(a) Cost information omitted as all investments are fully participant
directed.
Report
of Independent Registered Public Accounting Firm
To
the Plan Participants and the Plan Administrator of the AbbVie Puerto Rico Savings Plan
Opinion
on the Financial Statements
We
have audited the accompanying statements of net assets available for benefits of the AbbVie Puerto Rico Savings Plan (the Plan)
as of December 31, 2020 and 2019, and the related statement of changes in net assets available for benefits for the year ended
December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December
31, 2020 and 2019, and the changes in its net assets available for benefits for the year ended December 31, 2020, in conformity
with U.S. generally accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the
Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan 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. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly,
we express no such opinion.
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.
Supplemental
Schedule
The
accompanying supplemental schedule of assets (held at end of year) as of December 31, 2020, has been subjected to audit procedures
performed in conjunction with the audit of the Plan’s financial statements. The information in the supplemental schedule
is the responsibility of the Plan’s management. Our audit procedures included determining whether the information reconciles
to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the
completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the information,
we evaluated whether such information, including its form and content, is presented in conformity with the Department of Labor’s
Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion,
the information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/
Ernst & Young LLP
We
have served as the Plan’s auditor since 2018.
Chicago,
Illinois
June
21, 2021
AbbVie
Puerto Rico Savings Plan
STATEMENTS
OF NET ASSETS AVAILABLE FOR BENEFITS
December
31, 2020 and 2019
(Dollars
in thousands)
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3
|
|
|
$
|
113
|
|
Investments, at fair value
|
|
|
411,369
|
|
|
|
348,881
|
|
Employer contributions receivable
|
|
|
74
|
|
|
|
2
|
|
Notes receivable from participants
|
|
|
5,353
|
|
|
|
6,687
|
|
Accrued interest and dividend income
|
|
|
4
|
|
|
|
32
|
|
Due from brokers
|
|
|
118
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
416,921
|
|
|
|
355,735
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
-
|
|
|
|
37
|
|
Due to brokers
|
|
|
1
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS AVAILABLE FOR BENEFITS
|
|
$
|
416,920
|
|
|
$
|
355,460
|
|
The accompanying notes are an integral part of these statements.
AbbVie
Puerto Rico Savings Plan
STATEMENT
OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year
ended December 31, 2020
(Dollars
in thousands)
Additions
|
|
|
|
Contributions
|
|
|
|
Employer
|
|
$
|
3,891
|
|
Participant
|
|
|
9,544
|
|
Rollovers
|
|
|
602
|
|
|
|
|
|
|
Total contributions
|
|
|
14,037
|
|
|
|
|
|
|
Investment income
|
|
|
|
|
Net appreciation in fair value of investments
|
|
|
63,208
|
|
Interest and dividends
|
|
|
9,105
|
|
|
|
|
|
|
Net investment income
|
|
|
72,313
|
|
|
|
|
|
|
Interest income on notes receivable from participants
|
|
|
282
|
|
|
|
|
|
|
Total additions
|
|
|
86,632
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
Benefits paid to participants
|
|
|
25,088
|
|
Other expenses
|
|
|
84
|
|
|
|
|
|
|
Total deductions
|
|
|
25,172
|
|
|
|
|
|
|
NET INCREASE
|
|
|
61,460
|
|
|
|
|
|
|
Net assets available for benefits
|
|
|
|
|
Beginning of year
|
|
|
355,460
|
|
|
|
|
|
|
End of year
|
|
$
|
416,920
|
|
The accompanying notes are an integral part of this statement.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE A - DESCRIPTION OF THE PLAN
The following description of the AbbVie Puerto
Rico Savings Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for
a more complete description of the Plan’s provisions.
General
Employees of AbbVie Inc.’s (“AbbVie”)
selected subsidiaries and affiliates in Puerto Rico (the “Company”) may, after meeting certain employment requirements,
voluntarily participate in the Plan. The Plan’s sponsor is AbbVie Ltd. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (“ERISA”), as amended.
Alight Solutions serves as the recordkeeper of
the Plan. The Northern Trust Company (“Custodian”) serves as the custodian. Banco Popular de Puerto Rico serves as
trustee (“Trustee”) of the Plan.
Contributions and Vesting
Contributions to the Plan are paid to the AbbVie
Puerto Rico Savings Plan Trust (“Trust”). The Trust is administered by the Trustee, the Custodian and an investment
committee comprised of AbbVie employees (the “Committee”).
Employees are eligible to make contributions immediately
following their date of hire. Eligible employees electing to participate may contribute from 2% to 50% of their eligible earnings
to the Trust. Participants may choose to make their contributions from either pretax earnings or after-tax earnings or both, subject
to certain limitations. Participants who have attained age 50 before the end of the Plan year and who are making the maximum pretax
contribution are eligible to make catch-up contributions. Participants’ pretax contributions are a pay conversion feature,
which is a salary deferral option under the provisions of Section 1081.01(d) of the Puerto Rico Internal Revenue Code of 2011 (“Puerto
Rico Code”), as amended. All the contributions are subject to certain limitations of the Puerto Rico Code. Participant contributions
may be invested in any of the investment options offered by the Plan.
Employer contributions to the Plan are made each
payroll period based on the participating employees’ eligible earnings. The amount of the employer contribution is determined
by the Board of Directors of AbbVie and for the year ended December 31, 2020, was 5% of the participant’s eligible earnings
if the employee elected to contribute at least 2% to the Plan. Employer contributions are invested each pay period according to
the employee’s investment elections.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE A - DESCRIPTION OF THE PLAN - Continued
Contributions and Vesting - Continued
The Plan offers a variety of investment options,
including AbbVie common shares. AbbVie was established by the January 1, 2013 separation of Abbott Laboratories (“Abbott”)
into two publicly traded companies. The separation was a tax-free distribution where Abbott shareholders received one share of
AbbVie stock for every share of Abbott held as of the close of business on December 12, 2012, the record date for the distribution.
Effective January 1, 2013, AbbVie participants may no longer make new contributions or transfer new money to purchase Abbott stock
in the Plan; however, they may continue to hold Abbott stock in their Plan accounts.
Participants are at all times fully vested in their
own contributions and earnings thereon. Vesting in employer contributions and earnings thereon is based on the following vesting
schedule:
|
|
Vesting
|
|
Service
|
|
percentage
|
|
Less than two years
|
|
|
0
|
%
|
Two years or more
|
|
|
100
|
%
|
Non-vested portions of employer contributions and
earnings thereon are forfeited as of an employee’s termination date. Forfeitures are used to (1) restore any forfeitures
of participants who returned to service with the Company within a given period of time, (2) pay Plan expenses and (3) reduce future
employer contributions if terminated participants do not return to service within the given period of time. In 2020, approximately
$32,000 of forfeitures were used to reduce AbbVie’s contributions. As of December 31, 2020 and 2019, approximately $4,700
and $7,800, respectively, of forfeitures were available.
Distributions
Following retirement, termination or death, participants
or their beneficiaries receive a distribution in cash, AbbVie common shares or direct rollovers, as applicable. Also, upon retirement,
participants may elect to defer distribution to a future date, but distribution must be made or commence by the 1st
of April following the year the participant reaches age 72 (or 70 ½ if the participant turned 70 ½ before January
1, 2020). Interest, dividends and other earnings will continue to accrue on such deferred amounts. Prior to separation of service,
participants are permitted to withdraw their rollover contributions and their after-tax contributions in shares or in cash, subject
to certain limitations. In-service withdrawals are available in certain circumstances as defined by the Plan. The Plan also permits
hardship withdrawals for participants who meet the criteria outlined in the Plan document.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE A - DESCRIPTION OF THE PLAN - Continued
Distributions - Continued
In response to the pandemic outbreak of a novel
coronavirus (COVID-19), the Puerto Rico Treasury Department issued guidance to authorize special “disaster relief distributions”
from Puerto Rico tax qualified retirement plans for participants experiencing financial hardships associated with the COVID-19
pandemic. The Plan adopted the disaster relief distribution provision and through June 30, 2020, participants were permitted to
take disaster relief distributions up to $25,000 without any early distribution penalties and at special tax rates.
Administrative Expenses
Participants are charged transaction fees for loan
and withdrawal processing and commissions on purchases and sales of AbbVie shares and sales of Abbott stock. Investment fees for
mutual funds and collective trusts are charged against the net assets of the respective fund. The Company pays other record-keeping
and administration fees and Trustee fees, where applicable. Expenses paid by the Company are excluded from these financial statements.
Participant Accounts
Each participant’s account is credited with
the participant’s contributions and employer contributions and allocations of plan earnings, and is charged with any transaction
fees or commissions incurred by the participant. Plan earnings are allocated based on the participant’s share of net earnings
or losses of their respective elected investment options. The benefit to which a participant is entitled is the benefit that can
be provided from the participant’s vested account.
Notes Receivable from Participants
Participants may convert their pretax accounts
to one or two loans to themselves. The borrowing may not exceed the lesser of the current market value of the assets allocated
to their pretax accounts or 50% of all of their Plan accounts up to $50,000, subject to the Puerto Rico Code limitations and restrictions.
Participants pay interest on such borrowings at the prime rate in effect at the time the participant loan is made. Loans must be
repaid within five years (or by the employee’s anticipated retirement date, if sooner) unless the loan is used for the purchase
of the primary residence of the employee, in which case the repayment period can be extended to a period of fifteen years (or until
the employee’s anticipated retirement date, if sooner). Repayment is generally made through periodic payroll deductions but
a loan may be repaid in a lump sum at any time. For employees terminating employment with AbbVie during the repayment period, the
balance of the outstanding loan is netted from their Plan distribution.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements have been prepared using
the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and changes therein, and disclosure of contingent assets and liabilities.
Actual results may differ from those estimates.
Investment Valuation
Investments are reported at fair value. Fair value
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The Plan uses the following methods and significant assumptions to estimate the fair value of investments:
Common stock, mutual funds and collective trust
funds - Valued at the published net asset value (“NAV”) or market price per share.
The fair value hierarchy under the accounting standard
for fair value measurements 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.
|
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- Continued
Investment Valuation - Continued
The following tables set forth the fair value hierarchy
levels of the Plan’s assets at fair value at December 31, (dollars in thousands):
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid balance
plus any accrued but unpaid interest. Delinquent loans are reclassified as distributions based upon the terms of the Plan. No allowance
for credit losses has been recorded as of December 31, 2020 and 2019.
Investment Income Recognition
Purchases and sales of securities are recorded
on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net realized
and unrealized appreciation/depreciation is recorded in the accompanying statement of changes in net assets available for benefits
as net appreciation in fair value of investments.
Payment of Benefits
Benefits are recorded when paid.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE C - INVESTMENTS
A summary of AbbVie common share data as of December
31, is presented below:
|
|
2020
|
|
|
2019
|
|
AbbVie common shares, 1,350,430 and 1,432,689, respectively (dollars in thousands)
|
|
$
|
144,699
|
|
|
$
|
126,850
|
|
Market value per share
|
|
$
|
107.15
|
|
|
$
|
88.54
|
|
In general, the investments provided by the Plan
are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect participant accounts and the amounts reported in the statements of
net assets available for benefits.
NOTE D - RELATED-PARTY AND PARTY-IN-INTEREST
TRANSACTIONS
The Plan holds units of a collective trust fund
managed by the Custodian for the Plan. The Plan also invests in the common stock of AbbVie. These transactions qualify as party-in-interest
transactions; however, they are exempt from the prohibited transaction rules under ERISA. During 2020, the Plan received $6.6 million
in common stock dividends from AbbVie.
Participants pay fees to the recordkeeper for loan
and withdrawal transaction processing and also pay commissions on purchases and sales of AbbVie shares and sales of Abbott stock.
These transactions qualify as permitted party-in-interest transactions.
NOTE E - PLAN TERMINATION
The Plan may be terminated at any time by AbbVie
upon written notice to the Trustee and Committee, and will be terminated if AbbVie completely discontinues its contributions under
the Plan. All participants’ account balances are fully vested upon Plan termination. Upon termination of the Plan, distributions
of each participant’s share in the Trust, as determined by the terms of the Plan, will be made to each participant. At the
present time, AbbVie has no intention of terminating the Plan.
AbbVie Puerto Rico Savings Plan
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2020 and 2019
NOTE F - TAX STATUS
The Plan has received a determination letter from
the Commonwealth of Puerto Rico’s Department of Treasury (“Treasury”) dated August 12, 2020, stating that the
Plan is qualified under Section 1081.01 of the Puerto Rico Code, and, therefore, the related trust is exempt from taxation. Subsequent
to this determination by the Treasury, the Plan was amended. Once qualified, the Plan is required to operate in conformity with
the Puerto Rico Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with
the applicable requirements of the Puerto Rico Code and, therefore, believes that the Plan, as amended, is qualified and the related
trust is tax-exempt.
Accounting principles generally accepted in the
United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the
organization has taken an uncertain position that more likely than not would not be sustained upon examination by the applicable
taxing authorities. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that there are no
uncertain positions taken or expected to be taken. The Plan is subject to routine audits by taxing jurisdictions; however, there
are currently no audits for any tax periods in progress.
NOTE G – SUBSEQUENT EVENTS
The Company has evaluated subsequent events and
other than disclosed below, there were no subsequent events that require recognition or additional disclosure in these financial
statements.
Effective April 1, 2021, Empower Retirement replaced
Alight Solutions as the recordkeeper and Great West Trust Company, LLC replaced The Northern Trust Company as the custodian.
SUPPLEMENTAL SCHEDULE
AbbVie Puerto Rico Savings Plan
EIN: 980429860, Plan Number: 002
SCHEDULE H, LINE 4i - SCHEDULE OF
ASSETS (HELD AT END OF YEAR)
December 31, 2020
(Dollars in thousands)
(a) Cost information omitted as all investments are
fully participant directed.