AbbVie Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Consolidated Financial Statements Consolidated Statements of Earnings 51 Consolidated Statements of Comprehensive Income 52 Consolidated Balance Sheets 53 Consolidated Statements of Equity 54 Consolidated Statements of Cash Flows 55 Notes to Consolidated Financial Statements Note 1 Background 56 Note 2 Summary of Significant Accounting Policies 56 Note 3 Supplemental Financial Information 61 Note 4 Earnings Per Share 62 Note 5 Licensing, Acquisitions and Other Arrangements 62 Note 6 Collaborations 65 Note 7 Goodwill and Intangible Assets 66 Note 8 Integration and Restructuring Plans 67 Note 9 Leases 69 Note 10 Debit, Credit Facilities and Commitments and Contingencies 71 Note 11 Financial Instruments and Fair Value Measures 73 Note 12 Post-Employment Benefits 79 Note 13 Equity 83 Note 14 Income Taxes 88 Note 15 Legal Proceedings and Contingencies 90 Note 16 Segment and Geographic Area Information 92 Note 17 Fourth Quarter Financial Results (unaudited) 95 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 96 2023 Form 10-K | 50 AbbVie Inc. and Subsidiaries Consolidated Statements of Earnings years ended December 31 (in millions, except per share data) 2023 2022 2021 Net revenues $ 54,318 $ 58,054 $ 56,197 Cost of products sold 20,415 17,414 17,446 Selling, general and administrative 12,872 15,260 12,349 Research and development 7,675 6,510 6,922 Acquired IPR&D and milestones 778 697 1,124 Other operating expense (income), net ( 179 ) 56 432 Total operating costs and expenses 41,561 39,937 38,273 Operating earnings 12,757 18,117 17,924 Interest expense, net 1,684 2,044 2,384 Net foreign exchange loss 146 148 51 Other expense, net 4,677 2,448 2,500 Earnings before income tax expense 6,250 13,477 12,989 Income tax expense 1,377 1,632 1,440 Net earnings 4,873 11,845 11,549 Net earnings attributable to noncontrolling interest 10 9 7 Net earnings attributable to AbbVie Inc. $ 4,863 $ 11,836 $ 11,542 Per share data Basic earnings per share attributable to AbbVie Inc. $ 2.73 $ 6.65 $ 6.48 Diluted earnings per share attributable to AbbVie Inc. $ 2.72 $ 6.63 $ 6.45 Weighted-average basic shares outstanding 1,768 1,771 1,770 Weighted-average diluted shares outstanding 1,773 1,778 1,777 The accompanying notes are an integral part of these consolidated financial statements. 51 | 2023 Form 10-K AbbVie Inc. and Subsidiaries Consolidated Statements of Comprehensive Income years ended December 31 (in millions) 2023 2022 2021 Net earnings $ 4,873 $ 11,845 $ 11,549 Foreign currency translation adjustments, net of tax expense (benefit) of $ 15 in 2023, $( 10 ) in 2022 and $( 35 ) in 2021 407 ( 943 ) ( 1,153 ) Net investment hedging activities, net of tax expense (benefit) of $( 109 ) in 2023, $ 152 in 2022 and $ 193 in 2021 ( 399 ) 555 699 Pension and post-employment benefits, net of tax expense (benefit) of $( 6 ) in 2023, $ 272 in 2022 and $ 124 in 2021 ( 30 ) 1,088 521 Cash flow hedging activities, net of tax expense (benefit) of $( 19 ) in 2023, $ 5 in 2022 and $ 20 in 2021 ( 84 ) — 151 Other comprehensive income (loss) $ ( 106 ) $ 700 $ 218 Comprehensive income 4,767 12,545 11,767 Comprehensive income attributable to noncontrolling interest 10 9 7 Comprehensive income attributable to AbbVie Inc. $ 4,757 $ 12,536 $ 11,760 The accompanying notes are an integral part of these consolidated financial statements. 2023 Form 10-K | 52 AbbVie Inc. and Subsidiaries Consolidated Balance Sheets as of December 31 (in millions, except share data) 2023 2022 Assets Current assets Cash and equivalents $ 12,814 $ 9,201 Short-term investments 2 28 Accounts receivable, net 11,155 11,254 Inventories 4,099 3,579 Prepaid expenses and other 4,932 4,401 Total current assets 33,002 28,463 Investments 304 241 Property and equipment, net 4,989 4,935 Intangible assets, net 55,610 67,439 Goodwill 32,293 32,156 Other assets 8,513 5,571 Total assets $ 134,711 $ 138,805 Liabilities and Equity Current liabilities Short-term borrowings $ — $ 1 Current portion of long-term debt and finance lease obligations 7,191 4,135 Accounts payable and accrued liabilities 30,650 25,402 Total current liabilities 37,841 29,538 Long-term debt and finance lease obligations 52,194 59,135 Deferred income taxes 1,952 2,190 Other long-term liabilities 32,327 30,655 Commitments and contingencies Stockholders' equity Common stock, $ 0.01 par value, 4,000,000,000 shares authorized, 1,823,046,087 shares issued as of December 31, 2023 and 1,813,770,294 as of December 31, 2022 18 18 Common stock held in treasury, at cost, 57,105,354 shares as of December 31, 2023 and 44,589,000 as of December 31, 2022 ( 6,533 ) ( 4,594 ) Additional paid-in capital 20,180 19,245 Retained earnings (accumulated deficit) ( 1,000 ) 4,784 Accumulated other comprehensive loss ( 2,305 ) ( 2,199 ) Total stockholders' equity 10,360 17,254 Noncontrolling interest 37 33 Total equity 10,397 17,287 Total liabilities and equity $ 134,711 $ 138,805 The accompanying notes are an integral part of these consolidated financial statements. 53 | 2023 Form 10-K 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 deficit) Accumulated other comprehensive loss Noncontrolling interest Total 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 Net earnings attributable to AbbVie Inc. — — — — 4,863 — — 4,863 Other comprehensive loss, net of tax — — — — — ( 106 ) — ( 106 ) Dividends declared — — — — ( 10,647 ) — — ( 10,647 ) Purchases of treasury stock ( 12 ) — ( 1,978 ) — — — — ( 1,978 ) Stock-based compensation plans and other 9 — 39 935 — — — 974 Change in noncontrolling interest — — — — — — 4 4 Balance at December 31, 2023 1,766 $ 18 $ ( 6,533 ) $ 20,180 $ ( 1,000 ) $ ( 2,305 ) $ 37 $ 10,397 The accompanying notes are an integral part of these consolidated financial statements. 2023 Form 10-K | 54 AbbVie Inc. and Subsidiaries Consolidated Statements of Cash Flows years ended December 31 (in millions) (brackets denote cash outflows) 2023 2022 2021 Cash flows from operating activities Net earnings $ 4,873 $ 11,845 $ 11,549 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation 752 778 803 Amortization of intangible assets 7,946 7,689 7,718 Deferred income taxes ( 2,889 ) ( 1,931 ) ( 898 ) Change in fair value of contingent consideration liabilities 5,128 2,761 2,679 Payments of contingent consideration liabilities ( 870 ) ( 164 ) ( 91 ) Stock-based compensation 747 671 692 Acquired IPR&D and milestones 778 697 1,124 Other charges related to collaborations — — 500 Gain on divestitures — ( 172 ) ( 68 ) Non-cash litigation reserve adjustments, net of cash payments ( 443 ) 2,243 163 Impairment of intangible assets 4,229 770 50 Other, net ( 225 ) ( 150 ) ( 213 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 66 ( 1,455 ) ( 1,321 ) Inventories ( 417 ) ( 686 ) ( 142 ) Prepaid expenses and other assets ( 188 ) ( 264 ) ( 197 ) Accounts payable and other liabilities 3,840 1,769 1,719 Income tax assets and liabilities, net ( 488 ) 542 ( 1,290 ) Cash flows from operating activities 22,839 24,943 22,777 Cash flows from investing activities Acquisition of businesses, net of cash acquired — ( 255 ) ( 525 ) Other acquisitions and investments ( 1,223 ) ( 539 ) ( 1,377 ) Acquisitions of property and equipment ( 777 ) ( 695 ) ( 787 ) Purchases of investment securities ( 77 ) ( 1,438 ) ( 119 ) Sales and maturities of investment securities 55 1,530 98 Other, net 13 774 366 Cash flows from investing activities ( 2,009 ) ( 623 ) ( 2,344 ) Cash flows from financing activities Proceeds from issuance of long-term debt — 2,000 1,000 Repayments of long-term debt and finance lease obligations ( 4,149 ) ( 14,433 ) ( 9,414 ) Debt issuance costs ( 38 ) — — Dividends paid ( 10,539 ) ( 10,043 ) ( 9,261 ) Purchases of treasury stock ( 1,972 ) ( 1,487 ) ( 934 ) Proceeds from the exercise of stock options 180 262 244 Payments of contingent consideration liabilities ( 752 ) ( 1,132 ) ( 698 ) Other, net 48 30 24 Cash flows from financing activities ( 17,222 ) ( 24,803 ) ( 19,039 ) Effect of exchange rate changes on cash and equivalents 5 ( 62 ) ( 97 ) Net change in cash and equivalents 3,613 ( 545 ) 1,297 Cash and equivalents, beginning of year 9,201 9,746 8,449 Cash and equivalents, end of year $ 12,814 $ 9,201 $ 9,746 Other supplemental information Interest paid, net of portion capitalized $ 2,469 $ 2,546 $ 2,712 Income taxes paid 4,702 2,988 3,648 The accompanying notes are an integral part of these consolidated financial statements. 55 | 2023 Form 10-K 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 systems 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. 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 . Certain 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 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 2023 Form 10-K | 56 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. 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 $ 2.2 billion in 2023, $ 2.0 billion in 2022 and $ 2.1 billion in 2021. 57 | 2023 Form 10-K 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 the 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. 2023 Form 10-K | 58 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) 2023 2022 Finished goods $ 1,356 $ 1,162 Work-in-process 1,643 1,417 Raw materials 1,100 1,000 Inventories $ 4,099 $ 3,579 Property and Equipment as of December 31 (in millions) 2023 2022 Land $ 286 $ 286 Buildings 2,827 2,737 Equipment 7,449 7,107 Construction in progress 1,073 856 Property and equipment, gross 11,635 10,986 Less accumulated depreciation ( 6,646 ) ( 6,051 ) Property and equipment, net $ 4,989 $ 4,935 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 $ 752 million in 2023, $ 778 million in 2022 and $ 803 million in 2021. 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 59 | 2023 Form 10-K 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 effects 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. 2023 Form 10-K | 60 Recent Accounting Pronouncements Recent Accounting Pronouncements Not Yet Adopted ASU No. 2023-09 In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740) . The standard requires disaggregation of the effective rate reconciliation into standard categories, enhances disclosure of income taxes paid, and modifies other income tax-related disclosures. The standard will be effective for AbbVie starting in annual periods in 2025, with early adoption permitted. AbbVie is currently assessing the impact of adopting this guidance on its consolidated financial statements. ASU No. 2023-07 In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting - Improving Reportable Segment Disclosures (Topic 280) . The standard requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The standard is effective for AbbVie starting in annual periods in 2024 and interim periods in 2025, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. AbbVie is currently assessing the impact of adopting this guidance on its consolidated financial statements. Note 3 Supplemental Financial Information Interest Expense, Net years ended December 31 (in millions) 2023 2022 2021 Interest expense $ 2,224 $ 2,230 $ 2,423 Interest income ( 540 ) ( 186 ) ( 39 ) Interest expense, net $ 1,684 $ 2,044 $ 2,384 Accounts Payable and Accrued Liabilities as of December 31 (in millions) 2023 2022 Sales rebates $ 13,627 $ 10,717 Dividends payable 2,783 2,680 Accounts payable 3,688 2,934 Current portion of contingent consideration liabilities 1,952 1,469 Salaries, wages and commissions 1,802 1,371 Royalty and license arrangements 360 412 Other 6,438 5,819 Accounts payable and accrued liabilities $ 30,650 $ 25,402 Other Long-Term Liabilities as of December 31 (in millions) 2023 2022 Contingent consideration liabilities $ 17,938 $ 14,915 Liabilities for unrecognized tax benefits 6,681 6,502 Income taxes payable 2,182 2,985 Pension and other post-employment benefits 1,538 1,638 Other 3,988 4,615 Other long-term liabilities $ 32,327 $ 30,655 61 | 2023 Form 10-K 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) 2023 2022 2021 Basic EPS Net earnings attributable to AbbVie Inc. $ 4,863 $ 11,836 $ 11,542 Earnings allocated to participating securities 43 54 74 Earnings available to common shareholders $ 4,820 $ 11,782 $ 11,468 Weighted average basic shares of common stock outstanding 1,768 1,771 1,770 Basic earnings per share attributable to AbbVie Inc. $ 2.73 $ 6.65 $ 6.48 Diluted EPS Net earnings attributable to AbbVie Inc. $ 4,863 $ 11,836 $ 11,542 Earnings allocated to participating securities 43 54 74 Earnings available to common shareholders $ 4,820 $ 11,782 $ 11,468 Weighted average shares of common stock outstanding 1,768 1,771 1,770 Effect of dilutive securities 5 7 7 Weighted average diluted shares of common stock outstanding 1,773 1,778 1,777 Diluted earnings per share attributable to AbbVie Inc. $ 2.72 $ 6.63 $ 6.45 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. Note 5 Licensing, Acquisitions and Other Arrangements Proposed Acquisition of Cerevel Therapeutics Holdings, Inc. On December 6, 2023, AbbVie announced that it entered into a definitive agreement under which AbbVie will acquire Cerevel Therapeutics Holdings, Inc. (Cerevel Therapeutics). Under the terms of the agreement, AbbVie will acquire all outstanding shares of Cerevel Therapeutics for $ 45.00 per share in cash for a total value of approximately $ 8.7 billion. The transaction is expected to close in 2024 subject to regulatory approvals and other customary closing conditions. Cerevel Therapeutics is a clinical-stage biotechnology company focused on the discovery and development of differentiated therapies for Neuroscience diseases. Cerevel Therapeutics neuroscience pipeline includes multiple clinical-stage and preclinical candidates with the potential to treat several diseases including schizophrenia, Parkinson's disease and mood disorders. 2023 Form 10-K | 62 Acquisition of ImmunoGen, Inc. Subsequent to 2023, on February 12, 2024, AbbVie completed its previously announced acquisition of ImmunoGen, Inc. (ImmunoGen). Under the terms of the agreement, AbbVie acquired all outstanding shares of ImmunoGen for $ 31.26 per share in cash for a total value of approximately $ 10.1 billion. Due to the proximity of the closing date of the acquisition to the date of filing this Annual Report on Form 10-K, the initial accounting for the acquisition is not complete. Significant, relevant information needed to complete the initial accounting, including the identification and measurement of the fair value of assets acquired and liabilities assumed, is pending. As a result, it is not practicable to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed or provide other related disclosures. The accounting impact of this acquisition and the operating results of ImmunoGen will be included in the consolidated financial statements beginning in the first quarter of 2024. ImmunoGen is a commercial-stage biotechnology company focused on the discovery, development and commercialization of antibody-drug conjugates (ADC) for cancer patients. ImmunoGen's oncology portfolio includes its flagship cancer therapy Elahere, a first-in-class ADC approved for platinum-resistant ovarian cancer, and a pipeline of promising next-generation ADC's targeting hematologic malignancies and solid tumors. In connection with these acquisitions, AbbVie entered into several debt and financing arrangements. See Note 10 for additional information. 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. Other Licensing & Acquisitions Activity Cash outflows related to other acquisitions and investments totaled $ 1.2 billion in 2023, $ 539 million in 2022 and $ 1.4 billion in 2021. AbbVie recorded acquired IPR&D and milestones expense of $ 778 million in 2023, $ 697 million in 2022 and $ 1.1 billion in 2021. Significant arrangements impacting 2023, 2022 and 2021, 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 ABBV-552, previously named SDI-118, and accounted for the transaction as an asset acquisition. ABBV-552 is a small molecule, 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 63 | 2023 Form 10-K 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, 2021 . The agreement also included additional payments of up to $ 1.4 billion upon the achievement of certain development, regulatory and commercial milestones. Other Arrangements In addition to the significant arrangements described above, AbbVie entered into several other arrangements resulting in charges related to upfront payments of $ 582 million in 2023, $ 315 million in 2022 and $ 192 million in 2021. In connection with the other individually insignificant early-stage arrangements entered into in 2023, AbbVie could make additional payments of up to $ 10.9 billion upon the achievement of certain development, regulatory and commercial milestones. Acquired IPR&D and milestones expense also included development milestones of $ 196 million in 2023, $ 252 million in 2022 and $ 162 million in 2021. 2023 Form 10-K | 64 Note 6 Collaborations The company has ongoing transactions with other entities through collaboration agreements. The following represent the significant collaboration agreements impacting 2023, 2022 and 2021. 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. 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) 2023 2022 2021 United States - Janssen's share of profits (included in cost of products sold) $ 1,245 $ 1,607 $ 2,018 International - AbbVie's share of profits (included in net revenues) 931 1,142 1,087 Global - AbbVie's share of other costs (included in respective line items) 228 268 304 AbbVie’s receivable from Janssen, included in accounts receivable, net, was $ 236 million at December 31, 2023 and $ 295 million at December 31, 2022. AbbVie’s payable to Janssen, included in accounts payable and accrued liabilities, was $ 307 million at December 31, 2023 and $ 379 million at December 31, 2022. 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. 65 | 2023 Form 10-K The following table shows the profit and cost sharing relationship between Genentech and AbbVie: years ended December 31 (in millions) 2023 2022 2021 Genentech's share of profits, including royalties (included in cost of products sold) $ 869 $ 778 $ 703 AbbVie's share of sales and marketing costs from U.S. collaboration (included in SG&A) 41 37 40 AbbVie's share of development costs (included in R&D) 109 121 140 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, 2021 $ 32,379 Additions (a) 92 Foreign currency translation adjustments and other ( 315 ) Balance as of December 31, 2022 32,156 Foreign currency translation adjustments and other 137 Balance as of December 31, 2023 $ 32,293 (a) 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, 2023 and 2022, there were no accumulated goodwill impairment losses. Intangible Assets, Net The following table summarizes intangible assets: 2023 2022 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 $ 75,142 $ ( 22,455 ) $ 52,687 $ 87,698 $ ( 25,003 ) $ 62,695 License agreements 8,191 ( 5,571 ) 2,620 8,474 ( 4,642 ) 3,832 Total definite-lived intangible assets 83,333 ( 28,026 ) 55,307 96,172 ( 29,645 ) 66,527 Indefinite-lived intangible assets 303 — 303 912 — 912 Total intangible assets, net $ 83,636 $ ( 28,026 ) $ 55,610 $ 97,084 $ ( 29,645 ) $ 67,439 Definite-Lived Intangible Assets In the fourth quarter of 2023, the company made a decision to reduce current sales and marketing investment related to both CoolSculpting, a body contouring technology for aesthetic nonsurgical fat reduction, and Liletta, an on-market women’s health product. Each of these strategic decisions contributed to significant decreases in the estimated future cash flows for the respective products and represented triggering events that required an evaluation of the underlying definite-lived intangible assets for impairment. The company used a discounted cash flow analysis for both products. For CoolSculpting, the fair value of $ 290 million was lower than the carrying value of $ 1.3 billion resulting in a partial impairment of both the gross and net carrying amount. For Liletta, the fair value of $ 241 million was lower than the carrying value of $ 561 million resulting in a partial impairment of both the gross and net carrying amount. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $ 1.4 billion to costs of products sold in the consolidated statement of earnings for the fourth quarter of 2023. 2023 Form 10-K | 66 In August 2023, as part of the Inflation Reduction Act of 2022, the company’s oncology product Imbruvica sold in the United States (U.S.) was included on the list of products selected for negotiation by the Centers for Medicare & Medicaid Services. The selection resulted in 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 determine the fair value of $ 1.9 billion, which was lower than the carrying value of $ 4.0 billion and resulted in a partial impairment of both the gross and net carrying amount as of August 29, 2023. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $ 2.1 billion to cost of products sold in the consolidated statement of earnings for the third quarter of 2023. 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. Fair value measurements for the above evaluations were based on Level 3 inputs including estimated net revenues, cost of products sold, R&D costs, selling and marketing costs and discount rate. 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 $ 7.9 billion in 2023, $ 7.7 billion in 2022 and $ 7.7 billion in 2021 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, 2023 is as follows: (in billions) 2024 2025 2026 2027 2028 Anticipated annual amortization expense $ 7.4 $ 7.0 $ 6.3 $ 5.6 $ 5.7 Indefinite-Lived Intangible Assets Indefinite-lived intangible assets represent acquired IPR&D associated with products that have not yet received regulatory approval. The company performs its annual impairment assessment of indefinite-lived intangible assets in the third quarter, or earlier if impairment indicators exist. During the first quarter of 2023, the company made a decision to revise the research and development plan for AGN-151607, a novel investigational neurotoxin for the prevention of postoperative atrial fibrillation in cardiac surgery patients. This decision contributed to a delay in the estimated timing of regulatory approval as well as a significant decrease in estimated future cash flows of the product and represented a triggering event which required the company to evaluate the underlying indefinite-lived intangible asset for impairment. The company utilized a discounted cash flow analysis to estimate the fair value which was below the carrying value of the intangible asset. Based on the revised cash flows, the company recorded a pre-tax impairment charge of $ 630 million to research and development expense in the consolidated statement of earnings for the first quarter of 2023. 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 $ 2.5 billion through 2023. 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. 67 | 2023 Form 10-K The following table summarizes the charges associated with the Allergan acquisition integration plan: year ended December 31 (in millions) 2023 2022 2021 Cost of products sold $ 89 $ 117 $ 132 Research and development 7 23 102 Selling, general and administrative 192 399 353 Total charges $ 288 $ 539 $ 587 The following table summarizes the cash activity in the recorded liability associated with the integration plan: year ended December 31 (in millions) Accrued balance as of December 31, 2020 $ 387 Charges 526 Payments and other adjustments ( 658 ) Accrued balance as of December 31, 2021 255 Charges 377 Payments and other adjustments ( 525 ) Accrued balance as of December 31, 2022 107 Charges 274 Payments and other adjustments ( 338 ) Accrued balance as of December 31, 2023 $ 43 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 2023, 2022 and 2021, no such plans were individually significant. Restructuring charges recorded were $ 132 million in 2023, $ 241 million in 2022 and $ 59 million in 2021 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. The following table summarizes the cash activity in the restructuring reserve for 2023, 2022 and 2021: (in millions) Accrued balance as of December 31, 2020 $ 90 Charges 54 Payments and other adjustments ( 111 ) Accrued balance as of December 31, 2021 33 Charges 193 Payments and other adjustments ( 50 ) Accrued balance as of December 31, 2022 176 Charges 107 Payments and other adjustments ( 87 ) Accrued balance as of December 31, 2023 $ 196 2023 Form 10-K | 68 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 2023 2022 Assets Operating Other assets $ 744 $ 737 Finance Property and equipment, net 35 25 Total lease assets $ 779 $ 762 Liabilities Operating Current Accounts payable and accrued liabilities $ 166 $ 166 Noncurrent Other long-term liabilities 735 754 Finance Current Current portion of long-term debt and finance lease obligations 15 17 Noncurrent Long-term debt and finance lease obligations 27 17 Total lease liabilities $ 943 $ 954 The following table summarizes the lease costs recognized in the consolidated statements of earnings: years ended December 31 (in millions) 2023 2022 2021 Operating lease cost $ 189 $ 201 $ 226 Short-term lease cost 28 67 56 Variable lease cost 88 71 71 Total lease cost $ 305 $ 339 $ 353 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 2023, 2022 and 2021. 69 | 2023 Form 10-K The following table presents the weighted-average remaining lease term and weighted-average discount rate for operating and finance leases: years ended December 31 2023 2022 2021 Weighted-average remaining lease term (years) Operating 7 8 7 Finance 3 2 3 Weighted-average discount rate Operating 3.0 % 2.6 % 2.4 % Finance 3.6 % 1.5 % 1.1 % The following table presents supplementary cash flow information regarding the company's leases: years ended December 31 (in millions) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 214 $ 212 $ 236 Right-of-use assets obtained in exchange for new operating lease liabilities 173 235 66 Finance lease cash flows were insignificant in 2023, 2022 and 2021. The following table summarizes the future maturities of AbbVie's operating and finance lease liabilities as of December 31, 2023: (in millions) Operating leases Finance leases Total (a) 2024 $ 194 $ 15 $ 209 2025 169 14 183 2026 145 12 157 2027 115 2 117 2028 93 — 93 Thereafter 292 — 292 Total lease payments 1,008 43 1,051 Less: Interest 107 1 108 Present value of lease liabilities $ 901 $ 42 $ 943 (a) Lease payments recognized as part of lease liabilities for optional renewal periods are insignificant. 2023 Form 10-K | 70 Note 10 Debt, Credit Facilities and Commitments and Contingencies The following table summarizes long-term debt: as of December 31 (dollars in millions) 2023 Effective interest rate (a) 2023 2022 Effective interest rate (a) 2022 1.50 - 3.75 % aggregate notes due 2023 0.49 - 3.84 % $ — 0.49 - 3.84 % $ 3,132 Floating rate term loans due 2023 5.07 % — 2.45 % 1,000 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 % 1,610 1.46 % 1,543 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 % 777 0.65 % 745 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 5.95 % 2,000 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 % 833 0.86 % 798 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 % 833 2.18 % 798 2.625 % senior euro notes due 2028 (€ 500 principal) 1.20 % 555 1.20 % 532 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 % 611 1.19 % 585 1.25 % senior euro notes due 2031 (€ 650 principal) 1.30 % 722 1.30 % 691 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 ( 266 ) ( 346 ) Unamortized bond discounts ( 106 ) ( 116 ) Unamortized deferred financing costs ( 198 ) ( 222 ) Unamortized bond premiums (b) 668 793 Other 42 33 Total long-term debt and finance lease obligations 59,385 63,270 Current portion 7,191 4,135 Noncurrent portion $ 52,194 $ 59,135 (a) Excludes the effect of any related interest rate swaps. (b) Represents unamortized purchase price adjustments of Allergan debt. 71 | 2023 Form 10-K 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, 2023, 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) 2024 $ 7,170 2025 8,771 2026 6,000 2027 833 2028 3,138 Thereafter 33,333 Total obligations and commitments 59,245 Fair value hedges, unamortized bond premiums/discounts, deferred financing costs and finance lease obligations 140 Total long-term debt and finance lease obligations $ 59,385 Repayment and Issuance of Long-Term Debt In 2023, the company repaid a $ 1.0 billion floating rate three-year term loan, $ 350 million aggregate principal amount of 2.80 % senior notes and $ 1.0 billion aggregate principal amount of 2.85 % senior notes at maturity. During the quarter ended December 31, 2023, the company also repaid € 500 million aggregate principal amount of 1.50 % senior euro notes and $ 1.3 billion aggregate principal amount of 3.75 % senior notes at maturity. 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 and $ 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. Financing Related to ImmunoGen and Cerevel Therapeutics Acquisitions In connection with the acquisition of ImmunoGen and proposed acquisition of Cerevel Therapeutics, on December 6, 2023, AbbVie entered into a $ 9.0 billion 364-day bridge credit agreement and on December 21, 2023, AbbVie entered into a 364-day term loan credit agreement with an aggregate principal amount of $ 5.0 billion. No amounts were drawn under the bridge credit agreement or term loan credit agreement as of December 31, 2023 . Subsequent to 2023, on February 12, 2024, AbbVie borrowed $ 5.0 billion under the term loan credit agreement. See Note 5 for additional information. Short-Term Borrowings No commercial paper borrowings were issued during 2023 or 2022 and there were no commercial paper borrowings outstanding as of December 31, 2023 and December 31, 2022. Subsequent to 2023, AbbVie issued commercial paper borrowings of which $ 1.7 billion were outstanding as of the date of filing this Annual Report on Form 10-K. In March 2023, AbbVie entered into an amended and restated five-year revolving credit facility. The amendment increased the unsecured revolving credit facility commitments from $ 4.0 billion to $ 5.0 billion and extended the maturity date of the facility from August 2023 to March 2028. This amended facility enables the company to borrow funds on an unsecured basis at variable interest rates and contains various covenants. At December 31, 2023, the company was in compliance with all covenants, and commitment fees under the credit facility were insignificant. No amounts were outstanding under the company's credit facilities as of December 31, 2023 and December 31, 2022. 2023 Form 10-K | 72 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. 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 $ 1.8 billion at December 31, 2023 and $ 1.7 billion at December 31, 2022, 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, 2023 are 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 included in AOCI . 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. 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 reclassified to interest expense, net over the lives of the floating-rate debt. In June 2023, the company entered into a cross-currency swap contract that matured in November 2023 with a notional amount totaling € 433 million to hedge the company’s exposure to changes in future cash flows of foreign currency denominated debt related to changes in foreign exchange rates. The cross-currency swap contract was designated as a cash flow hedge and effectively converted the interest and principal payments of the related foreign currency denominated debt to U.S. dollars. The unrealized gains and losses on the contract were included in AOCI and reclassified to net foreign exchange loss over the term of the related 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 gains or 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 $ 7.9 billion at December 31, 2023 and $ 6.5 billion at December 31, 2022. 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 € 5.4 billion at December 31, 2023 and € 5.9 billion December 31, 2022. In addition, the company had foreign currency forward exchange contracts designated as net investment hedges with notional amounts totaling € 4.9 billion, SEK 1.4 billion, CAD 750 million and CHF 50 million at December 31, 2023 and € 4.3 billion, 73 | 2023 Form 10-K SEK 2.0 billion, CAD 750 million and CHF 90 million at December 31, 2022. 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 $ 5.0 billion at December 31, 2023 and $ 4.5 billion at December 31, 2022. 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. 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 2023 2022 Balance sheet caption 2023 2022 Foreign currency forward exchange contracts Designated as cash flow hedges Prepaid expenses and other $ 12 $ 49 Accounts payable and accrued liabilities $ 32 $ 8 Designated as cash flow hedges Other assets — 1 Other long-term liabilities — — Designated as net investment hedges Prepaid expenses and other 13 6 Accounts payable and accrued liabilities 66 36 Designated as net investment hedges Other assets — 74 Other long-term liabilities 69 47 Not designated as hedges Prepaid expenses and other 41 33 Accounts payable and accrued liabilities 36 41 Interest rate swap contracts Designated as fair value hedges Prepaid expenses and other — — Accounts payable and accrued liabilities — 17 Designated as fair value hedges Other assets — — Other long-term liabilities 293 375 Total derivatives $ 66 $ 163 $ 496 $ 524 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 (loss): years ended in December 31 (in millions) 2023 2022 2021 Foreign currency forward exchange contracts Designated as cash flow hedges $ ( 2 ) $ 103 $ 82 Designated as net investment hedges ( 144 ) 395 341 Cross-currency swap contracts designated as cash flow hedges ( 6 ) — — Interest rate swap contracts designated as cash flow hedges — 6 2 Assuming market rates remain constant through contract maturities, the company expects to reclassify pre-tax gains of $ 7 million into cost of products sold for foreign currency cash flow hedges and pre-tax gains of $ 23 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 (loss) pre-tax losses of $ 252 million in 2023, pre-tax gains of $ 406 million in 2022 and pre-tax gains of $ 577 million in 2021. 2023 Form 10-K | 74 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 2023 2022 2021 Foreign currency forward exchange contracts Designated as cash flow hedges Cost of products sold $ 77 $ 82 $ ( 87 ) Designated as net investment hedges Interest expense, net 112 94 26 Not designated as hedges Net foreign exchange loss 33 ( 156 ) ( 100 ) Treasury rate lock agreements designated as cash flow hedges Interest expense, net 24 23 24 Cross-currency swap contracts designated as cash flow hedges Net foreign exchange loss ( 6 ) — — Interest rate swap contracts Designated as cash flow hedges Interest expense, net — ( 1 ) ( 24 ) Designated as fair value hedges Interest expense, net 98 ( 402 ) ( 127 ) Debt designated as hedged item in fair value hedges Interest expense, net ( 98 ) 402 127 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. 75 | 2023 Form 10-K 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, 2023: 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 $ 12,814 $ 6,223 $ 6,591 $ — Money market funds and time deposits 10 — 10 — Debt securities 26 — 26 — Equity securities 111 86 25 — Foreign currency contracts 66 — 66 — Total assets $ 13,027 $ 6,309 $ 6,718 $ — Liabilities Interest rate swap contracts $ 293 $ — $ 293 $ — Foreign currency contracts 203 — 203 — Contingent consideration 19,890 — — 19,890 Total liabilities $ 20,386 $ — $ 496 $ 19,890 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 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 and estimated future sales. Significant judgment is employed in determining the appropriateness of certain of these inputs. 2023 Form 10-K | 76 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: 2023 2022 years ended December 31 (in millions) Range Weighted Average (a) Range Weighted Average (a) Discount rate 4.3 % - 5.9 % 4.5 % 4.7 % - 5.1 % 4.8 % Probability of payment for unachieved milestones (b) N/A - N/A N/A 100 % - 100 % 100 % Probability of payment for royalties by indication (C) 89 % - 100 % 99 % 56 % - 100 % 99 % Projected year of payments 2024 - 2034 2027 2023 - 2034 2028 (a) Unobservable inputs were weighted by the relative fair value of the contingent consideration liabilities. (b) All significant milestones were achieved and paid as of December 31, 2023. (c) Excluding approved indications, the estimated probability of payment was 89 % at December 31, 2023 and was 56 % at December 31, 2022. 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) 2023 2022 2021 Beginning balance $ 16,384 $ 14,887 $ 12,997 Additions (a) — 32 — Change in fair value recognized in net earnings 5,128 2,761 2,679 Payments ( 1,622 ) ( 1,296 ) ( 789 ) Ending balance $ 19,890 $ 16,384 $ 14,887 (a) Additions during the year ended December 31, 2022, represent contingent consideration liabilities assumed in the DJS acquisition. 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 $ 5.1 billion in 2023, $ 2.8 billion in 2022 and $ 2.7 billion in 2021. In 2023, the change in fair value reflected higher estimated Skyrizi sales driven by stronger market share uptake, the passage of time and lower discount rates. 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. Contingent consideration payments of amounts up to the initial acquisition date fair value are classified as cash outflows from financing activities and payments of amounts in excess of the initial acquisition date fair value are classified as cash outflows from operating activities in the consolidated statements of cash flows. 77 | 2023 Form 10-K 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, 2023 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 Current portion of long-term debt and finance lease obligations, excluding fair value hedges $ 7,191 $ 7,069 $ 6,862 $ 207 $ — Long-term debt and finance lease obligations, excluding fair value hedges 52,460 49,541 48,983 558 — Total liabilities $ 59,651 $ 56,610 $ 55,845 $ 765 $ — 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 $ — 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 $ 159 million as of December 31, 2023 and $ 129 million as of December 31, 2022. No significant cumulative upward or downward adjustments have been recorded for these investments as of December 31, 2023. Concentrations of Risk Of total net accounts receivable, three U.S. wholesalers accounted for 81 % as of December 31, 2023 and 82 % as of December 31, 2022, 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 27 % of AbbVie's total net revenues in 2023, 37 % in 2022 and 37 % in 2021. 2023 Form 10-K | 78 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, 2023 and 2022. 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) 2023 2022 2023 2022 Projected benefit obligations Beginning of period $ 8,588 $ 12,006 $ 667 $ 850 Service cost 270 454 37 51 Interest cost 432 297 37 23 Employee contributions — 1 — — Amendments — — — ( 2 ) Actuarial (gain) loss 491 ( 3,668 ) 89 ( 229 ) Benefits paid ( 316 ) ( 294 ) ( 35 ) ( 25 ) Other, primarily foreign currency translation adjustments 79 ( 208 ) 1 ( 1 ) End of period 9,544 8,588 796 667 Fair value of plan assets Beginning of period 8,472 10,655 — — Actual return on plan assets 1,230 ( 2,031 ) — — Company contributions 366 357 35 25 Employee contributions — 1 — — Benefits paid ( 316 ) ( 294 ) ( 35 ) ( 25 ) Other, primarily foreign currency translation adjustments 87 ( 216 ) — — End of period 9,839 8,472 — — Funded status, end of period $ 295 $ ( 116 ) $ ( 796 ) $ ( 667 ) Amounts recognized on the consolidated balance sheets Other assets $ 1,086 $ 896 $ — $ — Accounts payable and accrued liabilities ( 17 ) ( 14 ) ( 32 ) ( 27 ) Other long-term liabilities ( 774 ) ( 998 ) ( 764 ) ( 640 ) Net obligation $ 295 $ ( 116 ) $ ( 796 ) $ ( 667 ) Actuarial loss, net $ 2,290 $ 2,365 $ 282 $ 205 Prior service cost (credit) 1 3 ( 297 ) ( 333 ) Accumulated other comprehensive loss (income) $ 2,291 $ 2,368 $ ( 15 ) $ ( 128 ) Related to international defined benefit plans the projected benefit obligations in the table above included $ 2.4 billion at December 31, 2023 and $ 2.1 billion at December 31, 2022. For plans reflected in the table above, the accumulated benefit obligations were $ 8.6 billion at December 31, 2023 and $ 7.7 billion at December 31, 2022. The 2023 actuarial loss of $ 491 million for qualified pension plans and actuarial loss of $ 89 million for other post-employment plans were primarily driven by a decrease in the discount rate and changes to experience impact and medical trends assumptions. 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. 79 | 2023 Form 10-K Information For Pension Plans With An Accumulated Benefit Obligation In Excess Of Plan Assets as of December 31 (in millions) 2023 2022 Accumulated benefit obligation $ 1,410 $ 1,211 Fair value of plan assets 890 746 Information For Pension Plans With A Projected Benefit Obligation In Excess Of Plan Assets as of December 31 (in millions) 2023 2022 Projected benefit obligation $ 6,343 $ 5,592 Fair value of plan assets 5,552 4,580 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. Amounts Recognized in Other Comprehensive Income (Loss) The following table summarizes the pre-tax losses (gains) included in other comprehensive income (loss): years ended December 31 (in millions) 2023 2022 2021 Defined benefit plans Actuarial gain $ ( 16 ) $ ( 925 ) $ ( 345 ) Amortization of prior service cost ( 1 ) ( 2 ) ( 2 ) Amortization of actuarial loss ( 16 ) ( 231 ) ( 288 ) Foreign exchange loss (gain) and other ( 44 ) 17 ( 27 ) Total gain $ ( 77 ) $ ( 1,141 ) $ ( 662 ) Other post-employment plans Actuarial loss (gain) $ 89 $ ( 229 ) $ 10 Prior service credit — ( 2 ) — Amortization of prior service credit 36 38 39 Amortization of actuarial loss ( 12 ) ( 26 ) ( 32 ) Total loss (gain) $ 113 $ ( 219 ) $ 17 Net Periodic Benefit Cost years ended December 31 (in millions) 2023 2022 2021 Defined benefit plans Service cost $ 270 $ 454 $ 440 Interest cost 432 297 237 Expected return on plan assets ( 723 ) ( 712 ) ( 663 ) Amortization of prior service cost 1 2 2 Amortization of actuarial loss 16 231 288 Net periodic benefit cost (credit) $ ( 4 ) $ 272 $ 304 Other post-employment plans Service cost $ 37 $ 51 $ 48 Interest cost 37 23 19 Amortization of prior service credit ( 36 ) ( 38 ) ( 39 ) Amortization of actuarial loss 12 26 32 Net periodic benefit cost $ 50 $ 62 $ 60 The components of net periodic benefit cost other than service cost are included in other expense, net in the consolidated statements of earnings. 2023 Form 10-K | 80 Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date as of December 31 2023 2022 Defined benefit plans Discount rate 4.8 % 5.0 % Rate of compensation increases 4.8 % 5.5 % Cash balance interest crediting rate 4.4 % 2.7 % Other post-employment plans Discount rate 5.1 % 5.3 % The assumptions used in calculating the December 31, 2023 measurement date benefit obligations will be used in the calculation of net periodic benefit cost in 2024. Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost years ended December 31 2023 2022 2021 Defined benefit plans Discount rate for determining service cost 5.0 % 3.0 % 2.6 % Discount rate for determining interest cost 4.9 % 2.6 % 2.2 % Expected long-term rate of return on plan assets 7.3 % 7.1 % 7.1 % Expected rate of change in compensation 4.8 % 5.2 % 4.6 % Cash balance interest crediting rate 2.7 % 2.7 % 2.8 % Other post-employment plans Discount rate for determining service cost 5.3 % 3.3 % 3.0 % Discount rate for determining interest cost 5.1 % 2.7 % 2.2 % For the December 31, 2023 post-retirement health care obligations remeasurement, the company assumed a 7.4 % 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) in 2032 and remain at that level thereafter. For purposes of measuring the 2023 post-retirement health care costs, 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) for 2030 and remain at that level thereafter. 81 | 2023 Form 10-K Defined Benefit Pension Plan Assets Basis of fair value measurement as of December 31 (in millions) 2023 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) $ 1,018 $ 1,018 $ — $ — U.S. mid cap (b) 173 173 — — International (c) 488 488 — — Fixed income securities U.S. government securities (d) 246 62 184 — Corporate debt instruments (d) 714 155 559 — Non-U.S. government securities (d) 461 301 160 — Other (d) 126 124 2 — Absolute return funds (e) 155 66 89 — Other (f) 414 413 1 — Total $ 3,795 $ 2,800 $ 995 $ — Total assets measured at NAV 6,044 Fair value of plan assets $ 9,839 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 (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. (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. 2023 Form 10-K | 82 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 2023 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 2024 $ 339 $ 33 2025 364 37 2026 387 41 2027 413 44 2028 434 47 2029 to 2033 2,580 292 Defined Contribution Plan AbbVie maintains defined contribution savings plans for the benefit of its eligible employees. The expense recognized for these plans was $ 398 million in 2023, $ 474 million in 2022 and $ 267 million in 2021. 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. 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. 83 | 2023 Form 10-K 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) 2023 2022 2021 Cost of products sold $ 46 $ 38 $ 46 Research and development 278 232 226 Selling, general and administrative 423 401 420 Pre-tax compensation expense 747 671 692 Tax benefit 136 122 126 After-tax compensation expense $ 611 $ 549 $ 566 Realized excess tax benefits associated with stock-based compensation totaled $ 90 million in 2023, $ 116 million in 2022 and $ 50 million in 2021. Stock Options Stock options awarded to employees typically have a contractual term of 10 years and generally vest in one-third increments over a 3-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 $ 29.89 in 2023, $ 22.83 in 2022 and $ 16.28 in 2021. The following table summarizes AbbVie stock option activity in 2023: (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, 2022 9,320 $ 91.84 4.8 $ 650 Granted 642 149.30 Exercised ( 2,410 ) 73.21 Lapsed and forfeited ( 71 ) 90.43 Outstanding at December 31, 2023 7,481 $ 102.80 5.0 $ 390 Exercisable at December 31, 2023 5,954 $ 93.85 4.2 $ 364 The total intrinsic value of options exercised was $ 189 million in 2023, $ 295 million in 2022 and $ 239 million in 2021. The total fair value of options vested during 2023 was $ 21 million. As of December 31, 2023, $ 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 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. 2023 Form 10-K | 84 The following table summarizes AbbVie RSU and performance share activity for 2023: (share units in thousands) Share units Weighted-average grant date fair value Outstanding at December 31, 2022 13,031 $ 116.84 Granted 5,872 141.63 Vested ( 6,790 ) 107.96 Forfeited ( 1,374 ) 113.65 Outstanding at December 31, 2023 10,739 $ 136.42 The fair market value of RSUs and performance shares (as applicable) vested was $ 1.0 billion in 2023, $ 1.0 billion in 2022 and $ 718 million in 2021. As of December 31, 2023, $ 571 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 $ 5.99 in 2023, $ 5.71 in 2022 and $ 5.31 in 2021. The following table summarizes quarterly cash dividends declared during 2023, 2022 and 2021: 2023 2022 2021 Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share Date Declared Payment Date Dividend Per Share 10/26/23 02/15/24 $ 1.55 10/28/22 02/15/23 $ 1.48 10/29/21 02/15/22 $ 1.41 09/08/23 11/15/23 $ 1.48 09/09/22 11/15/22 $ 1.41 09/10/21 11/15/21 $ 1.30 06/22/23 08/15/23 $ 1.48 06/23/22 08/15/22 $ 1.41 06/17/21 08/16/21 $ 1.30 02/16/23 05/15/23 $ 1.48 02/17/22 05/16/22 $ 1.41 02/18/21 05/14/21 $ 1.30 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 this program are recorded at acquisition cost, including related expenses and are available for general corporate purposes. On February 16, 2023, AbbVie's board of directors authorized a $ 5.0 billion increase to the existing stock repurchase authorization. AbbVie repurchased 10 million shares for $ 1.6 billion in 2023, 8 million shares for $ 1.1 billion in 2022 and 6 million shares for $ 670 million in 2021. AbbVie's remaining stock repurchase authorization was $ 4.8 billion as of December 31, 2023. 85 | 2023 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 2023, 2022 and 2021: (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, 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 (loss) before reclassifications 407 ( 311 ) ( 23 ) ( 10 ) 63 Net gains reclassified from accumulated other comprehensive loss — ( 88 ) ( 7 ) ( 74 ) ( 169 ) Net current-period other comprehensive income (loss) 407 ( 399 ) ( 30 ) ( 84 ) ( 106 ) Balance as of December 31, 2023 $ ( 1,106 ) $ 65 $ ( 1,488 ) $ 224 $ ( 2,305 ) Other comprehensive income (loss) for 2023 included foreign currency translation adjustments totaling gains of $ 407 million 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 $ 399 million. Other comprehensive income for 2022 included pension and post-employment benefit plan gains of $ 1.1 billion primarily due to actuarial gains driven by higher discount rates partially offset by losses on plan assets. Other comprehensive income (loss) 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 (loss) 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. 2023 Form 10-K | 86 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) 2023 2022 2021 Net investment hedging activities Gains on derivative amount excluded from effectiveness testing (a) $ ( 112 ) $ ( 94 ) $ ( 26 ) Tax expense 24 20 5 Total reclassifications, net of tax $ ( 88 ) $ ( 74 ) $ ( 21 ) Pension and post-employment benefits Amortization of actuarial losses (gains) and other (b) $ ( 7 ) $ 221 $ 283 Tax expense (benefit) — ( 48 ) ( 60 ) Total reclassifications, net of tax $ ( 7 ) $ 173 $ 223 Cash flow hedging activities Losses (gains) on foreign currency forward exchange contracts (c) $ ( 77 ) $ ( 82 ) $ 87 Gains on treasury rate lock agreements (a) ( 24 ) ( 23 ) ( 24 ) Losses on interest rate swap contracts (a) — 1 24 Losses on cross-currency swap contracts (d) 6 — — Tax expense (benefit) 21 13 ( 12 ) Total reclassifications, net of tax $ ( 74 ) $ ( 91 ) $ 75 (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). (d) Amounts are included in net foreign exchange loss (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, 2023, no shares of preferred stock were issued or outstanding. 87 | 2023 Form 10-K Note 14 Income Taxes Earnings Before Income Tax Expense years ended December 31 (in millions) 2023 2022 2021 Domestic $ ( 3,475 ) $ ( 4,608 ) $ ( 1,644 ) Foreign 9,725 18,085 14,633 Total earnings before income tax expense $ 6,250 $ 13,477 $ 12,989 Income Tax Expense years ended December 31 (in millions) 2023 2022 2021 Current Domestic $ 3,272 $ 2,647 $ 1,987 Foreign 994 916 351 Total current taxes $ 4,266 $ 3,563 $ 2,338 Deferred Domestic $ ( 2,324 ) $ ( 1,512 ) $ ( 839 ) Foreign ( 565 ) ( 419 ) ( 59 ) Total deferred taxes $ ( 2,889 ) $ ( 1,931 ) $ ( 898 ) Total income tax expense $ 1,377 $ 1,632 $ 1,440 Effective Tax Rate Reconciliation years ended December 31 2023 2022 2021 Statutory tax rate 21.0 % 21.0 % 21.0 % Effect of foreign operations 8.0 ( 4.4 ) ( 5.4 ) U.S. tax credits ( 3.1 ) ( 2.8 ) ( 2.8 ) Non-deductible expenses 1.5 0.6 0.3 Tax law changes ( 3.8 ) ( 2.4 ) ( 2.0 ) Tax audits and settlements ( 1.1 ) 0.9 ( 0.4 ) All other, net ( 0.5 ) ( 0.8 ) 0.4 Effective tax rate 22.0 % 12.1 % 11.1 % 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 and business development activities. The effective income tax rates in 2023, 2022 and 2021 differed from the statutory tax rate principally due to the impact of foreign operations with lower income tax rates in locations outside the United States, the U.S. global minimum tax, changes in fair value of contingent consideration, tax credits and incentives in the United States, Puerto Rico and other foreign tax jurisdictions, and business development activities. The effective income tax rate in 2023 was higher than prior periods due to increased changes in fair value of contingent consideration, intangible asset impairments and the impacts of the transition from the Puerto Rico excise tax to an income tax. In 2022, Puerto Rico enacted Act 52-2022 (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 recognized in 2022 from the remeasurement of deferred taxes related to the Puerto Rico Act was $ 323 million. 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 U.S. global 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. 2023 Form 10-K | 88 Deferred Tax Assets and Liabilities as of December 31 (in millions) 2023 2022 Deferred tax assets Compensation and employee benefits $ 519 $ 497 Accruals and reserves 1,113 1,023 Chargebacks and rebates 1,431 991 Advance payments 298 547 Net operating losses and other carryforwards 14,316 10,391 Other 2,259 1,710 Total deferred tax assets 19,936 15,159 Valuation allowances ( 13,478 ) ( 9,627 ) Total net deferred tax assets 6,458 5,532 Deferred tax liabilities Excess of book basis over tax basis of intangible assets ( 1,535 ) ( 3,590 ) Excess of book basis over tax basis in investments ( 374 ) ( 340 ) Other ( 746 ) ( 772 ) Total deferred tax liabilities ( 2,655 ) ( 4,702 ) Net deferred tax assets $ 3,803 $ 830 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 and impairments of intangible assets. In 2023, Bermuda enacted the Corporate Income Tax Act (“Bermuda Tax Act”), which implements a 15% corporate income tax effective beginning in 2025. The enactment of the Bermuda Tax Act resulted 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 remeasurement related primarily to net operating losses and reflected an increase of $ 3.6 billion to deferred tax assets and an offsetting increase to valuation allowances, resulting in no net impact to deferred tax assets as such losses are not expected to be realized in the foreseeable future. The company had valuation allowances of $ 13.5 billion as of December 31, 2023 and $ 9.6 billion as of December 31, 2022. 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, 2023, the company had U.S. federal, state and foreign credit carryforwards of $ 372 million as well as U.S. federal, state and foreign net operating loss carryforwards of $ 33.6 billion, which will expire at various times through 2043. The company also had foreign loss carryforwards of $ 31.3 billion that have no expiration. 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 distributions) to be permanent in duration. The unrecognized tax liability is not practicable to determine. 89 | 2023 Form 10-K Unrecognized Tax Benefits years ended December 31 (in millions) 2023 2022 2021 Beginning balance $ 5,670 $ 5,489 $ 5,264 Increase due to current year tax positions 129 88 208 Increase due to prior year tax positions 109 243 137 Decrease due to prior year tax positions ( 21 ) ( 33 ) ( 62 ) Settlements ( 86 ) ( 7 ) ( 24 ) Lapse of statutes of limitations ( 39 ) ( 110 ) ( 34 ) Ending balance $ 5,762 $ 5,670 $ 5,489 If recognized, the net amount of potential tax benefits that would impact the company's effective tax rate is $ 5.6 billion in 2023 and $ 5.5 billion in 2022. 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. 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 $ 430 million in 2023, $ 339 million in 2022 and $ 161 million in 2021, for interest and penalties related to income tax matters. AbbVie had an accrual for the payment of gross interest and penalties of $ 1.6 billion at December 31, 2023, $ 1.1 billion at December 31, 2022 and $ 803 million at December 31, 2021. 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 $ 476 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 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 pending in federal court consist of six individual plaintiff lawsuits and a certified class action by Niaspan direct purchasers. 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 October 2016, the Orange County, California District Attorney’s Office filed a lawsuit on behalf of the State of California regarding the Niaspan patent 2023 Form 10-K | 90 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 were filed 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, were consolidated as In re: Bystolic Antitrust Litigation in the United States District Court for the Southern District of New York. In February 2023, the court granted Forest Laboratories’ motion to dismiss the cases, dismissing them with prejudice. Plaintiffs are appealing the court’s motion to dismiss ruling. Government Proceedings Lawsuits are pending against Allergan and several other manufacturers generally alleging that they improperly promoted and sold prescription opioid products. Approximately 590 lawsuits are pending against Allergan in federal and state courts. Most of the federal court lawsuits 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 140 of the lawsuits are pending in various state courts. The plaintiffs in these lawsuits, 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. Of these approximately 590 lawsuits, approximately 175 of them are brought by states, counties, cities, and other municipal entities, approximately 140 of which are in the process of being dismissed pursuant to the previously announced settlement for which 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. In March 2023, AbbVie Inc. filed a petition in the United States Tax Court, AbbVie Inc. and Subsidiaries v. Commissioner of Internal Revenue. The petition disputes the Internal Revenue Service determination concerning a $ 572 million income tax benefit recorded in 2014 related to a payment made to a third party for the termination of a proposed business combination. Shareholder and Securities Litigation 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. Lawsuits were filed against Allergan and certain of its 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 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 United States District Court for the Northern District of Illinois, alleging that certain AbbVie directors and officers breached fiduciary and other legal duties in making or allowing alleged 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. 91 | 2023 Form 10-K Product Liability and General Litigation In April 2023, a putative class action lawsuit, Camargo v. AbbVie Inc., was filed in the United States District Court for the Northern District of Illinois on behalf of Humira patients who paid for Humira based on its list price or who, after losing insurance coverage, discontinued Humira because they could not pay based on its list price, alleging that Humira’s list price is excessive in violation of multiple states’ unfair and deceptive trade practices statutes. The plaintiff generally seeks monetary damages, injunctive relief, and attorneys’ fees. 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 sought 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 March 2023, the court granted Allergan’s motion to dismiss, dismissing plaintiff-relator’s federal law claims with prejudice and state law claims without prejudice. The plaintiff-relator is appealing the court’s motion to dismiss ruling. Intellectual Property Litigation 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. AbbVie Inc. is seeking to enforce patent rights relating to upadacitinib (a drug sold under the trademark Rinvoq). Litigation was filed in the United States District Court for the District of Delaware in November 2023 against Hetero USA, Inc., Hetero Labs Limited, Hetero Labs Limited Unit-V, Aurobindo Pharma USA, Inc., Aurobindo Pharma Ltd., Sandoz, Inc. Sandoz Private Limited, Sandoz GMBH, Intas Pharmaceuticals Ltd., Accord Healthcare, Inc., and Sun Pharmaceutical Industries, Ltd. AbbVie alleges defendants’ proposed generic upadacitinib products infringe certain patents and seeks declaratory and injunctive relief. 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. 2023 Form 10-K | 92 Substantially all of AbbVie's pharmaceutical product 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) 2023 2022 2021 Immunology Humira United States $ 12,160 $ 18,619 $ 17,330 International 2,244 2,618 3,364 Total $ 14,404 $ 21,237 $ 20,694 Skyrizi United States $ 6,753 $ 4,484 $ 2,486 International 1,010 681 453 Total $ 7,763 $ 5,165 $ 2,939 Rinvoq United States $ 2,824 $ 1,794 $ 1,271 International 1,145 728 380 Total $ 3,969 $ 2,522 $ 1,651 Oncology Imbruvica United States $ 2,665 $ 3,426 $ 4,321 Collaboration revenues 931 1,142 1,087 Total $ 3,596 $ 4,568 $ 5,408 Venclexta United States $ 1,087 $ 1,009 $ 934 International 1,201 1,000 886 Total $ 2,288 $ 2,009 $ 1,820 Epkinly Collaboration Revenues $ 28 $ — $ — International 3 — — Total $ 31 $ — $ — Aesthetics Botox Cosmetic United States $ 1,670 $ 1,654 $ 1,424 International 1,012 961 808 Total $ 2,682 $ 2,615 $ 2,232 Juvederm Collection United States $ 519 $ 548 $ 658 International 859 880 877 Total $ 1,378 $ 1,428 $ 1,535 Other Aesthetics United States $ 1,060 $ 1,122 $ 1,268 International 174 168 198 Total $ 1,234 $ 1,290 $ 1,466 Neuroscience Botox Therapeutic United States $ 2,476 $ 2,255 $ 2,012 International 515 464 439 Total $ 2,991 $ 2,719 $ 2,451 Vraylar United States $ 2,755 $ 2,037 $ 1,728 International 4 1 — Total $ 2,759 $ 2,038 $ 1,728 Duodopa United States $ 97 $ 95 $ 102 International 371 363 409 Total $ 468 $ 458 $ 511 Ubrelvy United States $ 803 $ 680 $ 552 International 12 — — Total $ 815 $ 680 $ 552 Qulipta United States $ 405 $ 158 $ — International 3 — — Total $ 408 $ 158 $ — 93 | 2023 Form 10-K years ended December 31 (in millions) 2023 2022 2021 Other Neuroscience United States $ 254 $ 456 $ 667 International 22 19 18 Total $ 276 $ 475 $ 685 Eye Care Ozurdex United States $ 143 $ 139 $ 130 International 329 289 288 Total $ 472 $ 428 $ 418 Lumigan/Ganfort United States $ 173 $ 242 $ 273 International 259 272 306 Total $ 432 $ 514 $ 579 Alphagan/Combigan United States $ 121 $ 202 $ 373 International 151 144 156 Total $ 272 $ 346 $ 529 Restasis United States $ 382 $ 621 $ 1,234 International 54 45 56 Total $ 436 $ 666 $ 1,290 Other Eye Care United States $ 433 $ 399 $ 393 International 370 348 358 Total $ 803 $ 747 $ 751 Other Key Products Mavyret United States $ 659 $ 755 $ 754 International 771 786 956 Total $ 1,430 $ 1,541 $ 1,710 Creon United States $ 1,268 $ 1,278 $ 1,191 Linzess/Constella United States $ 1,073 $ 1,003 $ 1,006 International 35 32 32 Total $ 1,108 $ 1,035 $ 1,038 All other $ 3,035 $ 4,137 $ 5,019 Total net revenues $ 54,318 $ 58,054 $ 56,197 2023 Form 10-K | 94 Net revenues to external customers by geographic area, based on product shipment destination, were as follows: years ended December 31 (in millions) 2023 2022 2021 United States $ 41,883 $ 45,713 $ 43,510 Germany 1,266 1,340 1,223 Canada 1,076 1,159 1,397 Japan 1,008 956 1,090 China 950 912 857 France 780 787 936 Spain 501 506 519 Italy 484 444 506 Australia 472 508 533 Brazil 439 430 368 United Kingdom 417 462 497 All other countries 5,042 4,837 4,761 Total net revenues $ 54,318 $ 58,054 $ 56,197 Long-lived assets, primarily net property and equipment, by geographic area were as follows: as of December 31 (in millions) 2023 2022 United States and Puerto Rico $ 3,139 $ 3,243 Europe 1,433 1,369 All other 417 323 Total long-lived assets $ 4,989 $ 4,935 Note 17 Fourth Quarter Financial Results (unaudited) quarter ended December 31 (in millions except per share data) 2023 Net revenues $ 14,301 Gross margin 8,597 Net earnings attributable to AbbVie Inc. 822 Basic earnings per share attributable to AbbVie Inc. $ 0.46 Diluted earnings per share attributable to AbbVie Inc. $ 0.46 Cash dividends declared per common share $ 1.55 95 | 2023 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, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2024 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 consolidated 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. 2023 Form 10-K | 96 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, 2023, the Company had $ 13,627 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. 97 | 2023 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, 2023, the Company had $ 19,890 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 20, 2024 2023 Form 10-K | 98 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.