 % 2,500 4.58 % 2,500 4.30 % senior notes due 2036 4.37 % 1,000 4.37 % 1,000 4.05 % senior notes due 2039 4.11 % 4,000 4.11 % 4,000 4.40 % senior notes due 2042 4.46 % 2,600 4.46 % 2,600 4.625 % senior notes due 2042 4.00 % 457 4.00 % 457 4.85 % senior notes due 2044 4.11 % 1,074 4.11 % 1,074 4.70 % senior notes due 2045 4.73 % 2,700 4.73 % 2,700 4.75 % senior notes due 2045 4.20 % 881 4.20 % 881 4.45 % senior notes due 2046 4.50 % 2,000 4.50 % 2,000 4.875 % senior notes due 2048 4.94 % 1,750 4.94 % 1,750 4.25 % senior notes due 2049 4.29 % 5,750 4.29 % 5,750 Fair value hedges ( 346 ) 102 Unamortized bond discounts ( 116 ) ( 130 ) Unamortized deferred financing costs ( 222 ) ( 251 ) Unamortized bond premiums (b) 793 954 Other 33 33 Total long-term debt and finance lease obligations 63,270 76,670 Current portion 4,135 12,481 Noncurrent portion $ 59,135 $ 64,189 (a) Excludes the effect of any related interest rate swaps. (b) Represents unamortized purchase price adjustments of Allergan debt. 2022 Form 10-K | 72 Senior notes and floating rate term loans are redeemable prior to maturity at a redemption price equal to the principal amount plus a make-whole premium and AbbVie may redeem these debt securities at par generally between one and six months prior to maturity. At December 31, 2022, the company was in compliance with its senior note covenants and term loan covenants. Maturities of Long-Term Debt as of and for the years ending December 31 (in millions) 2023 $ 4,132 2024 7,070 2025 8,771 2026 6,000 2027 798 Thereafter 36,357 Total obligations and commitments 63,128 Fair value hedges, unamortized bond premiums/discounts, deferred financing costs and finance lease obligations 142 Total long-term debt and finance lease obligations $ 63,270 Repayment and Issuance of Long-Term Debt In 2022, the company repaid $ 2.9 billion aggregate principal amount of 3.450 % senior notes, $ 1.7 billion aggregate principal amount of 3.25 % senior notes, $ 1.0 billion aggregate principal amount of 3.2 % senior notes. These repayments were ma de by exercising, under the terms of the notes ranging between 60 and 90-day early redemptions at 100% of the principal amount. During the quarter ended December 31, 2022, the company also paid $ 3.1 billion aggregate principal amount of 2.9 % senior notes, $ 3.0 billion aggregate principal amount of 2.3 % senior notes and $ 750 million aggregate principal amount of floating rate senior notes at maturity. Additionally in 2022, the company refinanced its $ 2.0 billion floating rate five-year term loan. As part of the refinancing, the company repaid the existing $ 2.0 billion term loan due May 2025 and borrowed $ 2.0 billion under a new term loan at a lower floating rate. All other significant terms of the loan, including the maturity date, remained unchanged after the refinancing. Subsequent to December 31, 2022, the company repaid a $ 1.0 billion floating rate three-year term loan that was scheduled to mature in May 2023. In 2021, the company repaid $ 1.8 billion aggregate principal amount of 2.3 % senior notes, € 750 million aggregate principal amount of 0.5 % senior Euro notes and $ 1.2 billion aggregate principal amount of 5.0 % senior notes. These repayments were made by exercising, under the terms of the notes, ranging between 30 and 90-day early redemptions at 100% of the principal amounts. The company also repaid $ 1.3 billion aggregate principal amount of 3.375 % senior notes $ 1.8 billion aggregate principal amount of 2.15 % senior notes and $ 1.5 billion aggregate principal amount of floating rate senior notes at maturity. Additionally in 2021, the company refinanced its $ 1.0 billion floating rate three-year term loan. As part of the refinancing, the company repaid the existing $ 1.0 billion term loan due May 2023 and borrowed $ 1.0 billion under a new term loan at a lower floating rate. All other significant terms of the loan, including the maturity date, remained unchanged after the refinancing. Short-Term Borrowings There were no commercial paper borrowings outstanding as of December 31, 2022 and December 31, 2021. No commercial paper borrowings were issued during 2022 or 2021. There were commercial paper borrowings issued during 2020 and the weighted-average interest rate was 1.8 %. AbbVie currently has a $ 4.0 billion five-year revolving credit facility that matures in August 2024. This credit facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants, all of which the company was in compliance with as of December 31, 2022. Commitment fees under AbbVie's revolving credit facilities were insignificant in 2022, 2021 and 2020. No amounts were outstanding under the company's credit facilities as of December 31, 2022 and December 31, 2021. 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 and no special-purpose entities. 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. 73 | 2022 Form 10-K Note 11 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. AbbVie'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 and nonderivative instruments to reduce its exposure to foreign currency exchange rates. AbbVie also periodically enters into interest rate swaps in which the company agrees to exchange, at specified intervals, the difference between fixed and 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 $ 1.7 billion at December 31, 2022 and $ 1.1 billion at December 31, 2021, are designated as cash flow hedges and are recorded at fair value. The durations of these forward exchange contracts were generally less than 18 months. Accumulated gains and losses as of December 31, 2022 will be reclassified from AOCI and included in cost of products sold at the time the products are sold, generally not exceeding six months from the date of settlement. In 2019, the company entered into treasury rate lock agreements with notional amounts totaling $ 10.0 billion to hedge exposure to variability in future cash flows resulting from changes in interest rates related to the issuance of long-term debt in connection with the acquisition of Allergan. The treasury rate lock agreements were designated as cash flow hedges and recorded at fair value. The agreements were net settled upon issuance of the senior notes in 2019 and the resulting net gain was recognized in other comprehensive income. This gain is reclassified to interest expense, net over the term of the related debt. The company was a party to interest rate swap contracts designated as cash flow hedges that matured in November 2022, for which the notional amount was $ 750 million at December 31, 2021. The effect of the hedge contracts was to change a floating-rate interest obligation to a fixed rate for that portion of the floating-rate debt. Realized and unrealized gains or losses were included in AOCI and were reclassified to interest expense, net over the lives of the floating-rate debt. The company also enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated trade payables and receivables and intercompany loans. These contracts are not designated as hedges and are recorded at fair value. Resulting gains or losses are reflected in net foreign exchange loss in the consolidated statements of earnings and are generally offset by losses or gains on the foreign currency exposure being managed. These contracts had notional amounts totaling $ 6.5 billion at December 31, 2022 and $ 8.2 billion at December 31, 2021. The company also uses foreign currency forward exchange contracts or foreign currency denominated debt to hedge its net investments in certain foreign subsidiaries and affiliates. The company had an aggregate principal amount of senior Euro notes designated as net investment hedges of € 5.9 billion at December 31, 2022 and December 31, 2021. In addition, the company had foreign currency forward exchange contracts designated as net investment hedges with notional amounts totaling € 4.3 billion, SEK 2.0 billion, CAD 750 million and CHF 90 million at December 31, 2022 and € 4.3 billion at December 31, 2021. The company uses the spot method of assessing hedge effectiveness for derivative instruments designated as net investment hedges. Realized and unrealized gains and losses from these hedges are included in AOCI and the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in interest expense, net over the life of the hedging instrument. The company is a party to interest rate swap contracts designated as fair value hedges with notional amounts totaling $ 4.5 billion at December 31, 2022 and December 31, 2021. The effect of the hedge contracts is to change a fixed-rate interest obligation to a floating rate for that portion of the debt. AbbVie records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount. No amounts are excluded from the assessment of effectiveness for cash flow hedges or fair value hedges. 2022 Form 10-K | 74 The following table summarizes the amounts and location of AbbVie's derivative instruments on the consolidated balance sheets: Fair value - Derivatives in asset position Fair value - Derivatives in liability position as of December 31 (in millions) Balance sheet caption 2022 2021 Balance sheet caption 2022 2021 Foreign currency forward exchange contracts Designated as cash flow hedges Prepaid expenses and other $ 49 $ 51 Accounts payable and accrued liabilities $ 8 $ 2 Designated as cash flow hedges Other assets 1 — Other long-term liabilities — — Designated as net investment hedges Prepaid expenses and other 6 149 Accounts payable and accrued liabilities 36 — Designated as net investment hedges Other assets 74 15 Other long-term liabilities 47 — Not designated as hedges Prepaid expenses and other 33 26 Accounts payable and accrued liabilities 41 13 Interest rate swap contracts Designated as cash flow hedges Prepaid expenses and other — — Accounts payable and accrued liabilities — 7 Designated as fair value hedges Prepaid expenses and other — — Accounts payable and accrued liabilities 17 — Designated as fair value hedges Other assets — 26 Other long-term liabilities 375 15 Total derivatives $ 163 $ 267 $ 524 $ 37 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 presents the pre-tax amounts of gains (losses) from derivative instruments recognized in other comprehensive income: years ended in December 31 (in millions) 2022 2021 2020 Foreign currency forward exchange contracts Designated as cash flow hedges $ 103 $ 82 $ ( 71 ) Designated as net investment hedges 395 341 ( 95 ) Interest rate swap contracts designated as cash flow hedges 6 2 ( 53 ) Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax gains of $ 86 million into cost of products sold for foreign currency cash flow hedges and pre-tax gains of $ 24 million into interest expense, net for treasury rate lock agreement cash flow hedges during the next 12 months. Related to AbbVie’s non-derivative, foreign currency denominated debt designated as net investment hedges, the company recognized in other comprehensive income pre-tax gains of $ 406 million in 2022, pre-tax gains of $ 577 million in 2021 and pre-tax losses of $ 907 million in 2020. 75 | 2022 Form 10-K The following table summarizes the pre-tax amounts and location of derivative instrument net gains (losses) recognized in the consolidated statements of earnings, including the net gains (losses) reclassified out of AOCI into net earnings. See Note 13 for the amount of net gains (losses) reclassified out of AOCI. years ended December 31 (in millions) Statement of earnings caption 2022 2021 2020 Foreign currency forward exchange contracts Designated as cash flow hedges Cost of products sold $ 82 $ ( 87 ) $ 23 Designated as net investment hedges Interest expense, net 94 26 18 Not designated as hedges Net foreign exchange loss ( 156 ) ( 100 ) 58 Treasury rate lock agreements designated as cash flow hedges Interest expense, net 23 24 24 Interest rate swap contracts Designated as cash flow hedges Interest expense, net ( 1 ) ( 24 ) ( 17 ) Designated as fair value hedges Interest expense, net ( 402 ) ( 127 ) 365 Debt designated as hedged item in fair value hedges Interest expense, net 402 127 ( 365 ) Fair Value Measures The fair value hierarchy 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. 2022 Form 10-K | 76 The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the consolidated balance sheet as of December 31, 2022: Basis of fair value measurement (in millions) Total Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and equivalents $ 9,201 $ 4,201 $ 5,000 $ — Money market funds and time deposits 21 — 21 — Debt securities 28 — 28 — Equity securities 91 59 32 — Foreign currency contracts 163 — 163 — Total assets $ 9,504 $ 4,260 $ 5,244 $ — Liabilities Interest rate swap contracts $ 392 $ — $ 392 $ — Foreign currency contracts 132 — 132 — Contingent consideration 16,384 — — 16,384 Total liabilities $ 16,908 $ — $ 524 $ 16,384 The following table summarizes the bases used to measure certain assets and liabilities carried at fair value on a recurring basis on the consolidated balance sheet as of December 31, 2021: Basis of fair value measurement (in millions) Total Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Cash and equivalents $ 9,746 $ 4,451 $ 5,295 $ — Money market funds and time deposits 45 — 45 — Debt securities 46 — 46 — Equity securities 121 100 21 — Interest rate swap contracts 26 — 26 — Foreign currency contracts 241 — 241 — Total assets $ 10,225 $ 4,551 $ 5,674 $ — Liabilities Interest rate swap contracts $ 22 $ — $ 22 $ — Foreign currency contracts 15 — 15 — Contingent consideration 14,887 — — 14,887 Total liabilities $ 14,924 $ — $ 37 $ 14,887 Money market funds and time deposits are valued using relevant observable market inputs including quoted prices for similar assets and interest rate curves. Equity securities primarily consist of investments for which the fair values were determined by using the published market prices per unit multiplied by the number of units held, without consideration of transaction costs. The derivatives entered into by the company were valued using observable market inputs including published interest rate curves and both forward and spot prices for foreign currencies. The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, estimated probabilities and timing of achieving specified development, regulatory and commercial milestones and the estimated amount of future sales of the acquired products. The potential contingent consideration payments are estimated by applying a probability-weighted expected payment model for contingent milestone payments and a Monte Carlo simulation model for contingent royalty payments, which are then discounted to present value. Changes to the fair value of the contingent consideration liabilities can result from changes to one or a number of inputs, including discount rates, the probabilities of achieving the milestones, the time required to achieve the milestones 77 | 2022 Form 10-K and estimated future sales. Significant judgment is employed in determining the appropriateness of certain of these inputs. Changes to the inputs described above could have a material impact on the company's financial position and results of operations in any given period. The fair value of the company's contingent consideration liabilities was calculated using the following significant unobservable inputs: 2022 2021 years ended December 31 (in millions) Range Weighted Average (a) Range Weighted Average (a) Discount rate 4.7 % - 5.1 % 4.8 % 0.2 % - 2.6 % 1.7 % Probability of payment for unachieved milestones 100 % - 100 % 100 % 89 % - 100 % 90 % Probability of payment for royalties by indication (b) 56 % - 100 % 99 % 56 % - 100 % 96 % Projected year of payments 2023 - 2034 2028 2022 - 2034 2027 (a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities. (b) Excluding approved indications, the estimated probability of payment was 56 % at December 31, 2022 and ranged from 56 % to 89 % at December 31, 2021. There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy. The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs: years ended December 31 (in millions) 2022 2021 2020 Beginning balance $ 14,887 $ 12,997 $ 7,340 Additions (a) 32 — 225 Change in fair value recognized in net earnings 2,761 2,679 5,753 Payments ( 1,296 ) ( 789 ) ( 321 ) Ending balance $ 16,384 $ 14,887 $ 12,997 (a) Additions during the year ended December 31, 2022, represent contingent consideration liabilities assumed in the DJS acquisition. Additions during the year ended December 31, 2020, represent contingent consideration liabilities assumed in the Allergan and Luminera acquisitions (see Note 5). The change in fair value recognized in net earnings is recorded in other expense, net in the consolidated statements of earnings and included charges of $ 2.8 billion in 2022, $ 2.7 billion in 2021 and $ 5.8 billion in 2020. In 2022, the change in fair value reflected higher estimated Skyrizi sales driven by stronger market share uptake and the passage of time, partially offset by higher discount rates. In 2021, the change in fair value reflected higher estimated Skyrizi sales driven by stronger market share uptake, favorable clinical trial results and the passage of time, partially offset by higher discount rates. In 2020, the change in fair value reflected higher estimated Skyrizi sales driven by stronger market share uptake, lower discount rates, the passage of time and favorable clinical trial results. 2022 Form 10-K | 78 Certain financial instruments are carried at historical cost or some basis other than fair value. The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 2022 are shown in the table below: Basis of fair value measurement (in millions) Book value Approximate fair values Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Liabilities Short-term borrowings $ 1 $ 1 $ — $ 1 $ — Current portion of long-term debt and finance lease obligations, excluding fair value hedges 4,152 4,121 3,930 191 — Long-term debt and finance lease obligations, excluding fair value hedges 59,463 54,073 53,365 708 — Total liabilities $ 63,616 $ 58,195 $ 57,295 $ 900 $ — The book values, approximate fair values and bases used to measure the approximate fair values of certain financial instruments as of December 31, 2021 are shown in the table below: Basis of fair value measurement (in millions) Book value Approximate fair values Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Liabilities Short-term borrowings $ 14 $ 14 $ — $ 14 $ — Current portion of long-term debt and finance lease obligations, excluding fair value hedges $ 12,455 $ 11,830 $ 11,329 $ 501 $ — Long-term debt and finance lease obligations, excluding fair value hedges 64,113 71,810 70,757 1,053 — Total liabilities $ 76,582 $ 83,654 $ 82,086 $ 1,568 $ — AbbVie also holds investments in equity securities that do not have readily determinable fair values. The company records these investments at cost and remeasures them to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of these investments was $ 129 million as of December 31, 2022 and $ 149 million as of December 31, 2021. No significant cumulative upward or downward adjustments have been recorded for these investments as of December 31, 2022. Concentrations of Risk Of total net accounts receivable, three U.S. wholesalers accounted for 82 % as of December 31, 2022 and 75 % as of December 31, 2021, and substantially all of AbbVie's pharmaceutical product net revenues in the United States were to these three wholesalers. Humira (adalimumab) is AbbVie's single largest product and accounted for approximately 37 % of AbbVie's total net revenues in 2022, 37 % in 2021 and 43 % in 2020. 79 | 2022 Form 10-K Note 12 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 retirees in the United States and Puerto Rico, through other post-retirement benefit plans. Net obligations for these plans have been reflected on the consolidated balance sheets as of December 31, 2022 and 2021. The following table summarizes benefit plan information for the global AbbVie-sponsored defined benefit and other post-employment plans: Defined benefit plans Other post-employment plans as of and for the years ended December 31 (in millions) 2022 2021 2022 2021 Projected benefit obligations Beginning of period $ 12,006 $ 11,792 $ 850 $ 795 Service cost 454 440 51 48 Interest cost 297 237 23 19 Employee contributions 1 2 — — Amendments — — ( 2 ) — Actuarial (gain) loss ( 3,668 ) ( 8 ) ( 229 ) 10 Benefits paid ( 294 ) ( 281 ) ( 25 ) ( 22 ) Other, primarily foreign currency translation adjustments ( 208 ) ( 176 ) ( 1 ) — End of period 8,588 12,006 667 850 Fair value of plan assets Beginning of period 10,655 9,702 — — Actual return on plan assets ( 2,031 ) 1,000 — — Company contributions 357 376 25 22 Employee contributions 1 2 — — Benefits paid ( 294 ) ( 281 ) ( 25 ) ( 22 ) Other, primarily foreign currency translation adjustments ( 216 ) ( 144 ) — — End of period 8,472 10,655 — — Funded status, end of period $ ( 116 ) $ ( 1,351 ) $ ( 667 ) $ ( 850 ) Amounts recognized on the consolidated balance sheets Other assets $ 896 $ 991 $ — $ — Accounts payable and accrued liabilities ( 14 ) ( 13 ) ( 27 ) ( 26 ) Other long-term liabilities ( 998 ) ( 2,329 ) ( 640 ) ( 824 ) Net obligation $ ( 116 ) $ ( 1,351 ) $ ( 667 ) $ ( 850 ) Actuarial loss, net $ 2,365 $ 3,504 $ 205 $ 461 Prior service cost (credit) 3 5 ( 333 ) ( 370 ) Accumulated other comprehensive loss $ 2,368 $ 3,509 $ ( 128 ) $ 91 Related to international defined benefit plans the projected benefit obligations in the table above included $ 2.1 billion at December 31, 2022 and $ 3.2 billion at December 31, 2021. For plans reflected in the table above, the accumulated benefit obligations were $ 7.7 billion at December 31, 2022 and $ 10.5 billion at December 31, 2021. The 2022 actuarial gain of $ 3.7 billion for qualified pension plans and actuarial gain of $ 229 million for other post-employment plans were primarily driven by an increase in the discount rate. The 2021 actuarial gain of $ 8 million for qualified pension plans and actuarial loss of $ 10 million for other post-employment plans were primarily driven by an increase in the assumed discount rate offset by change in demographic assumptions from 2020. 2022 Form 10-K | 80 Information For Pension Plans With An Accumulated Benefit Obligation In Excess Of Plan Assets as of December 31 (in millions) 2022 2021 Accumulated benefit obligation $ 1,211 $ 6,395 Fair value of plan assets 746 5,412 Information For Pension Plans With A Projected Benefit Obligation In Excess Of Plan Assets as of December 31 (in millions) 2022 2021 Projected benefit obligation $ 5,592 $ 7,788 Fair value of plan assets 4,580 5,447 AbbVie's U.S. pension plan was modified to close the plan to new entrants effective January 1, 2022. In addition, a change to AbbVie's U.S. retiree health benefit plan was approved in 2020 and communicated to employees and retirees in October 2020. Beginning in 2022, Medicare-eligible retirees and Medicare-eligible dependents choose health care coverage from insurance providers through a private Medicare exchange. AbbVie will continue to provide financial support to Medicare-eligible retirees. This change to the U.S. retiree health benefit plan decreased AbbVie's post-employment benefit obligation and increased AbbVie's unrecognized prior service credit as of December 31, 2020 by $ 397 million. 81 | 2022 Form 10-K Amounts Recognized in Other Comprehensive Income The following table summarizes the pre-tax losses (gains) included in other comprehensive income: years ended December 31 (in millions) 2022 2021 2020 Defined benefit plans Actuarial loss (gain) $ ( 925 ) $ ( 345 ) $ 701 Amortization of prior service cost ( 2 ) ( 2 ) ( 2 ) Amortization of actuarial loss ( 231 ) ( 288 ) ( 227 ) Foreign exchange loss (gain) and other 17 ( 27 ) 56 Total loss (gain) $ ( 1,141 ) $ ( 662 ) $ 528 Other post-employment plans Actuarial loss (gain) $ ( 229 ) $ 10 $ 40 Prior service credit ( 2 ) — ( 397 ) Amortization of prior service credit 38 39 4 Amortization of actuarial loss ( 26 ) ( 32 ) ( 26 ) Total loss (gain) $ ( 219 ) $ 17 $ ( 379 ) Net Periodic Benefit Cost years ended December 31 (in millions) 2022 2021 2020 Defined benefit plans Service cost $ 454 $ 440 $ 370 Interest cost 297 237 264 Expected return on plan assets ( 712 ) ( 663 ) ( 575 ) Amortization of prior service cost 2 2 2 Amortization of actuarial loss 231 288 227 Net periodic benefit cost $ 272 $ 304 $ 288 Other post-employment plans Service cost $ 51 $ 48 $ 42 Interest cost 23 19 34 Amortization of prior service credit ( 38 ) ( 39 ) ( 4 ) Amortization of actuarial loss 26 32 26 Net periodic benefit cost $ 62 $ 60 $ 98 The components of net periodic benefit cost other than service cost are included in other expense, net in the consolidated statements of earnings. Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date as of December 31 2022 2021 Defined benefit plans Discount rate 5.0 % 2.8 % Rate of compensation increases 5.5 % 5.2 % Cash balance interest crediting rate 2.7 % 2.7 % Other post-employment plans Discount rate 5.3 % 3.1 % The assumptions used in calculating the December 31, 2022 measurement date benefit obligations will be used in the calculation of net periodic benefit cost in 2023. 2022 Form 10-K | 82 Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost years ended December 31 2022 2021 2020 Defined benefit plans Discount rate for determining service cost 3.0 % 2.6 % 3.1 % Discount rate for determining interest cost 2.6 % 2.2 % 3.0 % Expected long-term rate of return on plan assets 7.1 % 7.1 % 7.1 % Expected rate of change in compensation 5.2 % 4.6 % 4.6 % Cash balance interest crediting rate 2.7 % 2.8 % 2.8 % Other post-employment plans Discount rate for determining service cost 3.3 % 3.0 % 3.7 % Discount rate for determining interest cost 2.7 % 2.2 % 3.2 % For the December 31, 2022 post-retirement health care obligations remeasurement, the company assumed a 6.2 % pre-65 ( 2.0 % post-65) annual rate of increase in the per capita cost of covered health care benefits. The pre-65 rate was assumed to decrease gradually to 4.5 % ( 1.8 % post-65) in 2030 and remain at that level thereafter. For purposes of measuring the 2022 post-retirement health care costs, the company assumed a 5.9 % pre-65 ( 2.1 % post-65) annual rate of increase in the per capita cost of covered health care benefits. The pre-65 rate was assumed to decrease gradually to 4.5 % ( 1.8 % post-65) for 2029 and remain at that level thereafter. 83 | 2022 Form 10-K Defined Benefit Pension Plan Assets Basis of fair value measurement as of December 31 (in millions) 2022 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Equities U.S. large cap (a) $ 949 $ 949 $ — $ — U.S. mid cap (b) 157 157 — — International (c) 327 327 — — Fixed income securities U.S. government securities (d) 237 69 168 — Corporate debt instruments (d) 680 144 536 — Non-U.S. government securities (d) 548 402 146 — Other (d) 84 81 3 — Absolute return funds (e) 91 4 87 — Real assets 9 9 — — Other (f) 278 277 1 — Total $ 3,360 $ 2,419 $ 941 $ — Total assets measured at NAV 5,112 Fair value of plan assets $ 8,472 Basis of fair value measurement as of December 31 (in millions) 2021 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Equities U.S. large cap (a) $ 1,428 $ 1,428 $ — $ — U.S. mid cap (b) 198 198 — — International (c) 458 458 — — Fixed income securities U.S. government securities (d) 228 95 133 — Corporate debt instruments (d) 945 179 766 — Non-U.S. government securities (d) 602 445 157 — Other (d) 273 268 5 — Absolute return funds (e) 100 5 95 — Real assets 10 10 — — Other (f) 261 216 45 — Total $ 4,503 $ 3,302 $ 1,201 $ — Total assets measured at NAV 6,152 Fair value of plan assets $ 10,655 (a) A mix of index funds and actively managed equity accounts that are benchmarked to various large cap indices. (b) A mix of index funds and actively managed equity accounts that are benchmarked to various mid cap indices. (c) A mix of index funds and actively managed equity accounts that are benchmarked to various non-U.S. equity indices in both developed and emerging markets. (d) Securities held by actively managed accounts, index funds and mutual funds. 2022 Form 10-K | 84 (e) Primarily 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. (f) Investments in cash and cash equivalents. Equities and registered investment companies having quoted prices are valued at the published market prices. Fixed income securities that are valued using significant other observable inputs are quoted at prices obtained from independent financial service industry-recognized vendors. Investments held in pooled investment funds, common collective trusts or limited partnerships are valued at the net asset value (NAV) practical expedient to estimate fair value. The NAV is provided by the fund administrator and is based on the value of the underlying assets owned by the fund minus its liabilities. 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 2022 target investment allocation for the AbbVie Pension Plan was 62.5 % in equity securities, 22.5 % in fixed income securities and 15 % 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 of any other plans. The expected return on plan assets assumption for each plan is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolio. 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 Benefit Payments The following table summarizes total benefit payments expected to be paid to plan participants including payments funded from both plan and company assets: years ending December 31 (in millions) Defined benefit plans Other post-employment plans 2023 $ 310 $ 28 2024 333 31 2025 355 34 2026 378 37 2027 404 39 2028 to 2032 2,427 244 Defined Contribution Plan AbbVie maintains defined contribution savings plans for the benefit of its eligible employees. The expense recognized for these plans was $ 474 million in 2022, $ 267 million in 2021 and $ 191 million in 2020. AbbVie provides certain other post-employment benefits, primarily salary continuation arrangements, to qualifying employees and accrues for the related cost over the service lives of the employees. Note 13 Equity Stock-Based Compensation In May 2021, stockholders of the company approved the AbbVie Amended and Restated 2013 Incentive Stock Program (the Amended Plan), which amends and restates the AbbVie 2013 Incentive Stock Program (2013 ISP). AbbVie grants stock-based awards to eligible employees pursuant to the Amended Plan, which provides for several different forms of benefits, including non-qualified stock options, RSUs and various performance-based awards. Under the Amended Plan, a total of 144 million shares of AbbVie common stock have been reserved for issuance as awards to AbbVie employees. 85 | 2022 Form 10-K AbbVie measures compensation expense for stock-based awards based on the grant date fair value of the awards and the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for stock-based awards is amortized over the service period, which could be shorter than the vesting period if an employee is retirement eligible. Retirement eligible employees generally are those who are age 55 or older and have at least 10 years of service. Stock-based compensation expense is principally related to awards issued pursuant to the 2013 ISP and the Amended Plan and is summarized as follows: years ended December 31 (in millions) 2022 2021 2020 Cost of products sold $ 38 $ 46 $ 47 Research and development 232 226 247 Selling, general and administrative 401 420 459 Pre-tax compensation expense 671 692 753 Tax benefit 122 126 131 After-tax compensation expense $ 549 $ 566 $ 622 Realized excess tax benefits associated with stock-based compensation totaled $ 116 million in 2022, $ 50 million in 2021 and $ 34 million in 2020. Stock Options Stock options awarded to employees typically have a contractual term of 10 years and generally vest in one-third increments over a three-year period. The exercise price is equal to at least 100 % of the market value on the date of grant. The fair value is determined using the Black-Scholes model. The weighted-average grant-date fair values of stock options granted were $ 22.83 in 2022, $ 16.28 in 2021 and $ 12.14 in 2020. In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 11.2 million stock options to holders of Allergan options as a result of the conversion of such options. These options were fair-valued using a lattice valuation model. Refer to Note 5 for additional information regarding the Allergan acquisition. The following table summarizes AbbVie stock option activity in 2022: (options in thousands, aggregate intrinsic value in millions) Options Weighted- average exercise price Weighted-average remaining life (in years) Aggregate intrinsic value Outstanding at December 31, 2021 12,374 $ 81.98 4.7 $ 661 Granted 863 144.54 Exercised ( 3,764 ) 70.85 Lapsed and forfeited ( 153 ) 107.65 Outstanding at December 31, 2022 9,320 $ 91.84 4.8 $ 650 Exercisable at December 31, 2022 7,120 $ 84.54 3.7 $ 549 The total intrinsic value of options exercised was $ 295 million in 2022, $ 239 million in 2021 and $ 186 million in 2020. The total fair value of options vested during 2022 was $ 21 million. As of December 31, 2022, $ 6 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years . RSUs and Performance Shares RSUs awarded to employees other than senior executives and other key employees generally vest in ratable increments over a three or four-year period. Recipients of these RSUs are entitled to receive dividend equivalents as dividends are declared and paid during the RSU vesting period. The majority of the equity awards AbbVie grants to its senior executives and other key employees are performance-based. Equity awards granted to senior executives and other key employees consist of a combination of performance-vested RSUs and performance shares as well as non-qualified stock options described above. The performance-vested RSUs have the potential to vest in one-third increments during a three-year performance period and may be earned based on AbbVie’s return on invested capital (ROIC) performance relative to a defined peer group of pharmaceutical, biotech and life science companies. The recipient may receive one share of AbbVie common stock for each vested award. The performance shares 2022 Form 10-K | 86 have the potential to vest over a three-year performance period and may be earned based on AbbVie’s EPS achievement and AbbVie’s total stockholder return (TSR) (a market condition) relative to a defined peer group of pharmaceutical, biotech and life sciences companies. Dividend equivalents on performance-vested RSUs and performance shares accrue during the performance period and are payable at vesting only to the extent that shares are earned. The weighted-average grant-date fair value of RSUs and performance shares generally is determined based on the number of shares/units granted and the quoted price of AbbVie’s common stock on the date of grant. The weighted-average grant-date fair values of performance shares with a TSR market condition are determined using the Monte Carlo simulation model. The following table summarizes AbbVie RSU and performance share activity for 2022: (share units in thousands) Share units Weighted-average grant date fair value Outstanding at December 31, 2021 14,890 $ 94.93 Granted 5,943 138.73 Vested ( 6,958 ) 89.31 Forfeited ( 844 ) 111.45 Outstanding at December 31, 2022 13,031 $ 116.84 The fair market value of RSUs and performance shares (as applicable) vested was $ 1.0 billion in 2022, $ 718 million in 2021 and $ 618 million in 2020. In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 8.2 million RSUs to holders of Allergan equity awards based on a conversion factor described in the transaction agreement. Refer to Note 5 for additional information regarding the Allergan acquisition. As of December 31, 2022, $ 578 million of unrecognized compensation cost related to RSUs and performance shares is expected to be recognized as expense over approximately the next two years . Cash Dividends Cash dividends declared per common share totaled $ 5.71 in 2022, $ 5.31 in 2021 and $ 4.84 in 2020. The following table summarizes quarterly cash dividends declared during 2022, 2021 and 2020: 2022 2021 2020 Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share 10/28/22 02/15/23 $ 1.48 10/29/21 02/15/22 $ 1.41 10/30/20 02/16/21 $ 1.30 09/09/22 11/15/22 $ 1.41 09/10/21 11/15/21 $ 1.30 09/11/20 11/16/20 $ 1.18 06/23/22 08/15/22 $ 1.41 06/17/21 08/16/21 $ 1.30 06/17/20 08/14/20 $ 1.18 02/17/22 05/16/22 $ 1.41 02/18/21 05/14/21 $ 1.30 02/20/20 05/15/20 $ 1.18 Stock Repurchase Program The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management’s discretion. The program has no time limit and can be discontinued at any time. Shares repurchased under these programs are recorded at acquisition cost, including related expenses and are available for general corporate purposes. AbbVie repurchased 8 million shares for $ 1.1 billion in 2022, 6 million shares for $ 670 million in 2021 and 8 million shares for $ 757 million in 2020. AbbVie's remaining stock repurchase authorization was $ 1.4 billion as of December 31, 2022. On February 16, 2023, AbbVie's board of directors authorized a $ 5.0 billion increase to the existing stock repurchase authorization. 87 | 2022 Form 10-K Accumulated Other Comprehensive Loss The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for 2022, 2021 and 2020: (in millions) (brackets denote losses) Foreign currency translation adjustments Net investment hedging activities Pension and post-employment benefits Cash flow hedging activities Total Balance as of December 31, 2019 $ ( 928 ) $ 9 $ ( 2,965 ) $ 288 $ ( 3,596 ) Other comprehensive income (loss) before reclassifications 1,511 ( 785 ) ( 300 ) ( 108 ) 318 Net losses (gains) reclassified from accumulated other comprehensive loss — ( 14 ) 198 ( 23 ) 161 Net current-period other comprehensive income (loss) 1,511 ( 799 ) ( 102 ) ( 131 ) 479 Balance as of December 31, 2020 583 ( 790 ) ( 3,067 ) 157 ( 3,117 ) Other comprehensive income (loss) before reclassifications ( 1,153 ) 720 298 76 ( 59 ) Net losses (gains) reclassified from accumulated other comprehensive loss — ( 21 ) 223 75 277 Net current-period other comprehensive income (loss) ( 1,153 ) 699 521 151 218 Balance as of December 31, 2021 ( 570 ) ( 91 ) ( 2,546 ) 308 ( 2,899 ) Other comprehensive income (loss) before reclassifications ( 943 ) 629 915 91 692 Net losses (gains) reclassified from accumulated other comprehensive loss — ( 74 ) 173 ( 91 ) 8 Net current-period other comprehensive income (loss) ( 943 ) 555 1,088 — 700 Balance as of December 31, 2022 $ ( 1,513 ) $ 464 $ ( 1,458 ) $ 308 $ ( 2,199 ) Other comprehensive income for 2022 included pension and post-employment benefit plan gains of $ 1.1 billion primarily due actuarial gains driven by higher discount rates partially offset by losses on plan assets. Other comprehensive income for 2022 also included foreign currency translation adjustments totaling losses of $ 943 million principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets and the offsetting impact of net investment hedging activities totaling gains of $ 555 million. Other comprehensive income for 2021 included foreign currency translation adjustments totaling losses of $ 1.2 billion principally due to the impact of the weakening of the Euro on the translation of the company's Euro-denominated assets and the offsetting impact of net investment hedging activities totaling gains of $ 699 million. Other comprehensive income for 2020 included foreign currency translation adjustments totaling gains of $ 1.5 billion principally due to the impact of the strengthening of the Euro on the translation of the company's Euro-denominated assets and the offsetting impact of net investment hedging activities totaling losses of $ 799 million. 2022 Form 10-K | 88 The table below presents the impact on AbbVie's consolidated statements of earnings for significant amounts reclassified out of each component of accumulated other comprehensive loss: years ended December 31 (in millions) (brackets denote gains) 2022 2021 2020 Net investment hedging activities Gains on derivative amount excluded from effectiveness testing (a) $ ( 94 ) $ ( 26 ) $ ( 18 ) Tax expense 20 5 4 Total reclassifications, net of tax $ ( 74 ) $ ( 21 ) $ ( 14 ) Pension and post-employment benefits Amortization of actuarial losses and other (b) $ 221 $ 283 $ 251 Tax benefit ( 48 ) ( 60 ) ( 53 ) Total reclassifications, net of tax $ 173 $ 223 $ 198 Cash flow hedging activities Losses (gains) on foreign currency forward exchange contracts (c) $ ( 82 ) $ 87 $ ( 23 ) Gains on treasury rate lock agreements (a) ( 23 ) ( 24 ) ( 24 ) Losses on interest rate swap contracts (a) 1 24 17 Tax expense (benefit) 13 ( 12 ) 7 Total reclassifications, net of tax $ ( 91 ) $ 75 $ ( 23 ) (a) Amounts are included in interest expense, net (see Note 11). (b) Amounts are included in the computation of net periodic benefit cost (see Note 12). (c) Amounts are included in cost of products sold (see Note 11). Other In addition to common stock, AbbVie's authorized capital includes 200 million shares of preferred stock, par value $ 0.01 . As of December 31, 2022, no shares of preferred stock were issued or outstanding. 89 | 2022 Form 10-K Note 14 Income Taxes Earnings Before Income Tax Expense years ended December 31 (in millions) 2022 2021 2020 Domestic $ ( 4,608 ) $ ( 1,644 ) $ ( 4,467 ) Foreign 18,085 14,633 7,865 Total earnings before income tax expense $ 13,477 $ 12,989 $ 3,398 Income Tax Expense years ended December 31 (in millions) 2022 2021 2020 Current Domestic $ 2,647 $ 1,987 $ 907 Foreign 916 351 194 Total current taxes $ 3,563 $ 2,338 $ 1,101 Deferred Domestic $ ( 1,512 ) $ ( 839 ) $ ( 58 ) Foreign ( 419 ) ( 59 ) ( 2,267 ) Total deferred taxes $ ( 1,931 ) $ ( 898 ) $ ( 2,325 ) Total income tax expense (benefit) $ 1,632 $ 1,440 $ ( 1,224 ) Effective Tax Rate Reconciliation years ended December 31 2022 2021 2020 Statutory tax rate 21.0 % 21.0 % 21.0 % Effect of foreign operations ( 4.4 ) ( 5.4 ) 2.4 U.S. tax credits ( 2.8 ) ( 2.8 ) ( 10.6 ) Impacts related to U.S. tax reform — — ( 1.1 ) Non-deductible expenses 0.6 0.3 7.2 Tax law changes and related restructuring ( 2.4 ) ( 2.0 ) ( 48.5 ) Tax audits and settlements 0.9 ( 0.4 ) ( 5.1 ) All other, net ( 0.8 ) 0.4 ( 1.3 ) Effective tax rate 12.1 % 11.1 % ( 36.0 ) % The effective income 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 changes in tax law, acquisitions and collaborations. The effective income tax rates in 2022, 2021 and 2020 differed from the statutory tax rate principally due to the impact of foreign operations which reflects the impact of lower income tax rates in locations outside the United States, tax incentives in Puerto Rico and other foreign tax jurisdictions, business development activities, changes in enacted tax rates and laws and related restructuring, tax audits and settlements and changes in fair value of contingent consideration. The effective tax rates for these periods also reflected 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 Puerto Rico tax credits relate to excise tax 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. In 2022, Puerto Rico enacted Act 52-2002 (the Puerto Rico Act) allowing for a transition from a Puerto Rico excise tax levied on gross inventory purchases to an income-based tax beginning in 2023. The company completed the transition requirements of the Puerto Rico Act in 2022, resulting in the remeasurement of certain deferred tax assets and liabilities based on income tax rates at which they are expected to reverse in the future. The net tax benefit from the remeasurement of deferred taxes related to the Puerto Rico Act was $ 323 million. The 2020 effective income tax rate included the recognition of a net tax benefit of $ 1.7 billion related to changes in tax laws and related restructuring, including certain intra-group transfers of intellectual property and deferred tax remeasurement. 2022 Form 10-K | 90 The Tax Cuts and Jobs Act (the Act) was signed into law in December 2017, resulting in significant changes to the U.S. corporate tax system, including a one-time transition tax on a mandatory deemed repatriation of earnings of certain foreign subsidiaries that were previously untaxed. The Act also created a minimum tax on certain foreign sourced earnings. The company’s accounting policy for the minimum tax on foreign sourced earnings is to report the tax effects on the basis that the minimum tax will be recognized in tax expense in the year it is incurred as a period expense. Deferred Tax Assets and Liabilities as of December 31 (in millions) 2022 2021 Deferred tax assets Compensation and employee benefits $ 497 $ 937 Accruals and reserves 1,023 667 Chargebacks and rebates 991 837 Advance payments 547 809 Net operating losses and other carryforwards 10,391 10,095 Other 1,710 1,234 Total deferred tax assets 15,159 14,579 Valuation allowances ( 9,627 ) ( 9,391 ) Total net deferred tax assets 5,532 5,188 Deferred tax liabilities Excess of book basis over tax basis of intangible assets ( 3,590 ) ( 4,711 ) Excess of book basis over tax basis in investments ( 340 ) ( 308 ) Other ( 772 ) ( 904 ) Total deferred tax liabilities ( 4,702 ) ( 5,923 ) Net deferred tax assets (liabilities) $ 830 $ ( 735 ) The increase in net deferred tax assets is primarily related to capitalization of R&D expense and increases in accruals and reserves, offset by a decrease in advance payments. The decrease in deferred tax liabilities is primarily related to amortization of intangible assets. In connection with the Allergan acquisition, the company recorded adjustments within the measurement period in 2021 related to foreign net operating losses and other credit carryforwards that are not expected to be realized. The adjustments reflected an increase of $ 8.2 billion to deferred tax assets and an offsetting increase to valuation allowances, resulting in no net impact to deferred tax assets. The company had valuation allowances of $ 9.6 billion as of December 31, 2022 and $ 9.4 billion as of December 31, 2021. These were principally related to foreign and state net operating losses and other credit carryforwards that are not expected to be realized. As of December 31, 2022, the company had U.S. federal, state and foreign credit carryforwards of $ 355 million as well as U.S. federal, state and foreign net operating loss carryforwards of $ 33.2 billion, which will expire at various times through 2042. The remaining U.S. federal and foreign loss carryforwards of $ 6.0 billion have no expiration. The Act significantly changed the timing and manner in which earnings of foreign subsidiaries are subject to U.S. tax. Therefore, unremitted foreign earnings subject to the Act’s transition tax are not considered indefinitely reinvested. Post-2017 earnings subject to the U.S. minimum tax on foreign sourced earnings or eligible for the 100 percent foreign dividends received deduction are also not considered indefinitely reinvested earnings. However, the company generally considers instances of outside basis differences in foreign subsidiaries that would incur additional U.S. tax upon reversal (e.g., capital gain distribution) to be permanent in duration. The unrecognized tax liability is not practicable to determine. 91 | 2022 Form 10-K Unrecognized Tax Benefits years ended December 31 (in millions) 2022 2021 2020 Beginning balance $ 5,489 $ 5,264 $ 2,661 Increase due to acquisition — — 2,674 Increase due to current year tax positions 88 208 91 Increase due to prior year tax positions 243 137 59 Decrease due to prior year tax positions ( 33 ) ( 62 ) ( 7 ) Settlements ( 7 ) ( 24 ) ( 141 ) Lapse of statutes of limitations ( 110 ) ( 34 ) ( 73 ) Ending balance $ 5,670 $ 5,489 $ 5,264 If recognized, the net amount of potential tax benefits that would impact the company's effective tax rate is $ 5.5 billion in 2022 and $ 5.2 billion in 2021. The "Increase due to current year tax positions" and "Increase due to prior year tax positions" in the table above include amounts related to federal, state and international tax items. "Increase due to acquisition" in the table above includes amounts related to federal, state and international tax items recorded in acquisition accounting related to the Allergan acquisition. AbbVie recognizes interest and penalties related to income tax matters in income tax expense in the consolidated statements of earnings. AbbVie recognized gross income tax expense of $ 339 million in 2022, $ 161 million in 2021 and $ 142 million in 2020, for interest and penalties related to income tax matters. AbbVie had an accrual for the payment of gross interest and penalties of $ 1.1 billion at December 31, 2022, $ 803 million at December 31, 2021 and $ 642 million at December 31, 2020. 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 12 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 12 months up to $ 162 million. All significant federal, state, local and international matters have been concluded for years through 2009. The company believes adequate provision has been made for all income tax uncertainties. Note 15 Legal Proceedings and Contingencies AbbVie is subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial, securities and other matters that arise in the normal course of business. The most significant matters are described below. 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. For litigation matters discussed below for which a loss is probable or reasonably possible, the company is unable to estimate the possible loss or range of loss, if any, beyond the amounts accrued. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued by AbbVie. While it is not feasible to predict the outcome of all proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on AbbVie’s consolidated financial position, results of operations or cash flows. Subject to certain exceptions specified in the separation agreement by and between Abbott Laboratories (Abbott) and AbbVie, 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. Antitrust Litigation Lawsuits are pending against AbbVie and others generally alleging that the 2005 patent litigation settlement involving Niaspan entered into between Kos Pharmaceuticals, Inc. (a company acquired by Abbott 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. The lawsuits pending in federal court consist of four individual plaintiff lawsuits and two consolidated purported class actions: one brought 2022 Form 10-K | 92 by Niaspan direct purchasers and one brought by Niaspan end-payors. The cases are pending in the United States District Court for the Eastern District of Pennsylvania for coordinated or consolidated pre-trial proceedings under the MDL Rules as In re: Niaspan Antitrust Litigation , MDL No. 2460. In August 2019, the court certified a class of direct purchasers of Niaspan. In June 2020 and August 2021, the court denied the end-payors' motion to certify a class. In October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California regarding the Niaspan patent litigation settlement in Orange County Superior Court, asserting a claim under the unfair competition provision of the California Business and Professions Code seeking injunctive relief, restitution, civil penalties and attorneys’ fees. In August 2019, direct purchasers of AndroGel filed a lawsuit, King Drug Co. of Florence, Inc., et al. v. AbbVie Inc., et al., against AbbVie and others in the United States District Court for the Eastern District of Pennsylvania, alleging that 2006 patent litigation settlements and related agreements by Solvay Pharmaceuticals, Inc. (a company Abbott acquired in February 2010 and now known as AbbVie Products LLC) with three generic companies violated federal antitrust law, and also alleging that 2011 patent litigation by Abbott with two generic companies regarding AndroGel was sham litigation and the settlements of those litigations violated federal antitrust law. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys’ fees. In November 2022, the State of Oregon filed a lawsuit in the Multnomah County, Oregon Circuit Court making similar allegations regarding the 2011 patent litigation with one of the generic companies. Lawsuits are pending against Forest Laboratories, LLC, an AbbVie subsidiary, and others generally alleging that 2009 and 2010 patent litigation settlements involving Namenda entered into between Forest and generic companies and other conduct by Forest involving Namenda, violated state antitrust, unfair and deceptive trade practices and unjust enrichment laws. Plaintiffs generally seek monetary damages and/or injunctive relief and attorneys’ fees. The lawsuits, purported class actions filed by indirect purchasers of Namenda, are consolidated as In re: Namenda Indirect Purchaser Antitrust Litigation in the United States District Court for the Southern District of New York. In November 2022, the parties reached an agreement to settle this matter that has received preliminary court approval. Lawsuits are pending against Forest Laboratories, LLC and others generally alleging that 2012 and 2013 patent litigation settlements involving Bystolic with six generic manufacturers violated 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. The lawsuits, purported class actions filed on behalf of direct and indirect purchasers of Bystolic, are consolidated as In re: Bystolic Antitrust Litigation in the United States District Court for the Southern District of New York. Government Proceedings Lawsuits are pending against Allergan and several other manufacturers generally alleging that they improperly promoted and sold prescription opioid products. Approximately 3,000 matters are pending against Allergan. Most of the federal court cases are consolidated for pre-trial purposes in the United States District Court for the Northern District of Ohio under the MDL rules as In re: National Prescription Opiate Litigation, MDL No. 2804. Approximately 270 matters are pending in various state courts. The plaintiffs in these cases, which include states, counties, cities, other municipal entities, Native American tribes, union trust funds and other third-party payors, private hospitals and personal injury claimants, generally seek compensatory and punitive damages. In November 2022, Allergan finalized the terms of a settlement with state and local government entities and Native American tribes. That settlement is subject to certain conditions, including Allergan's determination that a sufficient number of government entities elect to participate in the settlement. AbbVie recorded a charge of $ 2.1 billion to selling, general and administrative expense in the consolidated statement of earnings in the second quarter of 2022 related to this potential settlement. Shareholder and Securities Litigation In June 2016, a lawsuit, Elliott Associates, L.P., et al. v. AbbVie Inc., was filed by five investment funds against AbbVie in the Cook County, Illinois Circuit Court alleging that AbbVie made misrepresentations and omissions in connection with its proposed transaction with Shire. Similar lawsuits were filed between July 2017 and October 2019 against AbbVie and in some instances its chief executive officer in the same court by additional investment funds. In September 2021, the Illinois court granted AbbVie's motion for summary judgment on all pending claims in all pending cases, dismissing them with prejudice. In November 2022, the Illinois appellate court affirmed summary judgment in AbbVie's favor and, in December 2022, that court denied plaintiffs' petition for rehearing. In October 2018, a federal securities lawsuit, Holwill v. AbbVie Inc., et al., was filed in the United States District Court for the Northern District of Illinois against AbbVie, its chief executive officer and former chief financial officer, alleging that reasons stated for Humira sales growth in financial filings between 2013 and 2018 were misleading because they omitted alleged misconduct in connection with Humira patient and reimbursement support services and other services and items of value that allegedly induced Humira prescriptions. In September 2021, the court granted plaintiffs' motion to certify a class. In May 2022, a shareholder derivative lawsuit, Ranney v. Gonzalez, et al., was filed in Delaware Chancery Court, alleging that 93 | 2022 Form 10-K certain AbbVie directors and officers breached their fiduciary duties based on related allegations. In December 2022, after AbbVie and the director/officer defendants filed a motion to dismiss, the plaintiff voluntarily dismissed the lawsuit with prejudice. Lawsuits are pending against Allergan and certain of its current and former officers alleging they made misrepresentations and omissions regarding Allergan's textured breast implants. The lawsuits, which were filed by Allergan shareholders, have been consolidated in the United States District Court for the Southern District of New York as In re: Allergan plc Securities Litigation. The plaintiffs generally seek compensatory damages and attorneys’ fees. In September 2019, the court partially granted Allergan's motion to dismiss. In September 2021, the court granted plaintiffs' motion to certify a class. In December 2022, the court granted Allergan's motion for summary judgment on the remaining claims, dismissing them with prejudice. Plaintiffs are appealing the court's motion to dismiss and summary judgment rulings. In April 2022, a federal securities lawsuit, Nakata v. AbbVie Inc., was filed in the United States District Court for the Northern District of Illinois against AbbVie and certain officers alleging misstatements regarding the potential effect that safety information about another company’s product would have on the Food and Drug Administration’s approval and labeling for AbbVie’s Rinvoq. In May and July 2022, two shareholder derivative lawsuits, Treppel Family Trust v. Gonzalez et al., and Katcher v. Gonzalez, et al., were filed in the same court, alleging that certain AbbVie directors and officers breached fiduciary and other legal duties based on related allegations. Product Liability and General Litigation In 2018, a qui tam lawsuit, U.S. ex rel. Silbersher v. Allergan Inc., et al., was filed in the United States District Court for the Northern District of California against several Allergan entities and others, alleging that their conduct before the U.S. Patent Office resulted in false claims for payment being made to federal and state healthcare payors for Namenda XR and Namzaric. The plaintiff-relator seeks damages and attorneys' fees under the federal False Claims Act and state law analogues. The federal government and state governments declined to intervene in the lawsuit. In August 2022, the United States Court of Appeals reversed the district court’s denial of Allergan’s motion to dismiss. The case has been remanded to the district court for further proceedings consistent with that ruling. Intellectual Property Litigation Pharmacyclics LLC, a wholly owned subsidiary of AbbVie, is seeking to enforce its patent rights relating to ibrutinib tablets (a drug Pharmacyclics sells under the trademark Imbruvica). Cases were filed in the United States District Court for the District of Delaware in March 2019 against Alvogen Pine Brook LLC and Natco Pharma Ltd. In August 2021, the court issued a decision holding all asserted patents infringed and valid. The judgment precludes Defendants from obtaining regulatory approval and launching until the last patent expires in 2036. On August 30, 2021, Defendants appealed. On November 15, 2022, the Court of Appeals for the Federal Circuit affirmed the judgment. Janssen Biotech, Inc. which is in a global collaboration with Pharmacyclics concerning the development and marketing of Imbruvica, is the co-plaintiff in these suits. AbbVie Inc. is seeking to enforce patent rights relating to venetoclax (a drug sold under the trademark Venclexta). Litigation was filed in the United States District Court for the District of Delaware in July 2020 against Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc.: and Alembic Pharmaceuticals Ltd., Alembic Pharmaceuticals, Inc., and Alembic Global Holdings SA. AbbVie alleges defendants’ proposed generic venetoclax products infringe certain patents and seeks declaratory and injunctive relief. Genentech, Inc., which is in a global collaboration with AbbVie concerning the development and marketing of Venclexta, is the co-plaintiff in this suit. Note 16 Segment and Geographic Area Information AbbVie operates as a single global business segment dedicated to the research and development, manufacturing, commercialization and sale of innovative medicines and therapies. This operating structure enables the Chief Executive Officer, as chief operating decision maker (CODM), to allocate resources and assess business performance on a global basis in order to achieve established long-term strategic goals. Consistent with this structure, a global research and development and supply chain organization is responsible for the discovery, manufacturing and supply of products. Commercial efforts that coordinate the marketing, sales and distribution of these products are organized by geographic region or therapeutic area. All of these activities are supported by a global corporate administrative staff. The determination of a single business segment is consistent with the consolidated financial information regularly reviewed by the CODM for purposes of assessing performance, allocating resources and planning and forecasting future periods. 2022 Form 10-K | 94 Substantially all of AbbVie's net revenues in the United States are to three wholesalers. Outside the United States, products are sold primarily to health care providers or through distributors, depending on the market served. The following tables detail AbbVie's worldwide net revenues: years ended December 31 (in millions) 2022 2021 2020 Immunology Humira United States $ 18,619 $ 17,330 $ 16,112 International 2,618 3,364 3,720 Total $ 21,237 $ 20,694 $ 19,832 Skyrizi United States $ 4,484 $ 2,486 $ 1,385 International 681 453 205 Total $ 5,165 $ 2,939 $ 1,590 Rinvoq United States $ 1,794 $ 1,271 $ 653 International 728 380 78 Total $ 2,522 $ 1,651 $ 731 Hematologic Oncology Imbruvica United States $ 3,426 $ 4,321 $ 4,305 Collaboration revenues 1,142 1,087 1,009 Total $ 4,568 $ 5,408 $ 5,314 Venclexta United States $ 1,009 $ 934 $ 804 International 1,000 886 533 Total $ 2,009 $ 1,820 $ 1,337 Aesthetics Botox Cosmetic (a) United States $ 1,654 $ 1,424 $ 687 International 961 808 425 Total $ 2,615 $ 2,232 $ 1,112 Juvederm Collection (a) United States $ 548 $ 658 $ 318 International 880 877 400 Total $ 1,428 $ 1,535 $ 718 Other Aesthetics (a) United States $ 1,122 $ 1,268 $ 666 International 168 198 94 Total $ 1,290 $ 1,466 $ 760 Neuroscience Botox Therapeutic (a) United States $ 2,255 $ 2,012 $ 1,155 International 464 439 232 Total $ 2,719 $ 2,451 $ 1,387 Vraylar (a) United States $ 2,037 $ 1,728 $ 951 International 1 — — Total $ 2,038 $ 1,728 $ 951 Duodopa United States $ 95 $ 102 $ 103 International 363 409 391 Total $ 458 $ 511 $ 494 Ubrelvy (a) United States $ 680 $ 552 $ 125 Qulipta United States $ 158 $ — $ — Other Neuroscience (a) United States $ 456 $ 667 $ 528 International 19 18 11 Total $ 475 $ 685 $ 539 95 | 2022 Form 10-K years ended December 31 (in millions) 2022 2021 2020 Eye Care Lumigan/Ganfort (a) United States $ 242 $ 273 $ 165 International 272 306 213 Total $ 514 $ 579 $ 378 Alphagan/Combigan (a) United States $ 202 $ 373 $ 223 International 144 156 103 Total $ 346 $ 529 $ 326 Restasis (a) United States $ 621 $ 1,234 $ 755 International 45 56 32 Total $ 666 $ 1,290 $ 787 Other Eye Care (a) United States $ 538 $ 523 $ 305 International 637 646 388 Total $ 1,175 $ 1,169 $ 693 Other Key Products Mavyret United States $ 755 $ 754 $ 785 International 786 956 1,045 Total $ 1,541 $ 1,710 $ 1,830 Creon United States $ 1,278 $ 1,191 $ 1,114 Linzess/Constella (a) United States $ 1,003 $ 1,006 $ 649 International 32 32 18 Total $ 1,035 $ 1,038 $ 667 All other $ 4,137 $ 5,019 $ 5,119 Total net revenues $ 58,054 $ 56,197 $ 45,804 (a) Net revenues include Allergan product revenues after the acquisition closing date of May 8, 2020. Net revenues to external customers by geographic area, based on product shipment destination, were as follows: years ended December 31 (in millions) 2022 2021 2020 United States $ 45,713 $ 43,510 $ 34,879 Germany 1,340 1,223 1,049 Canada 1,159 1,397 1,159 Japan 956 1,090 1,198 China 912 857 471 France 787 936 797 Australia 508 533 527 Spain 506 519 453 United Kingdom 462 497 509 Italy 444 506 379 Brazil 430 368 406 All other countries 4,837 4,761 3,977 Total net revenues $ 58,054 $ 56,197 $ 45,804 Long-lived assets, primarily net property and equipment, by geographic area were as follows: as of December 31 (in millions) 2022 2021 United States and Puerto Rico $ 3,243 $ 3,369 Europe 1,369 1,400 All other 323 341 Total long-lived assets $ 4,935 $ 5,110 2022 Form 10-K | 96 Note 17 Fourth Quarter Financial Results (unaudited) quarter ended December 31 (in millions except per share data) 2022 Net revenues $ 15,121 Gross margin 10,951 Net earnings attributable to AbbVie Inc. 2,473 Basic earnings per share attributable to AbbVie Inc. $ 1.39 Diluted earnings per share attributable to AbbVie Inc. $ 1.38 Cash dividends declared per common share $ 1.48 97 | 2022 Form 10-K Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of AbbVie Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AbbVie Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, 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 17, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 2022 Form 10-K | 98 Sales rebate accruals for Medicaid, Medicare and managed care programs Description of the Matter As discussed in Note 2 to the consolidated financial statements under the caption “Revenue Recognition,” the Company established provisions for sales rebates in the same period the related product is sold. At December 31, 2022, the Company had $ 10,717 million in sales rebate accruals, a large portion of which were for rebates provided to pharmacy benefit managers, state government Medicaid programs, insurance companies that administer Medicare drug plans and private entities for Medicaid, Medicare and managed care programs. In order to establish these sales rebate accruals, the Company estimated its rebates based upon the identification of the products subject to a rebate, the applicable price and rebate terms and the estimated lag time between the sale and payment of the rebate. Auditing the Medicaid, Medicare and managed care sales rebate accruals was complex and required significant auditor judgment because the accruals consider multiple subjective and complex estimates and assumptions. These estimates and assumptions included the estimated inventory in the distribution channel, which impacts the lag time between the sale to the customer and payment of the rebate, and the final payer related to product sales, which impacts the applicable price and rebate terms. In deriving these estimates and assumptions, the Company used both internal and external sources of information to estimate product in the distribution channels, payer mix, prescription volumes and historical experience. Management supplemented its historical data analysis with qualitative adjustments based upon changes in rebate trends, rebate programs and contract terms, legislative changes, or other significant events which indicate a change in the reserve is appropriate. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s sales rebate accruals for Medicaid, Medicare and managed care programs. This included testing controls over management’s review of the significant assumptions and other inputs used in the estimation of Medicaid, Medicare and managed care rebates, among others, including the significant assumptions discussed above. The testing was inclusive of management’s controls to evaluate the accuracy of its reserve judgments to actual rebates paid, rebate validation and processing, and controls to ensure that the data used to evaluate and support the significant assumptions was complete, accurate and, where applicable, verified to external data sources. To test the sales rebate accruals for Medicaid, Medicare and managed care programs, our audit procedures included, among others, understanding and evaluating the significant assumptions and underlying data used in management’s calculations. Our testing of significant assumptions included corroboration to external data sources. We evaluated the reasonableness of assumptions considering industry and economic trends, product profiles, and other regulatory factors. We assessed the historical accuracy of management’s estimates by comparing actual activity to previous estimates and performed analytical procedures, based on internal and external data sources, to evaluate the completeness of the reserves. For Medicaid, we involved a specialist with an understanding of statutory reimbursement requirements to assess the consistency of the Company’s calculation methodologies with applicable government regulations and policy. 99 | 2022 Form 10-K Valuation of contingent consideration Description of the Matter As discussed in Note 2 to the consolidated financial statements under the caption “Business Combinations” and in Note 11 under the caption “Fair Value Measures,” the Company recognized contingent consideration liabilities at the estimated fair value on the acquisition date in connection with applying the acquisition method of accounting for business combinations. Subsequent changes to the fair value of the contingent consideration liabilities were recorded within the consolidated statement of earnings in the period of change. At December 31, 2022, the Company had $ 16,384 million in contingent consideration liabilities, which represented a ‘Level 3’ fair value measurement in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value and the use of management judgment about the assumptions market participants would use in pricing the liabilities. Auditing the valuation of contingent consideration liabilities was complex and required significant auditor judgment due to the use of a Monte Carlo simulation model and the high degree of subjectivity in evaluating certain assumptions required to estimate the fair value of contingent royalty payments. In particular, the fair value measurement was sensitive to the significant assumptions underlying the estimated amount of future sales of the acquired products. Management utilized its expertise within the industry, including commercial dynamics, trends and utilization, as well as knowledge of clinical development and regulatory approval processes to determine certain of these assumptions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s contingent consideration liabilities process including, among others, management’s process to establish the significant assumptions and measure the liability. This included testing controls over management’s review of the significant assumptions and other inputs used in the determination of fair value. The testing was inclusive of key management review controls to monitor and evaluate clinical development of the acquired products and estimated future sales, and controls to ensure that the data used to evaluate and support the significant assumptions was complete, accurate and, where applicable, verified to external data sources. To test the estimated fair value of contingent consideration liabilities, our audit procedures included, among others, inspecting the terms of the executed agreement, assessing the Monte Carlo simulation model used and testing the key contractual inputs and significant assumptions discussed above. We evaluated the assumptions and judgments considering observable industry and economic trends and standards, external data sources and regulatory factors. Estimated amounts of future sales were evaluated for reasonableness in relation to internal and external analyses, clinical development progress and timelines, probability of success benchmarks, and regulatory notices. Our procedures included evaluating the data sources used by management in determining its assumptions and, where necessary, included an evaluation of available information that either corroborated or contradicted management’s conclusions. We involved a valuation specialist to assess the Company’s Monte Carlo simulation model and to perform corroborative fair value calculations. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Chicago, Illinois February 17, 2023 2022 Form 10-K | 100 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.