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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                   

Commission File Number: 001-35565

abbvieimage1a25.jpg
AbbVie Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
32-0375147
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number) 

1 North Waukegan Road
North Chicago, Illinois 60064
Telephone: (847) 932-7900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).        Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Accelerated Filer
☐
Non-Accelerated Filer
☐
Smaller reporting company
☐
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
ABBV
 
New York Stock Exchange
 
 
 
 
Chicago Stock Exchange
As of July 29, 2019, AbbVie Inc. had 1,478,483,838 shares of common stock at $0.01 par value outstanding.



AbbVie Inc. and Subsidiaries
Table of Contents

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


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1



PART I. FINANCIAL INFORMATION

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

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Net revenues
 
$
8,255

 
$
8,278

 
$
16,083

 
$
16,212

 
 
 
 
 
 
 
 
 
Cost of products sold
 
1,819

 
1,934

 
3,513

 
3,861

Selling, general and administrative
 
1,654

 
1,760

 
3,334

 
3,551

Research and development
 
1,291

 
1,322

 
2,580

 
2,566

Acquired in-process research and development
 
91

 
—

 
246

 
69

Other expense
 
—

 
500

 
—

 
500

Total operating costs and expenses
 
4,855

 
5,516

 
9,673

 
10,547

Operating earnings
 
3,400

 
2,762

 
6,410

 
5,665

 
 
 
 
 
 
 
 
 
Interest expense, net
 
309

 
272

 
634

 
523

Net foreign exchange loss
 
6

 
8

 
12

 
16

Other expense, net
 
2,278

 
470

 
2,413

 
317

Earnings before income tax expense
 
807

 
2,012

 
3,351

 
4,809

Income tax expense
 
66

 
29

 
154

 
43

Net earnings
 
$
741

 
$
1,983

 
$
3,197

 
$
4,766

 
 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.49

 
$
1.26

 
$
2.15

 
$
3.00

Diluted earnings per share
 
$
0.49

 
$
1.26

 
$
2.14

 
$
2.99

 
 
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
 
1,480

 
1,568

 
1,480

 
1,579

Weighted-average diluted shares outstanding
 
1,484

 
1,572

 
1,483

 
1,584


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

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

 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions)
2019
 
2018
 
2019
 
2018
Net earnings
$
741

 
$
1,983

 
$
3,197

 
$
4,766

 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax expense (benefit) of $5 for the three months and $6 for the six months ended June 30, 2019 and $(16) for the three months and $(19) for the six months ended June 30, 2018
71

 
(469
)
 
(32
)
 
(280
)
Net investment hedging activities, net of tax expense (benefit) of $(11) for the three months and $8 for the six months ended June 30, 2019 and $61 for the three months and $31 for the six months ended June 30, 2018
(37
)
 
209

 
28

 
105

Pension and post-employment benefits, net of tax expense (benefit) of $6 for the three months and $12 for the six months ended June 30, 2019 and $7 for the three months and $16 for the six months ended June 30, 2018
20

 
49

 
45

 
71

Marketable security activities, net of tax expense (benefit) of $— for the three months and $— for the six months ended June 30, 2019 and $— for the three months and $— for the six months ended June 30, 2018
4

 
5

 
11

 
(2
)
Cash flow hedging activities, net of tax expense (benefit) of $(2) for the three months and $(9) for the six months ended June 30, 2019 and $18 for the three months and $17 for the six months ended June 30, 2018
(33
)
 
197

 
(63
)
 
194

Other comprehensive income (loss)
25

 
(9
)
 
(11
)
 
88

Comprehensive income
$
766

 
$
1,974

 
$
3,186

 
$
4,854


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





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AbbVie Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(in millions, except share data)
June 30,
2019
 
December 31,
2018
 
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and equivalents
$
5,172

 
$
7,289

Short-term investments
244

 
772

Accounts receivable, net
5,482

 
5,384

Inventories
1,895

 
1,605

Prepaid expenses and other
2,307

 
1,895

Total current assets
15,100

 
16,945

 
 
 
 
Investments
1,473

 
1,420

Property and equipment, net
2,879

 
2,883

Intangible assets, net
20,459

 
21,233

Goodwill
15,642

 
15,663

Other assets
1,589

 
1,208

Total assets
$
57,142

 
$
59,352

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Short-term borrowings
$
306

 
$
3,699

Current portion of long-term debt and finance lease obligations
5,335

 
1,609

Accounts payable and accrued liabilities
11,300

 
11,931

Total current liabilities
16,941

 
17,239

 
 
 
 
Long-term debt and finance lease obligations
31,619

 
35,002

Deferred income taxes
1,148

 
1,067

Other long-term liabilities
16,000

 
14,490

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders’ equity (deficit)
 
 
 
Common stock, $0.01 par value, 4,000,000,000 shares authorized, 1,781,055,877 shares issued as of June 30, 2019 and 1,776,510,871 as of December 31, 2018
18

 
18

Common stock held in treasury, at cost, 302,685,326 shares as of June 30, 2019 and 297,686,473 as of December 31, 2018
(24,505
)
 
(24,108
)
Additional paid-in capital
15,028

 
14,756

Retained earnings
3,384

 
3,368

Accumulated other comprehensive loss
(2,491
)
 
(2,480
)
Total stockholders’ equity (deficit)
(8,566
)
 
(8,446
)
 
 
 
 
Total liabilities and equity
$
57,142

 
$
59,352


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

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

(in millions)
Common shares outstanding
 
Common stock
 
Treasury stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive loss
 
Total
Balance at March 31, 2018
1,587

 
$
18

 
$
(13,331
)
 
$
14,519

 
$
4,977

 
$
(2,630
)
 
$
3,553

Net earnings
—

 
—

 
—

 
—

 
1,983

 
—

 
1,983

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(9
)
 
(9
)
Dividends declared
—

 
—

 
—

 
—

 
(1,465
)
 
—

 
(1,465
)
Purchases of treasury stock
(73
)
 
—

 
(7,516
)
 
—

 
—

 
—

 
(7,516
)
Stock-based compensation plans and other
—

 
—

 
2

 
77

 
—

 
—

 
79

Balance at June 30, 2018
1,514

 
$
18

 
$
(20,845
)
 
$
14,596

 
$
5,495

 
$
(2,639
)
 
$
(3,375
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
1,478

 
$
18

 
$
(24,502
)
 
$
14,940

 
$
4,234

 
$
(2,516
)
 
$
(7,826
)
Net earnings
—

 
—

 
—

 
—

 
741

 
—

 
741

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
25

 
25

Dividends declared
—

 
—

 
—

 
—

 
(1,591
)
 
—

 
(1,591
)
Purchases of treasury stock
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
Stock-based compensation plans and other
—

 
—

 
—

 
88

 
—

 
—

 
88

Balance at June 30, 2019
1,478


$
18


$
(24,505
)

$
15,028


$
3,384


$
(2,491
)

$
(8,566
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
1,592

 
$
18

 
$
(11,923
)
 
$
14,270

 
$
5,459

 
$
(2,727
)
 
$
5,097

Adoption of new accounting standards
—

 
—

 
—

 
—

 
(1,733
)
 
—

 
(1,733
)
Net earnings
—

 
—

 
—

 
—

 
4,766

 
—

 
4,766

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
88

 
88

Dividends declared
—

 
—

 
—

 
—

 
(2,997
)
 
—

 
(2,997
)
Purchases of treasury stock
(85
)
 
—

 
(8,947
)
 
—

 
—

 
—

 
(8,947
)
Stock-based compensation plans and other
7

 
—

 
25

 
326

 
—

 
—

 
351

Balance at June 30, 2018
1,514

 
$
18

 
$
(20,845
)
 
$
14,596

 
$
5,495

 
$
(2,639
)
 
$
(3,375
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
1,479

 
$
18

 
$
(24,108
)
 
$
14,756

 
$
3,368

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

 
—

 
—

 
—

 
3,197

 
—

 
3,197

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(11
)
 
(11
)
Dividends declared
—

 
—

 
—

 
—

 
(3,181
)
 
—

 
(3,181
)
Purchases of treasury stock
(5
)
 
—

 
(422
)
 
—

 
—

 
—

 
(422
)
Stock-based compensation plans and other
4

 
—

 
25

 
272

 
—

 
—

 
297

Balance at June 30, 2019
1,478

 
$
18

 
$
(24,505
)
 
$
15,028

 
$
3,384

 
$
(2,491
)
 
$
(8,566
)

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

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

 
Six months ended
June 30,
(in millions) (brackets denote cash outflows)
2019
 
2018
Cash flows from operating activities
 
 
 
Net earnings
$
3,197

 
$
4,766

Adjustments to reconcile net earnings to net cash from operating activities:
 
 
 
Depreciation
232

 
234

Amortization of intangible assets
773

 
654

Change in fair value of contingent consideration liabilities
2,473

 
337

Stock-based compensation
276

 
276

Upfront costs and milestones related to collaborations
321

 
656

Other, net
(10
)
 
118

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(96
)
 
(805
)
Inventories
(288
)
 
(191
)
Prepaid expenses and other assets
(97
)
 
(546
)
Accounts payable and other liabilities
(1,287
)
 
12

Cash flows from operating activities
5,494

 
5,511

 
 
 
 
Cash flows from investing activities
 
 
 
Acquisitions and investments
(440
)
 
(401
)
Acquisitions of property and equipment
(235
)
 
(233
)
Purchases of investment securities
(558
)
 
(637
)
Sales and maturities of investment securities
1,066

 
1,511

Cash flows from investing activities
(167
)
 
240

 
 
 
 
Cash flows from financing activities
 
 
 
Net change in commercial paper borrowings
(393
)
 
111

Proceeds from issuance of other short-term borrowings
—

 
3,000

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

Repayments of long-term debt and finance lease obligations
(4
)
 
(3,013
)
Debt issuance costs
(171
)
 
—

Dividends paid
(3,180
)
 
(2,668
)
Purchases of treasury stock
(623
)
 
(8,947
)
Proceeds from the exercise of stock options
5

 
64

Payments of contingent consideration liabilities
(108
)
 
(39
)
Other, net
21

 
5

Cash flows from financing activities
(7,453
)
 
(11,487
)
Effect of exchange rate changes on cash and equivalents
9

 
(20
)
Net change in cash and equivalents
(2,117
)
 
(5,756
)
Cash and equivalents, beginning of period
7,289

 
9,303

 
 
 
 
Cash and equivalents, end of period
$
5,172

 
$
3,547


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

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

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

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

Interest Expense, Net
 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions)
 
2019
 
2018
 
2019
 
2018
Interest expense
 
$
358

 
$
320

 
$
745

 
$
629

Interest income
 
(49
)
 
(48
)
 
(111
)
 
(106
)
Interest expense, net
 
$
309

 
$
272

 
$
634

 
$
523


Inventories
(in millions)
June 30, 2019
 
December 31, 2018
Finished goods
$
638

 
$
473

Work-in-process
969

 
862

Raw materials
288

 
270

Inventories
$
1,895

 
$
1,605


Property and Equipment
(in millions)
June 30, 2019
 
December 31, 2018
Property and equipment, gross
$
8,443

 
$
8,396

Accumulated depreciation
(5,564
)
 
(5,513
)
Property and equipment, net
$
2,879

 
$
2,883


Depreciation expense was $114 million for the three months and $232 million for the six months ended June 30, 2019 and $119 million for the three months and $234 million for the six months ended June 30, 2018.
Note 3    Earnings Per Share
 

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


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

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Basic EPS
 
 
 
 
 
 
 
 
Net earnings
 
$
741

 
$
1,983

 
$
3,197

 
$
4,766

Earnings allocated to participating securities
 
8

 
10

 
17

 
22

Earnings available to common shareholders
 
$
733

 
$
1,973

 
$
3,180

 
$
4,744

Weighted-average basic shares outstanding
 
1,480

 
1,568

 
1,480

 
1,579

Basic earnings per share
 
$
0.49

 
$
1.26

 
$
2.15

 
$
3.00

 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
Net earnings
 
$
741

 
$
1,983

 
$
3,197

 
$
4,766

Earnings allocated to participating securities
 
8

 
10

 
17

 
22

Earnings available to common shareholders
 
$
733

 
$
1,973

 
$
3,180

 
$
4,744

Weighted-average shares of common stock outstanding
 
1,480

 
1,568

 
1,480

 
1,579

Effect of dilutive securities
 
4

 
4

 
3

 
5

Weighted-average diluted shares outstanding
 
1,484

 
1,572

 
1,483

 
1,584

Diluted earnings per share
 
$
0.49