Note 12 Equity

Stock-Based Compensation

Stock-based compensation expense was $282 million, $241 million, and $212 million in 2015, 2014, and 2013, respectively, and is principally classified in SG&A for all periods presented, with the remainder classified in R&D expenses and cost of products sold. The related tax benefit recognized in 2015, 2014, and 2013 was $89 million, $73 million, and $68 million, respectively.

Compensation expense for stock-based awards is measured based on the fair value of the awards, as of the date the stock-based awards are granted and adjusted to the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for stock-based awards is amortized over their service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. For stock-based awards granted to retirement-eligible employees, compensation expense is recognized immediately at the grant date because the employee is able to retain the award without continuing to provide service. Retirement eligible employees are generally those that are age 55 and have at least ten years of service.

Prior to separation, AbbVie employees participated in Abbott's incentive stock program. The AbbVie 2013 Incentive Stock Program, adopted at the time of separation, facilitated the assumption of certain awards granted under Abbott's incentive stock program and authorizes the post-separation grant of several different forms of benefits, including nonqualified stock options, RSAs, RSUs, and performance-based RSAs and RSUs. Under the AbbVie 2013 Incentive Stock Program, 100 million shares of common stock were reserved for issuance with respect to post-separation awards for participants.

In connection with the separation, outstanding Abbott employee stock options, RSAs and RSUs previously issued under Abbott's incentive stock program were adjusted and converted into new Abbott and AbbVie stock-based awards using a formula designed to preserve the intrinsic value and fair value of the awards immediately prior to the separation. Upon the separation on January 1, 2013, holders of Abbott stock options, RSAs and RSUs generally received one AbbVie stock-based award for each Abbott stock-based award outstanding. These adjusted awards retained the vesting schedule and expiration date of the original awards. No AbbVie awards have been granted to Abbott employees other than in connection with the separation.

In 2015, 2014, and 2013, realized excess tax benefits associated with stock-based compensation and recorded in additional paid-in capital totaled $61 million, $56 million, and $38 million, respectively, and were presented in the consolidated statements of cash flows as an outflow in operating activities and an inflow in financing activities.

Stock Options

The exercise price for options granted is at least equal to 100 percent of the fair value on the date of grant. Stock options typically have a contractual term of 10 years and generally vest in one-third increments over a three-year period.

The fair value of stock options is determined using the Black-Scholes model. The weighted-average grant-date fair values of stock options granted were $9.96, $9.83, and $6.87 in 2015, 2014, and 2013, respectively. Stock-based compensation expense attributable to options during each of the years presented was not material.

The following table summarizes AbbVie stock option activity in 2015:

year ended December 31 (options in thousands, aggregate intrinsic value in millions)	Options			Weighted- average exercise price		Weighted- average remaining life (in years)		Aggregate intrinsic value

Outstanding at beginning of period		28,280		$	28.53		3.3	$	1,044
Granted		1,207			58.83
Exercised		(5,871	)		26.31
Lapsed		(47	)		27.50

Outstanding at end of period		23,569		$	30.64		3.0	$	674


Exercisable at end of period		21,091		$	28.16		2.4	$	656

The aggregate intrinsic value in the table above represents the difference between the exercise price and the company's closing share price on the last day of trading in 2015. The total intrinsic value of options exercised in 2015, 2014 and 2013 was $216 million, $253 million, and $229 million respectively. The total fair value of options vested during 2015 was $10 million.

RSAs & RSUs

RSAs and RSUs generally vest in one-third increments over three years. Upon vesting, the recipient receives one share of common stock for each vested award. AbbVie grants performance-based RSAs and RSUs to selected executives and other key employees with vesting primarily contingent upon AbbVie achieving a minimum return on equity. The fair value of RSAs and RSUs (including performance-based awards) is determined based on the number of shares granted and the quoted price of AbbVie's common stock on the date of grant. For purposes of determining compensation expense, AbbVie periodically evaluates whether the performance goals will be achieved. If such goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

The following table summarizes AbbVie RSA and RSU activity (including performance-based awards) for both AbbVie and Abbott employees for 2015:

year ended December 31 (share units in thousands)	Share units			Weighted-average grant date fair value

Outstanding at beginning of period		12,815		$	40.98
Granted		6,052			60.85
Vested		(5,702	)		37.46
Lapsed		(675	)		51.11

Outstanding at end of period		12,490		$	51.66

The fair market value of RSAs and RSUs vested in 2015, 2014 and 2013 was $335 million, $338 million and $285 million, respectively.

As of December 31, 2015, $239 million of unrecognized compensation cost related to RSAs and RSUs is expected to be recognized as expense over approximately the next two years.

Cash Dividends

On February 13, May 15, August 14 and November 16, 2015, AbbVie paid quarterly cash dividends of $0.49, $0.51, $0.51 and $0.51 per share of common stock, respectively, which were declared by the board of directors on October 20, 2014 and February 19, June 18, and September 11, 2015 respectively. The dividends declared on October 20, 2014 and February 19, 2015, represented an increase of nearly 17 percent and approximately 4 percent, respectively, over the previous quarterly rates of $0.42 per share and $0.49 per share, respectively. On October 30, 2015, the company announced that its board of directors declared an increase in the company's quarterly cash dividend from $0.51 per share to $0.57 per share beginning with the dividend payable on February 16, 2016 to stockholders of record as of January 15, 2016. This reflects an increase of approximately 12 percent over the previous quarterly rate.

On February 14, May 15, August 15, and November 17, 2014, AbbVie paid quarterly cash dividends of $0.40, $0.42, $0.42 and $0.42 per share of common stock, respectively, which were declared by the board of directors on December 12, 2013 and February 20, June 19, and September 19, 2014, respectively.

Stock Repurchase Program

On February 15, 2013, AbbVie's board of directors authorized a $1.5 billion stock repurchase program. On October 20, 2014, AbbVie's board of directors authorized a new $5.0 billion stock repurchase program, which was effective immediately and superseded the previous authorization. The current stock repurchase authorization permits purchases of AbbVie shares from time to time in open market or private transactions at management's discretion depending on the company's cash flows, net debt level and market conditions. The program has no time limit and can be discontinued at any time.

In March 2015, the board of directors authorized a $5.0 billion increase to the existing stock repurchase program in anticipation of executing an accelerated share repurchase agreement in connection with the acquisition of Pharmacyclics. On May 26, 2015, AbbVie entered into and executed the $5.0 billion ASR with Morgan Stanley. Pursuant to the terms of ASR, Morgan Stanley made an initial delivery of approximately 68 million shares of AbbVie's common stock on May 27, 2015, which represented approximately 90 percent of the total shares expected to be delivered under the ASR. Morgan Stanley subsequently delivered an additional 5 million shares of AbbVie's common stock to AbbVie in final settlement of the ASR in 2015. AbbVie recorded the aggregate $5.0 billion purchase price as a reduction to common stock held in treasury in the consolidated balance sheet as of December 31, 2015.

In addition to the ASR, AbbVie repurchased approximately 46 million shares, 9 million shares, and 4 million shares for $2.8 billion, $550 million, and $223 million in 2015, 2014 and 2013, respectively, in the open market. AbbVie settled $300 million of its 2015 open market purchases in 2016. Shares repurchased under these programs are recorded at acquisition cost, including related expenses, and are available for general corporate purposes. AbbVie's remaining share repurchase authorization was $1.9 billion as of December 31, 2015.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in each component of AOCI, net of tax, for 2015, 2014 and 2013:

(in millions) (brackets denote losses)	Foreign currency translation adjustments			Pension and post- employment benefits			Unrealized gains (losses) on marketable equity securities			Hedging activities			Total

Balance as of December 31, 2012	$	181		$	(511	)	$	1		$	(21	)	$	(350	)
Other comprehensive income (loss) before reclassifications		48			519			1			(77	)		491
Net losses reclassified from accumulated other comprehensive loss		—			79			—			—			79

Net current-period other comprehensive income (loss)		48			598			1			(77	)		570

Separation-related adjustments		241			(914	)		—			11			(662	)

Balance as of December 31, 2013		470			(827	)		2			(87	)		(442	)

Other comprehensive (loss) income before reclassifications		(1,073	)		(827	)		1			187			(1,712	)
Net losses reclassified from accumulated other comprehensive loss		—			46			—			77			123

Net current-period other comprehensive (loss) income		(1,073	)		(781	)		1			264			(1,589	)

Balance as of December 31, 2014		(603	)		(1,608	)		3			177			(2,031	)

Other comprehensive income before reclassifications		(667	)		147			48			122			(350	)
Net losses (gains) reclassified from accumulated other comprehensive loss		—			83			(4	)		(259	)		(180	)

Net current-period other comprehensive (loss) income		(667	)		230			44			(137	)		(530	)

Balance as of December 31, 2015	$	(1,270	)	$	(1,378	)	$	47		$	40		$	(2,561	)

Other comprehensive loss in 2014 includes foreign currency translation adjustments totaling a loss of $1.1 billion, which was principally driven by (i) the impact of the substantial weakening of the Euro in 2014 on the translation of the company's Euro-denominated assets, and (ii) the weakening of foreign currencies in combination with an increased concentration of cash denominated in foreign currencies accumulated in anticipation of the terminated proposed combination with Shire plc. Other comprehensive loss in 2015 includes foreign currency translation adjustments totaling a loss of $667 million, which was principally driven by the impact of the continued weakening of the Euro on the translation of the company's Euro-denominated assets.

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)		2015			2014			2013

Pension and post-employment benefits
Amortization of actuarial losses and other(a)		$	129		$	66		$	114
Less tax benefit			(46	)		(20	)		(35	)

Total reclassifications, net of tax		$	83		$	46		$	79


Hedging activities
(Gains) losses on designated cash flow hedges(b)		$	(265	)	$	79		$	—
Less tax expense (benefit)			6			(2	)		—

Total reclassifications, net of tax		$	(259	)	$	77		$	—



(a)	Amounts are included in the computation of net periodic benefit cost (see Note 11).
(b)	Amounts are included in cost of products sold (see Note 10).

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, 2015, no shares of preferred stock were issued or outstanding.