|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2015
|
|
Total
Change
|
|
Impact of
Exchange
|
|
Total
Change
Excl.
Exchange
|
|
Total Established Pharmaceuticals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Emerging Markets
|
|
$
|
2,781
|
|
|
17
|
%
|
|
(15
|
)%
|
|
32
|
%
|
Other
|
|
|
939
|
|
|
28
|
|
|
(12
|
)
|
|
40
|
|
Nutritionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pediatric Nutritionals
|
|
|
2,378
|
|
|
1
|
|
|
(7
|
)
|
|
8
|
|
U.S. Pediatric Nutritionals
|
|
|
1,592
|
|
|
4
|
|
|
|
|
|
4
|
|
International Adult Nutritionals
|
|
|
1,729
|
|
|
(2
|
)
|
|
(11
|
)
|
|
9
|
|
U.S. Adult Nutritionals
|
|
|
1,276
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immunochemistry
|
|
|
3,529
|
|
|
(2
|
)
|
|
(10
|
)
|
|
8
|
|
Vascular Products (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coronary Devices
|
|
|
2,176
|
|
|
(7
|
)
|
|
(8
|
)
|
|
1
|
|
Endovascular
|
|
|
520
|
|
|
(1
|
)
|
|
(7
|
)
|
|
6
|
|
-
(2)
-
Coronary
Devices include DES / BVS product portfolio, structural heart, guidewires, balloon catheters, and other coronary products. Endovascular includes vessel
closure, carotid stents and other peripheral products.
Excluding
the unfavorable impact of foreign exchange, total Established Pharmaceutical Products sales increased 10.5 percent in 2016 and 34.1 percent in 2015. The
Established Pharmaceutical Products
31
segment
is focused on several key emerging markets including India, Russia, China and Brazil. Excluding the impact of foreign exchange, sales in these key emerging markets increased
13.3 percent in 2016 and 32.4 percent in 2015. Excluding the impact of foreign exchange, sales in Established Pharmaceuticals' other emerging markets increased 2.0 percent in 2016
and increased 39.6 percent in 2015. The increase in 2015 includes the impact of the acquisitions of CFR Pharmaceuticals in September 2014 and Veropharm in December 2014. Excluding sales from
the acquisitions and the impact of foreign exchange, revenues increased 13.4 percent in 2015.
Excluding
the unfavorable impact of foreign exchange, total Nutritional Products sales increased 1.2 percent in 2016 and 5.5 percent in 2015. In Abbott's International
Pediatric Nutritional business, the 2016 decrease in sales was driven by challenging market conditions in China, including the impact of new food safety regulations which will require the
re-registration by 2018 of all infant and toddler formulas, contributing to an oversupply of product in the market. The sales decrease in China was partially offset by continued strong performance in
several markets across Latin America and Southeast Asia. The increase in 2016 U.S. Pediatric Nutritional sales primarily reflects above-market performance in Abbott's PediaSure® toddler
brand as well as recent infant product launches including Similac® Advance® Non-GMO and Similac Sensitive® Non-GMO.
Excluding
the unfavorable impact of foreign exchange, the 2016 and 2015 increases in International Adult Nutritional sales are due primarily to volume growth in emerging markets and
continued expansion of the adult nutrition category internationally. The increase in 2016 U.S. Adult Nutritional revenues was driven by the growth of Ensure® sales and the decrease in 2015
reflected the effects of increased competition and market dynamics in retail and institutional categories.
Excluding
the unfavorable impact of foreign exchange, total Diagnostic Products sales increased 5.5 percent in 2016 and 7.3 percent in 2015. The sales increases were
primarily driven by share gains in the Core Laboratory and Point of Care markets in the U.S. and internationally. 2016 and 2015 sales of immunochemistry products, the largest category in this segment,
reflect continued execution of Abbott's strategy to deliver integrated solutions to large healthcare customers.
Excluding
the unfavorable impact of foreign exchange, total Vascular Products sales grew 4.5 percent in 2016 and 1.3 percent in 2015. In 2016, double-digit growth in sales of Abbott's
MitraClip
structural heart
device for the treatment of mitral regurgitation was partially offset by lower sales of DES products. The increase in the
Endovascular business was driven by higher
Supera
and vessel closure sales. Vascular Products sales in 2016 were also favorably impacted by the
resolution of previously disputed third party royalty revenue related to the prior year. Excluding this royalty impact, worldwide sales of Vascular Products would have increased 3.4 percent in
2016. In 2015, growth of Abbott's
MitraClip
structural heart product, its Endovascular business, including the
Supera
peripheral stent, and the
Absorb
bioresorbable vascular scaffold in various international markets
was almost entirely offset by pricing pressures in DES products.
Abbott
has periodically sold product rights to non-strategic products and has recorded the related gains in net sales in accordance with Abbott's revenue recognition policies as
discussed in Note 1 to the consolidated financial statements. Related net sales were not significant in 2016, 2015 and 2014.
The
expiration of licenses and patent protection can affect the future revenues and operating income of Abbott. There are no significant patent or license expirations in the next three
years that are expected to affect Abbott.
Operating Earnings
Gross profit margins were 54.1 percent of net sales in 2016, 54.2 percent in 2015 and 51.7 percent in 2014. In 2016, the
unfavorable effect of foreign exchange offset continued underlying margin expansion,
32
primarily
in the Diagnostics and Nutritional segments. The improvement in 2015 reflects higher margins in the Nutritional, Diagnostics, and Vascular Products segments.
In
the U.S., states receive price rebates from manufacturers of infant formula under the federally subsidized Special Supplemental Nutrition Program for Women, Infants, and Children.
There are also rebate programs for pharmaceutical products in numerous countries. These rebate programs continue to have a negative effect on the gross profit margins of the Nutritional and
Established Pharmaceutical Products segments.
Research
and development expense was $1.422 billion in 2016, $1.405 billion in 2015, and $1.345 billion in 2014 and represented a 1.2 percent increase in
2016, and a 4.5 percent increase in 2015. The 2016 increase in research and development expenses was primarily due to higher spending on various projects and the impairment of an in-process
research and development asset related to a non-reportable segment, partially offset by lower restructuring costs in 2016. In 2016, research and development expenditures totaled $513 million
for the Diagnostics Products segment, $259 million for the Vascular Products segment, $205 million for the Nutritional Products segment, and $137 million for the Established
Pharmaceutical Products segment.
Selling,
general and administrative expenses decreased 1.7 percent in 2016 and increased 3.9 percent in 2015 versus the respective prior year. The 2016 decrease reflects
the favorable impact of foreign exchange, continued efforts to reduce back office costs, and lower restructuring charges compared to the prior year. The 2015 increase reflects the impact of the CFR
and Veropharm acquisitions, partially offset by the impact of cost improvement initiatives and the favorable impact of foreign exchange.
Business Acquisitions
On January 4, 2017, Abbott completed the acquisition of St. Jude Medical, a global medical device manufacturer, for approximately
$23.6 billion, including approximately $13.6 billion in cash and approximately $10 billion in Abbott common shares, which represented approximately 254 million shares of
Abbott common stock, based on Abbott's closing stock price on the acquisition date. As part of the acquisition, approximately $5.8 billion of St. Jude Medical's debt was assumed or
refinanced by Abbott. The transaction provides expanded opportunities for future growth and is an important part of the company's ongoing effort to develop a strong, diverse portfolio of devices,
diagnostics, nutritionals and branded generic pharmaceuticals. The combined company will compete in nearly every area of the $30 billion cardiovascular market, as well as in the neuromodulation
market. As the acquisition of St. Jude Medical was completed after December 31, 2016, Abbott's consolidated
financial statements do not include the financial condition or the operating results of St. Jude Medical in any of the periods presented herein.
Under
the terms of the agreement, for each St. Jude Medical common share, St. Jude Medical shareholders received $46.75 in cash and 0.8708 of an Abbott common share. At an
Abbott stock price of $39.36, which reflects the closing price on January 4, 2017, this represented a value of approximately $81 per St. Jude Medical common share and total
purchase consideration of $23.6 billion. The cash portion of the acquisition was funded through a combination of medium and long-term debt issued in November of 2016 and a $2.0 billion
120-day senior unsecured bridge term loan facility. See Note 10 Debt and Lines of Credit for further details regarding these financing arrangements.
33
The
preliminary allocation of the fair value of the St. Jude Medical acquisition is shown in the table below. The allocation of the fair value of the acquisition will be finalized
when the valuation is completed and differences between the preliminary and final allocation could be material.
|
|
|
|
|
(in billions)
|
|
|
|
Acquired intangible assets, non-deductible
|
|
$
|
16.0
|
|
Goodwill, non-deductible
|
|
|
14.8
|
|
Acquired net tangible assets
|
|
|
3.0
|
|
Deferred income taxes recorded at acquisition
|
|
|
(5.0
|
)
|
Net debt
|
|
|
(5.2
|
)
|
|
|
|
|
|
Total preliminary allocation of fair value
|
|
$
|
23.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If
the acquisition of St. Jude Medical had occurred at the beginning of 2016, unaudited pro forma consolidated net sales would have been approximately $26.8 billion and
unaudited pro forma consolidated net earnings would have been $157 million, which includes the amortization of approximately $700 million of inventory step-up. The unaudited pro forma
information is not necessarily indicative of the consolidated results of operations that would have been realized had the St. Jude Medical acquisition been completed as of the beginning of
2016, nor is it meant to be indicative of future results of operations that the combined entity will experience.
In
2016, Abbott and St. Jude Medical agreed to sell certain products to Terumo Corporation for approximately $1.12 billion. The sale includes the St. Jude Medical
Angio-Seal and
Femoseal vascular closure products and Abbott's Vado® Steerable Sheath. The sale closed on January 20, 2017.
On
January 30, 2016, Abbott entered into a definitive agreement to acquire Alere Inc., a diagnostic device and service provider, for $56.00 per common share in cash. The
acquisition is subject to satisfaction of customary closing conditions, including the accuracy of Alere's representations and warranties (subject to certain materiality qualifications), compliance in
all material respects with Alere's covenants and receipt of applicable regulatory approvals. Due to a number of adverse developments that have occurred with respect to Alere since the date of the
agreement, Abbott has filed a complaint in the Delaware Court of Chancery seeking to terminate the acquisition agreement on the basis that Alere has experienced a "material adverse effect" under the
acquisition agreement and has materially breached certain of its covenants.
In
August 2015, Abbott completed the acquisition of the equity of Tendyne Holdings, Inc. (Tendyne) that Abbott did not already own for approximately $225 million in cash
plus additional payments up to $150 million to be made upon completion of certain regulatory milestones. The acquisition of Tendyne, which is focused on developing minimally invasive mitral
valve replacement therapies, allows Abbott to broaden its foundation in the treatment of mitral valve disease. The final allocation of the fair value of the acquisition resulted in non-deductible
acquired in-process research and development of approximately $220 million, which is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation,
non-deductible goodwill of approximately $142 million, deferred tax assets and other net assets of approximately $18 million, deferred tax liabilities of approximately
$85 million, and contingent consideration of approximately $70 million. The goodwill is identifiable to the Vascular Products segment.
In
September 2014, Abbott completed the acquisition of the controlling interest in CFR Pharmaceuticals S.A. (CFR) for approximately $2.9 billion in cash
($2.8 billion net of CFR cash on hand at closing). Including the assumption of approximately $570 million of debt, the total cost of the acquisition was $3.4 billion. The
acquisition of CFR more than doubles Abbott's branded generics pharmaceutical presence in Latin America and further expands its presence in emerging markets. CFR's financial results are included in
Abbott's financial statements beginning on September 26, 2014, the date that Abbott acquired control of this business. Abbott currently owns 100% of CFR. The fair value of the non-controlling
interest at the acquisition date was approximately $3 million. The acquisition was funded
34
with
cash and cash equivalents and short-term investments. The final allocation of the fair value of the acquisition is shown in the table below.
|
|
|
|
|
(in billions)
|
|
|
|
Acquired intangible assets, non-deductible
|
|
$
|
1.87
|
|
Goodwill, non-deductible
|
|
|
1.42
|
|
Acquired net tangible assets
|
|
|
0.03
|
|
Deferred income taxes recorded at acquisition
|
|
|
(0.40
|
)
|
|
|
|
|
|
Total final allocation of fair value
|
|
$
|
2.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
intangible assets consist primarily of product rights for currently marketed products and are amortized over 12 to 16 years (weighted average of 15 years). The
goodwill is primarily attributable to intangible assets that do not qualify for separate recognition. The goodwill is identifiable to the Established Pharmaceutical Products segment. The acquired
tangible assets consist primarily of cash and cash equivalents of approximately $94 million, trade accounts receivable of approximately $180 million, inventory of approximately
$169 million, other current assets of approximately $51 million, property and equipment of approximately $210 million, and other long-term assets of approximately
$145 million. Assumed liabilities consist of borrowings of approximately $570 million, trade accounts payable and other current liabilities of approximately $240 million and other
non-current liabilities of
approximately $14 million. Net sales for CFR Pharmaceuticals totaled approximately $750 million in 2015.
In
December 2014, Abbott acquired control of Veropharm, a leading Russian pharmaceutical company for approximately $315 million excluding assumed debt, plus a subsequent
$5 million payment related to a working capital adjustment. Through this acquisition, Abbott establishes a manufacturing footprint in Russia and obtains a portfolio of medicines that is well
aligned with Abbott's current pharmaceutical therapeutic areas of focus. Abbott acquired control of Veropharm through its purchase of Limited Liability Company Garden Hills, the holding company that
owns approximately 98 percent of Veropharm. Including the assumption of approximately $90 million of debt and a non-controlling interest with a fair value of $5 million, the total
value of the acquired business was approximately $415 million. The final allocation of the fair value of the acquisition resulted in definite-lived non-deductible intangible assets of
approximately $100 million, non-deductible goodwill of approximately $140 million, and net deferred tax liabilities of approximately $25 million. Non-deductible goodwill is
identifiable with the Established Pharmaceutical Products segment. Additionally, Abbott acquired property, plant, and equipment of approximately $150 million, accounts receivable of
approximately $45 million, inventory of approximately $25 million, and net liabilities of approximately $20 million. Acquired intangible assets consist of developed technology and
are being amortized over 16 years. In 2015, Abbott acquired the remaining shares of Veropharm, increasing its ownership to 100 percent.
In
December 2014, Abbott completed the acquisition of Topera, Inc. for approximately $250 million in cash, plus additional payments up to $300 million to be made
upon completion of certain regulatory and sales milestones. The acquisition of Topera provides Abbott a foundational entry in the electrophysiology market. The final allocation of the fair value of
the acquisition resulted in non-deductible acquired in-process research and development of approximately $60 million, which is accounted for as an indefinite-lived intangible asset until
regulatory approval or discontinuation, non-deductible definite-lived intangible assets of approximately $215 million, non-deductible goodwill of approximately $145 million, net deferred
tax liabilities of approximately $80 million, and contingent consideration of approximately $90 million. The fair value of the contingent consideration was determined based on an
independent appraisal. Acquired intangible assets consist of developed technology and trademarks, and are being amortized over 17 years.
Except
for the St. Jude Medical acquisition, had the aggregate in each year of the above acquisitions taken place as of the beginning of the comparable prior annual reporting
period, consolidated net sales and earnings would not have been significantly different from reported amounts.
35
Restructurings
In 2016, 2015 and 2014, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various
Abbott businesses including the nutritional, established pharmaceuticals and vascular businesses. Abbott recorded employee-related severance and other charges of approximately $33 million in
2016, $95 million in 2015 and $164 million in 2014. Approximately $9 million in 2016, $18 million in 2015 and $20 million in 2014 are recorded in Cost of products
sold, approximately $5 million in 2016, $34 million in 2015 and $53 million in 2014 are recorded in Research and development and approximately $19 million in 2016,
$43 million in 2015 and $91 million in 2014 are recorded in Selling, general and administrative expense. Additional charges of approximately $2 million in 2016, $45 million
in 2015 and $39 million in 2014 were recorded primarily for accelerated depreciation.
From
2013 to 2015, Abbott management approved various plans to reduce costs and improve efficiencies across various functional areas. In 2013, Abbott management also approved plans to
streamline certain manufacturing operations in order to reduce costs and improve efficiencies in Abbott's established pharmaceuticals business. In 2012, Abbott management approved plans to streamline
various commercial operations in order to reduce costs and improve efficiencies in Abbott's core diagnostics, established pharmaceuticals and nutritionals businesses. Abbott recorded employee-related
severance charges of approximately $18 million in 2016, $66 million in 2015 and $125 million in 2014. Approximately $4 million in 2016, $9 million in 2015 and
$7 million in 2014 are recorded in Cost of products sold, approximately $2 million in 2015 and $6 million in 2014 are recorded in Research and development, and approximately
$14 million in 2016, $55 million in 2015 and $112 million in 2014 are recorded in Selling, general and administrative expense.
Interest Expense and Interest (Income)
In 2016, interest expense increased primarily due to the amortization of bridge financing fees related to the financing of the St. Jude
Medical acquisition, which closed on January 4, 2017, and the pending Alere acquisition. Interest expense in 2016 also increased due to the $15.1 billion of debt issued in November 2016.
In 2015, interest expense increased due to the issuance of $2.5 billion of long-term debt during the year. In 2014, interest expense increased due to a higher level of short-term borrowings
during the year. Interest income increased in 2015 due to a higher return earned on short-term investments during the year.
Other (Income) Expense, net
Other (income) expense, net, for 2016 includes an expense to adjust Abbott's holding of Mylan N.V. ordinary shares due to a decline in
the fair value of the securities which is considered by Abbott to be other than temporary. 2015 includes a pretax gain on the sale of a portion of the Mylan N.V. shares received through the
sale of the developed markets branded generics pharmaceuticals business and income resulting from a decrease in the fair value of contingent consideration related to a business acquisition. 2014
includes charges associated with the impairment of certain equity investments partially offset by gains on sales of investments.
Net Loss on Extinguishment of Debt
In 2014, Abbott extinguished approximately $500 million of long-term debt assumed as part of the CFR Pharmaceuticals acquisition and
incurred a cost of $18.3 million to extinguish this debt.
Taxes on Earnings
The income tax rates on earnings from continuing operations were 24.8 percent in 2016, 18.1 percent in 2015 and
31.6 percent in 2014. In 2016, taxes on earnings from continuing operations include the impact of a net tax benefit of approximately $225 million, primarily as a result of the resolution
of various tax
36
positions
from prior years, partially offset by the unfavorable impact of non-deductible foreign exchange losses related to Venezuela and the adjustment of the Mylan N.V. equity investment as
well as the recognition of deferred taxes associated with the pending sale of AMO. In 2015, taxes on earnings from continuing operations include $71 million of tax expense related to gain on
the disposal of shares of
Mylan N.V. stock. The 2015 effective tax rate includes the impact of the R&D tax credit that was made permanent in the U.S. by the Protecting Americans from Tax Hikes Act of 2015. In 2014,
taxes on earnings from continuing operations include $440 million of tax expense associated with a one-time repatriation of 2014 non-U.S. earnings partially offset by $125 million of tax
benefits related to the resolution of various tax positions and the adjustment of tax uncertainties from prior years.
Exclusive
of these discrete items, tax expense was favorably impacted by lower tax rates and tax exemptions on foreign income primarily derived from operations in Puerto Rico,
Switzerland, Ireland, the Netherlands, and Singapore. Abbott benefits from a combination of favorable statutory tax rules, tax rulings, grants, and exemptions in these tax jurisdictions. See
Note 14 to the consolidated financial statements for a full reconciliation of the effective tax rate to the U.S. federal statutory rate.
Earnings
from discontinued operations, net of tax, in 2016 reflects the recognition of $325 million of net tax benefits primarily as a result of the resolution of various tax
positions related to prior years. 2015 tax expense related to discontinued operations includes $667 million of tax expense on certain current-year funds earned outside of the U.S. that were not
designated as permanently reinvested overseas. Abbott accrued U.S. taxes on approximately $2.2 billion of 2014 earnings generated outside the U.S. in connection with a repatriation of these
earnings. In addition to the $440 million of tax expense discussed above, the repatriation resulted in $82 million of additional tax expense in Abbott's 2014 income from discontinued
operations. Abbott accelerated the utilization of deferred tax assets and therefore cash taxes due in the U.S. on this repatriation were not material.
Discontinued Operations
On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc.
(Mylan) for equity ownership of a newly formed entity (Mylan N.V.) that combined Mylan's existing business and Abbott's developed markets pharmaceuticals business. Mylan N.V. is publicly
traded. Historically, this business was included in Abbott's Established Pharmaceutical Products segment. At the date of the closing, the 110 million Mylan N.V. shares that Abbott
received were valued at $5.77 billion and Abbott recorded an after-tax gain on the sale of the business of approximately $1.6 billion. Abbott retained its branded generics
pharmaceuticals business in emerging markets. At the close of this transaction, Abbott and Mylan entered into a transition services agreement pursuant to which Abbott and Mylan are providing various
back office support services to each other on an interim transitional basis. Transition services may be provided for up to 2 years with certain services having been extended for an additional
five to ten months. Charges by Abbott under this transition services agreement are recorded as a reduction of the costs to provide the respective service in the applicable expense category in the
Consolidated Statement of Earnings. This transitional support does not constitute significant continuing involvement in Mylan's operations. Abbott also entered into manufacturing supply agreements
with Mylan related to certain products, with the supply term ranging from 3 to 10 years and requiring a 2 year notice prior to termination. The cash flows associated with these
transition services and manufacturing supply agreements are not expected to be significant, and therefore, these cash flows are not direct cash flows of the disposed component under Accounting
Standards Codification 205.
On
February 10, 2015, Abbott completed the sale of its animal health business to Zoetis Inc. In the first quarter of 2016, Abbott received an additional $25 million
of proceeds due to the expiration of a holdback agreement associated with the sale of this business and reported an after-tax gain of $16 million.
37
As
a result of the disposition of the above businesses, the prior years' operating results of these businesses up to the date of sale are reported as part of discontinued operations on
the Earnings from Discontinued Operations, net of taxes line in the Consolidated Statement of Earnings. Discontinued operations include an allocation of interest expense assuming a uniform ratio of
consolidated debt to equity for all of Abbott's historical operations.
On
January 1, 2013, Abbott completed the separation of AbbVie Inc. (AbbVie), which was formed to hold Abbott's research-based proprietary pharmaceuticals business. Abbott
has received a ruling from the Internal Revenue Service that the separation qualifies as a tax-free distribution to Abbott and its U.S. shareholders for U.S. federal income tax purposes.
For
a small portion of AbbVie's operations, the legal transfer of AbbVie's assets (net of liabilities) did not occur with the separation of AbbVie on January 1, 2013 due to the
time required to transfer marketing authorizations and other regulatory requirements in each of these countries. Under the terms of the separation agreement with Abbott, AbbVie is subject to the risks
and entitled to the benefits generated by these operations and assets. The majority of these operations were transferred to AbbVie in 2013 and 2014. These assets and liabilities were presented as held
for disposition in the Consolidated Balance Sheet as of December 31, 2015.
Abbott
has retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation, as well as certain non-income taxes attributable to AbbVie's
business. AbbVie generally will be liable for all other taxes attributable to its business. In 2016, 2015 and 2014, discontinued operations include a favorable adjustment to tax expense of
$318 million, $3 million and $166 million, respectively, as a result of the resolution of various tax positions pertaining to AbbVie's operations.
The
operating results of Abbott's developed markets branded generics pharmaceuticals and animal health businesses as well as the income tax benefit related to the businesses transferred
to AbbVie, which are being reported as discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
Developed markets generics pharmaceuticals and animal health businesses
|
|
$
|
|
|
$
|
256
|
|
$
|
2,076
|
|
AbbVie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
256
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Before Tax
|
|
|
|
|
|
|
|
|
|
|
Developed markets generics pharmaceuticals and animal health businesses
|
|
$
|
(4
|
)
|
$
|
13
|
|
$
|
505
|
|
AbbVie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4
|
)
|
$
|
13
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
Developed markets generics pharmaceuticals and animal health businesses
|
|
$
|
3
|
|
$
|
62
|
|
$
|
397
|
|
AbbVie
|
|
|
318
|
|
|
3
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
321
|
|
$
|
65
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Assets and Liabilities Held for Disposition
In September 2016, Abbott announced that it entered into a definitive agreement to sell AMO, its vision care business, to Johnson &
Johnson for $4.325 billion in cash, subject to customary purchase price adjustments for cash, debt and working capital. The decision to sell AMO reflects Abbott's proactive shaping of its
portfolio in line with its strategic priorities. The transaction is expected to close in the first quarter of 2017 and is subject to customary closing conditions, including regulatory approvals. The
operating results of AMO are included in continuing operations as they do not qualify for reporting as discontinued operations. For the year ended December 31, 2016 and 2015, AMO's earnings
before taxes were $30 million and $64 million, respectively. As a result of the pending sale of AMO, the assets and liabilities of this business meet the criteria to qualify as being
held for disposition at December 31, 2016.
The
assets and liabilities held for disposition as of December 31, 2016 relate to AMO and the assets and liabilities held for disposition as of December 31, 2015 relate to
the AbbVie business. The following is a summary of the assets and liabilities held for disposition:
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31,
2016
|
|
December 31,
2015
|
|
Trade receivables, net
|
|
$
|
222
|
|
$
|
17
|
|
Total inventories
|
|
|
240
|
|
|
43
|
|
Prepaid expenses and other current assets
|
|
|
51
|
|
|
45
|
|
|
|
|
|
|
|
|
|
Current assets held for disposition
|
|
|
513
|
|
|
105
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
247
|
|
|
1
|
|
Intangible assets, net of amortization
|
|
|
529
|
|
|
|
|
Goodwill
|
|
|
1,966
|
|
|
|
|
Deferred income taxes and other assets
|
|
|
11
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Non-current assets held for disposition
|
|
|
2,753
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Total assets held for disposition
|
|
$
|
3,266
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
71
|
|
$
|
359
|
|
Salaries, wages, commissions and other accrued liabilities
|
|
|
174
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Current liabilities held for disposition
|
|
|
245
|
|
|
373
|
|
Post-employment obligations, deferred income taxes and other long-term liabilities
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities held for disposition
|
|
$
|
304
|
|
$
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Programs
Abbott currently has numerous pharmaceutical, medical devices, diagnostic and nutritional products in development.
Research and Development Process
In the Established Pharmaceuticals segment, the development process focuses on the geographic expansion and continuous improvement of the
segment's existing products to provide benefits to patients and customers. As Established Pharmaceuticals does not actively pursue primary research, development usually begins with work on existing
products or after the acquisition of an advanced stage licensing opportunity.
Depending
upon the product, the phases of development may include:
-
-
Drug product development.
39
-
-
Phase I bioequivalence studies to compare a future Established Pharmaceutical's brand with an already marketed compound with the same
active pharmaceutical ingredient (API).
-
-
Phase II studies to test the efficacy of benefits in a small group of patients.
-
-
Phase III studies to broaden the testing to a wider population that reflects the actual medical use.
-
-
Phase IV and other post-marketing studies to obtain new clinical use data on existing products within approved indications.
The
specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions. The process may range from one
year for a bioequivalence study project to 6 or more years for complex formulations, new indications, or geographic expansion in specific countries, such as China.
In
the Diagnostics segment, the phases of the research and development process include:
-
-
Discovery which focuses on identification of a product that will address a specific therapeutic area, platform, or unmet clinical need.
-
-
Concept/Feasibility during which the materials and manufacturing processes are evaluated, testing may include product characterization and
analysis is performed to confirm clinical utility.
-
-
Development during which extensive testing is performed to demonstrate that the product meets specified design requirements and that the design
specifications conform to user needs and intended uses.
The
regulatory requirements for diagnostic products vary across different countries and geographic regions. In the U.S., the FDA classifies diagnostic products into classes (I, II, or
III) and the classification determines the regulatory process for approval. While the Diagnostics segment has products in all three classes, the vast majority of its products are categorized as
Class I or Class II. Submission of a separate regulatory filing is not required for Class I products. Class II devices typically require pre-market notification to the FDA
through a regulatory filing known as a 510(k) submission. Most Class III products are subject to the FDA's Pre-Marketing Approval (PMA) requirements. Other Class III products, such as
those used to screen blood, require the submission and approval of a Biological License Application (BLA).
In
the EU, diagnostic products are also categorized into different categories and the regulatory process, which is governed by the European InVitro Diagnostic Medical Device Directive,
depends upon the category. Certain product categories require review and approval by an independent company, known as a Notified Body, before the manufacturer can affix a CE mark to the product to
show compliance with the Directive. Other products only require a self-certification process.
In
the Vascular segment, the research and development process begins with research on a specific technology that is evaluated for feasibility and commercial viability. If the research
program passes that hurdle, it moves forward into development. The development process includes evaluation and selection of a product design, completion of clinical trials to test the product's safety
and efficacy, and validation of the manufacturing process to demonstrate its repeatability and ability to consistently meet pre-determined specifications.
Similar
to the diagnostic products discussed above, in the U.S., vascular products are classified as Class I, II, or III. Most of Abbott's vascular products are classified as
Class II devices that follow the 510(k) regulatory process or Class III devices that are subject to the PMA process.
In
the EU, vascular products are also categorized into different classes and the regulatory process, which is governed by the European Medical Device Directive, varies by class. Each
product must bear a CE mark to show compliance with the Directive. Some products require submission of a design dossier to
40
the
appropriate regulatory authority for review and approval prior to CE marking of the device. For other products, the company is required to prepare a technical file which includes testing results
and clinical evaluations but can self-certify its ability to apply the CE mark to the product. Outside the U.S. and the EU, the regulatory requirements vary across different countries and regions.
After
approval and commercial launch of some vascular products, post-market trials may be conducted either due to a conditional requirement of the regulatory market approval or with the
objective of proving product superiority.
In
the Nutritional segment, the research and development process generally focuses on identifying and developing ingredients and products that address the nutritional needs of particular
populations (e.g., infants and adults) or patients (e.g., people with diabetes). Depending upon the country and/or region, if claims regarding a product's efficacy will be made, clinical
studies typically must be conducted.
In
the U.S., the FDA requires that it be notified of proposed new formulations and formulation or packaging changes related to infant formula products. Prior to the launch of an infant
formula or product packaging change, the company is required to obtain the FDA's confirmation that it has no objections to the proposed product or packaging. For other nutritional products,
notification or pre-approval from the FDA is not required unless the product includes a new food additive. In some countries, regulatory approval may be required for certain nutritional products,
including infant formula and medical nutritional products.
Areas of Focus
In 2017 and beyond, Abbott's significant areas of therapeutic focus will include the following:
Established
Pharmaceuticals Abbott focuses on building country specific portfolios made up of global and local pharmaceutical brands that best meet the needs of patients in
emerging markets. More than 400 development projects are active for one or several emerging markets. Over the next several years, Established Pharmaceuticals plans to expand its product portfolio in
key therapeutic areas with the aim of being among the first to launch new branded generic medicines for particular pharmaceutical products. In addition, Established Pharmaceuticals continues to expand
existing brands
into new markets, implement product enhancements that provide value to patients and acquire strategic products and technology through licensing activities. Abbott is also actively working on the
further development of several key brands such as Creon, Duphaston and Influvac. Depending on the product, the activities focus on development of new data, markets, formulations, delivery systems, or
indications.
Vascular
Ongoing projects in the pipeline include:
-
-
MitraClip
device for the treatment of mitral regurgitation. Consistent with Abbott's near-term
vision to grow its mitral and tricuspid valve programs, Abbott continues to work on expanding the use of its
MitraClip
device. Clinical trials for
MitraClip
are underway with the objective of broadening
MitraClip's
footprint into new key markets, and
enrollment of the COAPT Trial (a study of safety and effectiveness of the
MitraClip
device in heart failure patients with functional mitral
regurgitation) is projected to be completed in 2017. Leveraging expertise in percutaneous leaflet coaptation, Abbott is working to expand its clip-based technology to address unmet needs in tricuspid
regurgitation.
-
-
Portico Re-sheathable Transcatheter Aortic Valve System U.S. Clinical
Trial.
The objective of this clinical trial is to evaluate the safety and effectiveness of the Portico transcatheter heart valve and delivery
systems via transfemoral and alternative delivery methods.
-
-
Thoratec MOMENTUM 3, Multi-center Study of MagLev Technology with HeartMate 3 (HM3) Clinical Study
Protocol.
The objective of this clinical study is to evaluate the safety and effectiveness of the HM3 Left Ventricular Assist System (LVAS) when used for the treatment of
advanced,
41
Molecular
Diagnostics Various new molecular in vitro diagnostic (IVD) products and next generation instrument systems are in various stages of development and commercialization.
Core
Laboratory Diagnostics Abbott continues to commercialize its next-generation blood screening, immunoassay, clinical chemistry and hematology systems, along with assays in
various areas including infectious disease, cardiac care, metabolics, oncology, as well as informatics and automation solutions to increase efficiency in laboratories.
Diabetes
Care In 2016 Abbott expanded on the results of its REPLACE outcome trial (which covered Type 2 diabetes patients) with the publication of the results of its IMPACT
study, which
showed improved glycemic outcomes in people with Type 1 diabetes using the FreeStyle Libre system. The FreeStyle Libre system eliminates the need for routine finger sticks by reading glucose
levels through a sensor that can be worn on the back of the upper arm for up to 14 days. It also requires no finger sticks for calibration. In 2014, Abbott attained the CE Mark in Europe for
the FreeStyle Libre system. In 2016, Abbott launched two apps in Europe for FreeStyle Libre: LibreLink, which enables people with diabetes to access glucose data directly from their FreeStyle Libre
sensor on their Android smartphones and LibreLinkUp, a caregiver app for remotely monitoring glucose values. In the U.S., in the third quarter of 2016 Abbott received FDA approval for FreeStyle Libre
Pro, which is designed to be used by healthcare professionals in a clinic setting, and submitted the PMA for a consumer version of FreeStyle Libre.
Nutritionals
Abbott is focusing its research and development spend on platforms that span the pediatric, adult and performance nutrition areas: gastro intestinal/immunity health,
brain health, mobility and metabolism, and user experience platforms. Numerous new products that build on advances in these platforms are currently under development, including clinical outcome
testing, and are expected to be launched over the coming years.
Given
the diversity of Abbott's business, its intention to remain a broad-based healthcare company and the numerous sources for potential future growth, no individual project is expected
to be material to cash flows or results of operations over the next five years. Factors considered included research and development expenses projected to be incurred for the project over the next
year relative to Abbott's total research and development expenses as well as qualitative factors, such as marketplace perceptions and
42
impact
of a new product on Abbott's overall market position. There were no delays in Abbott's 2016 research and development activities that are expected to have a material impact on operations.
While
the aggregate cost to complete the numerous projects currently in development is expected to be material, the total cost to complete will depend upon Abbott's ability to
successfully complete each project, the rate at which each project advances, and the ultimate timing for completion. Given the potential for significant delays and the high rate of failure inherent in
the development of pharmaceutical, medical device and diagnostic products and technologies, it is not possible to accurately estimate the total cost to complete all projects currently in development.
Abbott plans to manage its portfolio of projects to achieve research and development spending that will be competitive in each of the businesses in which it participates, and such spending is expected
to approximate 7.5 percent of total Abbott sales in 2017. Abbott does not regularly accumulate or make management decisions based on the total expenses incurred for a particular development
phase in a given period.
Goodwill
At December 31, 2016, goodwill recorded as a result of business combinations totaled $7.7 billion. Goodwill is reviewed for
impairment annually in the third quarter or when an event that could result in an impairment occurs, using a quantitative assessment to determine whether it is more likely than not that the fair value
of any reporting unit is less than its carrying amount. The income and market approaches are used to calculate the fair value of each reporting unit. The results of the last impairment test indicated
that the fair value of each reporting unit was substantially in excess of its carrying value.
Financial Condition
Cash Flow
Net cash from operating activities amounted to $3.2 billion, $3.0 billion and $3.7 billion in 2016, 2015 and 2014,
respectively. The increase in Net cash from operating activities in 2016 reflects additional focus on the management of working capital. The decrease in Net cash from operating activities in 2015 was
due in large part to the divestiture of the developed market established pharmaceuticals business in February 2015, as well as an increase in contributions to defined benefit plans in 2015. The income
tax component of operating cash flow in 2016, 2015 and 2014 includes $550 million, $70 million and $268 million, respectively, of non-cash tax benefits primarily related to the
favorable resolution of various tax positions pertaining to prior years; 2015 reflects the non-cash impact of approximately $1.1 billion of tax expense associated with the gain on sale of
businesses.
The
foreign currency loss related to Venezuela reduced Abbott's cash by approximately $410 million in 2016 and is included in the Effect of exchange rate changes on cash and cash
equivalents line within the Consolidated Statement of Cash Flows. Future fluctuations in the strength of the U.S. dollar against foreign currencies are not expected to materially impact Abbott's
liquidity.
Excluding
the proceeds from the November 2016 long-term debt issuance, over 85% of the cash and cash equivalents at December 31, 2016 is considered reinvested indefinitely in
foreign subsidiaries.
Abbott does not expect such reinvestment to affect its liquidity and capital resources. If these funds were needed for operations in the U.S., Abbott may be required to accrue and pay U.S. income
taxes to repatriate these funds. Abbott believes that it has sufficient sources of liquidity to support its assumption that the disclosed amount of undistributed earnings at December 31, 2016
can be considered to be reinvested indefinitely.
Abbott
funded $582 million in 2016, $579 million in 2015 and $393 million in 2014 to defined benefit pension plans. Abbott expects pension funding of approximately
$364 million in 2017 for its pension plans, of which approximately $270 million relates to its main domestic pension plan. Abbott expects annual cash flow from operating activities to
continue to exceed Abbott's capital expenditures and cash dividends.
43
Debt and Capital
At December 31, 2016, Abbott's long-term debt rating was A+ by Standard & Poor's Corporation and A2 by Moody's Investors Service.
In conjunction with the completion of the St. Jude Medical acquisition on January 4, 2017, the ratings were adjusted to BBB by Standard & Poor's Corporation and Baa3 by Moody's
Investors Service. Abbott expects to maintain an investment grade rating. Abbott has readily available financial resources, including unused lines of credit of $5.0 billion which expire in 2019
and that support commercial paper borrowing arrangements.
In
November 2016, Abbott issued $15.1 billion of medium and long-term debt to primarily fund the cash portion of the acquisition of St. Jude Medical. Abbott issued
$2.85 billion of 2.35% Senior Notes due November 22, 2019; $2.85 billion of 2.90% Senior Notes due November 30, 2021; $1.50 billion of 3.40% Senior Notes due
November 30, 2023; $3.00 billion of 3.75% Senior Notes due November 30, 2026; $1.65 billion of 4.75% Senior Notes due November 30, 2036; and $3.25 billion of
4.90% Senior Notes due November 30, 2046. In November 2016, Abbott also entered into interest rate swap contracts totaling $3.0 billion related to the new debt; the swaps have the effect
of changing Abbott's obligation from a fixed interest rate to a variable interest rate obligation on the related debt instruments.
In
April 2016, Abbott obtained a commitment for a 364-day senior unsecured bridge term loan facility for an amount not to exceed $17.2 billion, comprised of $15.2 billion
for a 364-day bridge loan and $2.0 billion for a 120-day bridge loan to provide financing for the acquisition of St. Jude Medical. The $15.2 billion component of the commitment
terminated in November 2016 when Abbott issued the
$15.1 billion of long-term debt. In December 2016, Abbott formalized the $2.0 billion component and entered into a 120-day bridge term loan facility that provided Abbott the ability to
borrow up to $2.0 billion on an unsecured basis to partially fund the St. Jude Medical acquisition. On January 4, 2017, Abbott borrowed $2.0 billion under this facility, of
which $1.2 billion had been repaid as of January 31, 2017.
In
February 2016, Abbott obtained a commitment for a 364-day senior unsecured bridge term loan facility for an amount not to exceed $9 billion in conjunction with its pending
acquisition of Alere. This commitment was automatically extended for up to 90 days on January 29, 2017.
In
March 2015, Abbott issued $2.5 billion of long-term debt consisting of $750 million of 2.00% Senior Notes due March 15, 2020; $750 million of 2.55% Senior
Notes due March 15, 2022; and $1.0 billion of 2.95% Senior Notes due March 15, 2025. Proceeds from this debt were used to pay down short-term borrowings. In March 2015, Abbott
also entered into interest rate swap contracts totaling $2.5 billion. These contracts have the effect of changing Abbott's obligation from a fixed interest rate to a variable interest rate
obligation.
In
2014, Abbott redeemed approximately $500 million of long-term notes that were assumed as part of the acquisition of CFR Pharmaceuticals.
In
September 2014, the board of directors authorized the repurchase of up to $3.0 billion of Abbott's common shares from time to time. The 2014 authorization was in addition to
the $512 million unused portion of a previous program announced in June 2013. In 2016, Abbott repurchased 10.4 million shares at a cost of $408 million under the program
authorized in 2014. In 2015, Abbott repurchased 11.3 million shares at a cost of $512 million under the unused portion of the 2013 authorization and 36.2 million shares at a cost
of $1.7 billion under the program authorized in 2014 for a total of 47.5 million shares at a cost of $2.2 billion. In 2014, Abbott repurchased 54.6 million shares at a cost
of $2.1 billion under the program announced in June 2013.
On
April 27, 2016, the board of directors authorized the issuance and sale for general corporate purposes of up to 75 million common shares that would result in proceeds of
up to $3 billion. No shares have been issued under this authorization.
44
Abbott
declared dividends of $1.045 per share in 2016 compared to $0.98 per share in 2015, an increase of approximately 7%. Dividends paid were $1.539 billion in 2016 compared to
$1.443 billion in 2015. The year-over-year change in dividends reflects the impact of the increase in the dividend rate.
Working Capital
Working capital was $20.1 billion at December 31, 2016 and $5.0 billion at December 31, 2015. The increase in
working capital in 2016 was due to a $13.6 billion increase in cash and cash equivalents and a $1.8 billion reduction in short-term borrowings, resulting from the proceeds from the
long-term debt issued in November 2016 as well as cash generated from operating activities. On January 4, 2017, approximately $13.6 billion of the $18.6 billion in cash and cash
equivalents at December 31, 2016 was used to fund the cash portion of the acquisition of St. Jude Medical.
Substantially
all of Abbott's trade receivables in Italy, Spain, Portugal, and Greece are with governmental health systems. The collection of outstanding receivables in these countries
was stable in
2015 and 2016. Governmental receivables in these four countries accounted for less than 1 percent of Abbott's total assets in both years and 6 percent of total net trade receivables as
of December 31, 2016, down from 7 percent as of December 31, 2015.
With
the exception of Greece, Abbott historically has collected almost all of the outstanding receivables in these countries. Abbott continues to monitor the credit worthiness of
customers located in these and other geographic areas and establishes an allowance against a trade receivable when it is probable that the balance will not be collected. In addition to closely
monitoring economic conditions and budgetary and other fiscal developments in these countries, Abbott regularly communicates with its customers regarding the status of receivable balances, including
their payment plans and obtains positive confirmation of the validity of the receivables. Abbott also monitors the potential for and periodically has utilized factoring arrangements to mitigate credit
risk although the receivables included in such arrangements have historically not been a material amount of total outstanding receivables. If government funding were to become unavailable in these
countries or if significant adverse changes in their reimbursement practices were to occur, Abbott may not be able to collect the entire balance.
Venezuela Operations
Since January 2010, Venezuela has been designated as a highly inflationary economy under U.S. GAAP. In 2014 and 2015, the government of
Venezuela operated multiple mechanisms to exchange bolivars into U.S. dollars. These mechanisms included the CENCOEX, SICAD, and SIMADI rates, which stood at 6.3, 13.5, and approximately 200,
respectively, at December 31, 2015. In 2015, Abbott continued to use the CENCOEX rate of 6.3 Venezuelan bolivars to the U.S. dollar to report the results, financial position, and cash flows
related to its operations in Venezuela since Abbott continued to qualify for this exchange rate to pay for the import of various products into Venezuela.
On
February 17, 2016, the Venezuelan government announced that the three-tier exchange rate system would be reduced to two rates renamed the DIPRO and DICOM rates. The DIPRO rate
is the official rate for food and medicine imports and was adjusted from 6.3 to 10 bolivars per U.S. dollar. The DICOM rate is a floating market rate published daily by the Venezuelan central bank,
which at the end of the first quarter of 2016 was approximately 263 bolivars per U.S. dollar. As a result of decreasing government approvals to convert bolivars to U.S. dollars to pay for intercompany
accounts, as well as the accelerating deterioration of economic conditions in the country, Abbott concluded that it was appropriate to move to the DICOM rate at the end of the first quarter of 2016.
As a result, Abbott recorded a foreign currency exchange loss of $480 million in 2016 to revalue its net monetary assets in Venezuela. Abbott is continuing to use the DICOM rate to report the
results of operations and to remeasure net monetary assets for Venezuela at the end of each quarter. As of December 31, 2016, Abbott's Venezuelan operations represented approximately 0.1% of
Abbott's consolidated assets and any additional foreign currency losses related to Venezuela are not expected to be material.
45
Capital Expenditures
Capital expenditures of $1.1 billion in 2016, 2015 and 2014 were principally for upgrading and expanding manufacturing and research and
development facilities and equipment in various segments, investments in information technology, and laboratory instruments placed with customers.
Contractual Obligations
The table below summarizes Abbott's estimated contractual obligations as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
Total
|
|
2017
|
|
2018-2019
|
|
2020-2021
|
|
2022 and
Thereafter
|
|
|
|
(in millions)
|
|
Long-term debt, including current maturities
|
|
$
|
20,914
|
|
$
|
3
|
|
$
|
3,801
|
|
$
|
4,198
|
|
$
|
12,912
|
|
Interest on debt obligations
|
|
|
11,234
|
|
|
789
|
|
|
1,536
|
|
|
1,275
|
|
|
7,634
|
|
Operating lease obligations
|
|
|
778
|
|
|
145
|
|
|
234
|
|
|
141
|
|
|
258
|
|
Capitalized auto lease obligations
|
|
|
40
|
|
|
13
|
|
|
27
|
|
|
|
|
|
|
|
Purchase commitments (a)
|
|
|
1,353
|
|
|
1,294
|
|
|
46
|
|
|
12
|
|
|
1
|
|
Other long-term liabilities
|
|
|
1,431
|
|
|
|
|
|
784
|
|
|
449
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (b)
|
|
$
|
35,750
|
|
$
|
2,244
|
|
$
|
6,428
|
|
$
|
6,075
|
|
$
|
21,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Purchase
commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements.
-
(b)
-
Net
unrecognized tax benefits totaling approximately $560 million are excluded from the table above as Abbott is unable to reasonably estimate the period of
cash settlement with the respective taxing authorities on such items. See Note 14 Taxes on Earnings from Continuing Operations for further details. The company has employee
benefit obligations consisting of pensions and other post-employment benefits, including medical and life, which have been excluded from the table. A discussion of the company's pension and
post-retirement plans, including funding matters is included in Note 13 Post-employment Benefits.
Contingent Obligations
Abbott has periodically entered into agreements with other companies in the ordinary course of business, such as assignment of product rights,
which has resulted in Abbott becoming secondarily liable for obligations that Abbott was previously primarily liable. Since Abbott no longer maintains a business relationship with the other parties,
Abbott is unable to develop an estimate of the maximum potential amount of future payments, if any, under these obligations. Based upon past experience, the likelihood of payments under these
agreements is remote. In addition, Abbott periodically acquires a business or product rights in which Abbott agrees to pay contingent consideration based on attaining certain thresholds or based on
the occurrence of certain events.
Legislative Issues
Abbott's primary markets are highly competitive and subject to substantial government regulations throughout the world. Abbott expects debate to
continue over the availability, method of delivery, and payment for health care products and services. It is not possible to predict the extent to which Abbott or the health care industry in general
might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors.
46
Recently Issued Accounting Standards
In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16,
Income Taxes (Topic 740): Intra-Entity
Transfers of Assets Other Than Inventory
, which requires the recognition of the income tax effects of
intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. The standard becomes effective for Abbott beginning in the first quarter of 2018 and early
adoption is permitted.
Abbott is currently evaluating the impact ASU 2016-16 will have on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. ASU 2016-09 modifies several aspects
of the accounting for share-based payment transactions, including the accounting for income taxes and classification on the statement of cash flows. The standard becomes effective for Abbott beginning
in the first quarter of 2017. Abbott does not anticipate that the new guidance will have a material impact on its consolidated financial statements. Abbott cannot predict the impact on its
consolidated financial statements in future reporting periods following adoption as this will be dependent upon various factors including the number of shares issued and changes in the price of its
shares.
In
February 2016, the FASB issued ASU 2016-02,
Leases
, which requires lessees to recognize assets and liabilities for most leases on the
balance sheet. The standard becomes effective for Abbott beginning in the first quarter of 2019 and early adoption is permitted. Adoption requires application of the new guidance for all periods
presented. Abbott is currently evaluating the impact the new guidance will have on its consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments Recognition and Measurement of Financial Assets and Financial
Liabilities
, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard becomes effective for
Abbott beginning in the first quarter of 2018 and early adoption is permitted. Abbott is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements
and related disclosures.
In
May 2015, the FASB issued ASU 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per
Share (or its Equivalent)
, which removes the requirement to categorize in the fair value hierarchy all investments measured at net asset value per share using the practical
expedient. This guidance is effective for public business entities for years beginning after December 15, 2015. Abbott has adopted this guidance as of December 31, 2016, and has applied
it on a retrospective basis. The adoption of ASU 2015-07 only impacted the form and content of the basis of fair value measurement disclosures related to the assets associated with the defined benefit
and medical and dental plans and did not have an impact on Abbott's consolidated financial position, results of operations or cash flows.
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which provides a single comprehensive model for
accounting for revenue from contracts with customers and will supersede most existing revenue recognition guidance. The standard becomes effective for Abbott in the first quarter of 2018. Abbott is
continuing to evaluate the effect that the standard will have on its consolidated financial statements and related disclosures including the areas of variable consideration and new disclosure
requirements. Abbott will continue to monitor additional modifications, clarifications or interpretations undertaken by the FASB that may impact Abbott's current conclusions. Abbott is currently
expecting to use the modified retrospective method to adopt this standard.
Private Securities Litigation Reform Act of 1995 A Caution Concerning
Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Abbott cautions investors that any forward-looking
statements or projections made by Abbott, including those made in this document, are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors.
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