Note 10Equity

Stock-Based Compensation

Stock-based compensation expense was $55 million and $44 million for the three months ended September 30, 2015 and 2014, respectively, and $229 million and $198 million for the nine months ended September 30, 2015 and 2014, respectively, and is principally classified in SG&A expense with the remainder classified in R&D expense and cost of products sold.

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.

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 awards have been granted to Abbott employees other than in connection with the separation.

Stock Options

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

The fair value of stock options is determined using the Black-Scholes model. The weighted-average grant-date fair values of the stock options granted during the nine months ended September 30, 2015 and 2014 were $9.96 and $9.83, respectively. Stock-based compensation expense attributable to options during each of the periods presented was not material.

The following table summarizes AbbVie stock option activity for both AbbVie and Abbott employees for the nine months ended September 30, 2015:

(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, 2014	28,280		$ 28.53	3.3	$ 1,044
Granted	1,207		58.83
Exercised	(5,002	)	26.71
Lapsed	(43	)	27.39

Outstanding at September 30, 2015	24,442		30.40	3.2	$ 592

Exercisable at September 30, 2015	21,964		$ 27.99	2.6	$ 580

The aggregate intrinsic value in the table above represents the difference between the exercise price and the company’s closing stock price on the last day of trading for the nine months ended September 30, 2015. The total intrinsic value of options exercised was $43 million and $39 million for the three months ended September 30, 2015 and 2014, respectively, and $186 million and $150 million for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, $6 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over approximately the next two years.

RSAs & RSUs

The following table summarizes AbbVie RSA and RSU activity (including performance-based awards) for both AbbVie and Abbott employees for the nine months ended September 30, 2015:

(share units in thousands)	Share units		Weighted-average grant date fair value
Outstanding at December 31, 2014	12,815		$ 40.98
Granted	5,863		61.03
Vested	(5,608	)	37.36
Lapsed	(456	)	48.77

Outstanding at September 30, 2015	12,614		$ 51.62

The weighted-average grant date fair value per share of RSAs and RSUs (including performance-based awards) is determined based on the number of shares granted and the quoted price of the company’s common stock on the date of the grant. The fair market value of RSAs and RSUs vested was $6 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and $330 million and $332 million for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, $278 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 September 11, 2015, the board of directors declared a quarterly cash dividend of $0.51 per share. The dividend is payable November 16, 2015 to stockholders of record at the close of business on October 15, 2015. Additionally, on February 13, May 15, and August 14, 2015, AbbVie paid quarterly cash dividends of $0.49, $0.51, and $0.51 per share of common stock, respectively, which were declared by the board of directors on October 20, 2014, February 19, and June 18, 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 rate 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, February 20, 2014, June 19, 2014 and September 19, 2014, respectively.

Stock Repurchase Program

On February 15, 2013, AbbVie’s board of directors authorized a $1.5 billion common 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. This program is expected to be executed over the next several years. The stock repurchase authorization permits purchases of AbbVie shares from time to time in open market or private transactions at management’s direction 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% of the total shares expected to be delivered under the ASR. AbbVie recorded the aggregate $5.0 billion purchase price as a reduction to common stock held in treasury in the condensed consolidated balance sheet as of September 30, 2015. In the three months ended September 30, 2015, Morgan Stanley delivered an additional 5 million shares of AbbVie’s common stock to AbbVie in final settlement of the ASR.

In addition, AbbVie repurchased approximately 21 million shares for $1.2 billion in the open market during the nine months ended September 30, 2015 and approximately 5 million shares for $250 million in the open market during the nine months ended September 30, 2014. Shares repurchased under these programs are recorded at acquisition cost, including related expenses, and are available for general corporate purposes. AbbVie’s remaining stock repurchase authorization was $3.5 billion as of September 30, 2015.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in balances of each component of accumulated other comprehensive loss, net of tax for the nine months ended September 30, 2015:

(in millions) (brackets denote losses)	Foreign currency translation adjustments		Pension and post- employment benefits		Unrealized gains on marketable equity securities		Hedging activities		Total
Balance as of December 31, 2014	$ (603	)	$ (1,608	)	$ 3		$ 177		$ (2,031	)

Other comprehensive (loss) income before reclassifications	(464	)	23		—		78		(363	)
Amounts reclassified from accumulated other comprehensive loss	—		68		(4	)	(169	)	(105	)

Net current-period other comprehensive (loss) income	(464	)	91		(4	)	(91	)	(468	)

Balance as of September 30, 2015	$ (1,067	)	$ (1,517	)	$ (1	)	$ 86		$ (2,499	)

Other comprehensive loss for the nine months ended September 30, 2015 includes foreign currency translation adjustments totaling a loss of $464 million, which was principally driven by the impact of the continued weakening of the Euro in the nine months ended September 30, 2015 on the translation of the company’s Euro-denominated assets.

The following table summarizes the changes in balances of each component of accumulated other comprehensive loss, net of tax for the nine months ended September 30, 2014:

(in millions) (brackets denote losses)	Foreign currency translation adjustments		Pension and post- employment benefits		Unrealized gains on marketable equity securities		Hedging activities		Total
Balance as of December 31, 2013	$ 470		$ (827	)	$ 2		$ (87	)	$ (442	)


Other comprehensive (loss) income before reclassifications	(714	)	—		(1	)	142		(573	)
Amounts reclassified from accumulated other comprehensive loss	—		43		—		59		102


Net current-period other comprehensive (loss) income	(714	)	43		(1	)	201		(471	)


Balance as of September 30, 2014	$ (244	)	$ (784	)	$ 1		$ 114		$ (913	)

The table below presents the impact on AbbVie’s condensed consolidated statements of earnings for significant amounts reclassified out of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2015 and 2014:

	Three months ended September 30,				Nine months ended September 30,
(in millions) (brackets denote gains)	2015		2014		2015		2014
Pension and post-employment benefits
Amortization of actuarial losses and other (a)	$ 31		$ 27		$ 96		$ 59
Less tax benefit	(10	)	(7	)	(28	)	(16	)

Total reclassification, net of tax	$ 21		$ 20		$ 68		$ 43

Hedging activities
(Gains) losses on designated cash flow hedges (b)	$ (89	)	$ 23		$ (171	)	$ 59
Less tax expense	—		—		2		—

Total reclassification, net of tax	$ (89	)	$ 23		$ (169	)	$ 59

(a) Amounts are included in the computation of net periodic benefit cost (see Note 9).

(b) Amounts are included in cost of products sold (see Note 8).