Equity

12 Months Ended

Dec. 31, 2020

Stock-Based Compensation

AbbVie grants stock-based awards to eligible employees pursuant to the AbbVie 2013 Incentive Stock Program (2013 ISP), which provides for several different forms of benefits, including nonqualified stock options, RSUs and various performance-based awards. Under the 2013 ISP, 100 million shares of AbbVie common stock were reserved for issuance as awards to AbbVie employees. The 2013 ISP also facilitated the assumption of certain awards granted under Abbott’s incentive stock program, which were adjusted and converted into Abbott and AbbVie stock-based awards as a result of AbbVie's separation from Abbott.

AbbVie measures compensation expense for stock-based awards based on the grant date fair value of the awards and the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for

stock-based awards is amortized over the service period, which could be shorter than the vesting period if an employee is retirement eligible. Retirement eligible employees generally are those who are age 55 or older and have at least 10 years of service.

Stock-based compensation expense is principally related to awards issued pursuant to the 2013 ISP and is summarized as follows:


years ended December 31 (in millions)	2020		2019		2018
Cost of products sold	$	47	$	29	$	27
Research and development	247		171		169
Selling, general and administrative	459		230		225
Pre-tax compensation expense	753		430		421
Tax benefit	131		80		73
After-tax compensation expense	$	622	$	350	$	348

Realized excess tax benefits associated with stock-based compensation totaled $34 million in 2020, $15 million in 2019 and $78 million in 2018.

Stock Options

Stock options awarded to employees typically have a contractual term of 10 years and generally vest in one-third increments over a three-year period. The exercise price is equal to at least 100% of the market value on the date of grant. The fair value is determined using the Black-Scholes model. The weighted-average grant-date fair values of stock options granted were $12.14 in 2020, $12.54 in 2019 and $21.63 in 2018.

In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 11.2 million stock options to holders of Allergan options as a result of the conversion of such options. These options were fair-valued using a lattice valuation model. Refer to Note 5 for additional information regarding the Allergan acquisition.

The following table summarizes AbbVie stock option activity in 2020:


(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, 2019	6,761	$	60.39	5.9	$	207
Granted	1,995	93.50
Granted in acquisition	11,152	70.48
Exercised	(4,129)	51.29
Lapsed	(88)	107.33
Outstanding at December 31, 2020	15,691	$	73.90	4.7	$	559
Exercisable at December 31, 2020	12,440	$	69.99	3.6	$	498

The total intrinsic value of options exercised was $186 million in 2020, $22 million in 2019 and $215 million in 2018. The total fair value of options vested during 2020 was $292 million. As of December 31, 2020, $13 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. For awards granted in 2020, performance is based on AbbVie's return on invested capital (ROIC) relative to a defined peer group of pharmaceutical, biotech and life science companies. For awards granted in 2018 and 2019, the tranches tied to 2020 performance are based on AbbVie’s return on equity (ROE) relative to a defined peer group of pharmaceutical, biotech and life sciences 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.

The following table summarizes AbbVie RSU and performance share activity for 2020:


(share units in thousands)	Share units	Weighted-average grant date fair value
Outstanding at December 31, 2019	10,232	$	81.72
Granted	5,524	92.35
Granted in acquisition	8,234	83.96
Vested	(6,667)	80.09
Forfeited	(1,405)	84.13
Outstanding at December 31, 2020	15,918	$	87.03

The fair market value of RSUs and performance shares (as applicable) vested was $618 million in 2020, $371 million in 2019 and $583 million in 2018.

In connection with the Allergan acquisition, during the second quarter of 2020, AbbVie issued 8.2 million RSUs to holders of Allergan equity awards based on a conversion factor described in the transaction agreement. Refer to Note 5 for additional information regarding the Allergan acquisition.

As of December 31, 2020, $579 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 $4.84 in 2020, $4.39 in 2019 and $3.95 in 2018. The following table summarizes quarterly cash dividends declared during 2020, 2019 and 2018:

2020

2019

2018

Date Declared

Payment Date

Dividend Per Share

Date Declared

Payment Date

Dividend Per Share

Date Declared

Payment Date

Dividend Per Share

10/30/20

02/16/21

$1.30

11/01/19

02/14/20

$1.18

11/02/18

02/15/19

$1.07

09/11/20

11/16/20

$1.18

09/06/19

11/15/19

$1.07

09/07/18

11/15/18

$0.96

06/17/20

08/14/20

$1.18

06/20/19

08/15/19

$1.07

06/14/18

08/15/18

$0.96

02/20/20

05/15/20

$1.18

02/21/19

05/15/19

$1.07

02/15/18

05/15/18

$0.96

Stock Repurchase Program

The company's stock repurchase authorization permits purchases of AbbVie shares from time to time in open-market or private transactions at management’s discretion. The program has no time limit and can be discontinued at any time. Shares repurchased under these programs are recorded at acquisition cost, including related expenses and are available for general corporate purposes.

AbbVie repurchased 8 million shares for $757 million in 2020 and 4 million shares for $300 million in 2019. AbbVie's remaining stock repurchase authorization was $3.2 billion as of December 31, 2020.

On February 15, 2018, AbbVie's board of directors authorized a new $10.0 billion stock repurchase program, which superseded AbbVie's previous stock repurchase program. On December 13, 2018, AbbVie's board of directors authorized a $5.0 billion increase to the existing $10.0 billion stock repurchase program. Under this authorization, AbbVie repurchased approximately 109 million shares for $10.7 billion in 2018.

Under previous stock repurchase programs, AbbVie made open-market share repurchases of approximately 11 million shares for $1.3 billion in 2018.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for 2020, 2019 and 2018:


(in millions) (brackets denote losses)	Foreign currency translation adjustments		Net investment hedging activities		Pension and post-employment benefits		Marketable security activities		Cash flow hedging activities		Total
Balance as of December 31, 2017	$	(439)	$	(203)	$	(1,919)	$	—	$	(166)	$	(2,727)
Other comprehensive income (loss) before reclassifications	(391)		138		84		(14)		156		(27)
Net losses reclassified from accumulated other comprehensive loss	—		—		113		4		157		274
Net current-period other comprehensive income (loss)	(391)		138		197		(10)		313		247
Balance as of December 31, 2018	(830)		(65)		(1,722)		(10)		147		(2,480)
Other comprehensive income (loss) before reclassifications	(98)		95		(1,330)		12		298		(1,023)
Net losses (gains) reclassified from accumulated other comprehensive loss	—		(21)		87		(2)		(157)		(93)
Net current-period other comprehensive income (loss)	(98)		74		(1,243)		10		141		(1,116)
Balance as of December 31, 2019	(928)		9		(2,965)		—		288		(3,596)
Other comprehensive income (loss) before reclassifications	1,511		(785)		(300)		—		(108)		318
Net losses (gains) reclassified from accumulated other comprehensive loss	—		(14)		198		—		(23)		161
Net current-period other comprehensive income (loss)	1,511		(799)		(102)		—		(131)		479
Balance as of December 31, 2020	$	583	$	(790)	$	(3,067)	$	—	$	157	$	(3,117)

Other comprehensive income (loss) included foreign currency translation adjustments totaling gains of $1.5 billion in 2020 which were principally due to the impact of the strengthening of the Euro on the translation of the company’s Euro-denominated assets. Other comprehensive income (loss) included foreign currency translation adjustments totaling losses of $98 million in 2019 and $391 million in 2018 which were principally due to the impact of the weakening of the Euro on the translation of the company’s Euro-denominated assets.

Other comprehensive loss for 2019 included pension and post-employment benefit plan losses of $1.2 billion primarily due to an actuarial loss driven by lower discount rates. See Note 12 for additional information.

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)	2020		2019		2018
Net investment hedging activities
Gains on derivative amount excluded from effectiveness testing(a)	$	(18)	$	(27)	$	—
Tax expense	4		6		—
Total reclassifications, net of tax	$	(14)	$	(21)	$	—
Pension and post-employment benefits
Amortization of actuarial losses and other(b)	$	251	$	110	$	141
Tax benefit	(53)		(23)		(28)
Total reclassifications, net of tax	$	198	$	87	$	113
Cash flow hedging activities
Losses (gains) on foreign currency forward exchange contracts(c)	$	(23)	$	(167)	$	161
Gains on treasury rate lock agreements(a)	(24)		(3)		—
Losses (gains) on interest rate swap contracts(a)	17		(1)		—
Tax expense (benefit)	7		14		(4)
Total reclassifications, net of tax	$	(23)	$	(157)	$	157

(a)Amounts are included in interest expense, net (see Note 11).

(b)Amounts are included in the computation of net periodic benefit cost (see Note 12).

(c)Amounts are included in cost of products sold (see Note 11).

Other

In addition to common stock, AbbVie's authorized capital includes 200 million shares of preferred stock, par value $0.01. As of December 31, 2020, no shares of preferred stock were issued or outstanding.