10-Q 1 a13-13745_110q.htm 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2013

 

OR

 

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

 

For the transition period from                                to

 

Commission File No. 1-2189

 

ABBOTT LABORATORIES

 

An Illinois Corporation

 

I.R.S. Employer Identification No.

 

 

36-0698440

 

100 Abbott Park Road

Abbott Park, Illinois 60064-6400

 

Telephone:  (847) 937-6l00

 

Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of June 30, 2013, Abbott Laboratories had 1,554,125,355 common shares without par value outstanding.

 

 

 



 

PART I.  FINANCIAL INFORMATION

 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Financial Statements

 

(Unaudited)

 



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Statement of Earnings

 

(Unaudited)

 

(dollars and shares in thousands except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

 

 

2013

 

2012

 

2013

 

2012

 

Net Sales

 

$

5,446,025

 

$

5,313,297

 

$

10,823,920

 

$

10,596,982

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

2,544,825

 

2,370,056

 

4,976,628

 

4,729,220

 

Amortization of intangible assets

 

196,892

 

194,823

 

396,314

 

404,413

 

Research and development

 

362,557

 

370,605

 

708,880

 

734,319

 

Selling, general and administrative

 

1,714,275

 

1,813,623

 

3,499,834

 

3,655,655

 

Total Operating Cost and Expenses

 

4,818,549

 

4,749,107

 

9,581,656

 

9,523,607

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

627,476

 

564,190

 

1,242,264

 

1,073,375

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

40,526

 

83,288

 

81,283

 

165,368

 

Interest (income)

 

(16,901

)

(18,889

)

(31,951

)

(35,155

)

Net foreign exchange loss (gain)

 

10,748

 

(24,536

)

39,613

 

(9,630

)

Other (income) expense, net

 

(7,646

)

(5,177

)

(1,981

)

(40,088

)

Earnings from Continuing Operations Before Taxes

 

600,749

 

529,504

 

1,155,300

 

992,880

 

Taxes on Earnings from Continuing Operations

 

124,694

 

118,663

 

134,584

 

230,824

 

Earnings from Continuing Operations

 

476,055

 

410,841

 

1,020,716

 

762,056

 

Earnings from Discontinued Operations, net of taxes

 

 

1,313,771

 

 

2,204,680

 

Net Earnings

 

$

476,055

 

$

1,724,612

 

$

1,020,716

 

$

2,966,736

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share —

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

0.30

 

$

0.26

 

$

0.65

 

$

0.48

 

Discontinued Operations

 

 

0.83

 

 

1.39

 

Net Earnings

 

$

0.30

 

$

1.09

 

$

0.65

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share —

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

0.30

 

$

0.26

 

$

0.64

 

$

0.47

 

Discontinued Operations

 

 

0.82

 

 

1.38

 

Net Earnings

 

$

0.30

 

$

1.08

 

$

0.64

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.14

 

$

0.51

 

$

0.28

 

$

1.02

 

 

 

 

 

 

 

 

 

 

 

Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share

 

1,560,519

 

1,572,099

 

1,564,894

 

1,572,681

 

Dilutive Common Stock Options and Awards

 

16,165

 

16,403

 

16,726

 

15,996

 

 

 

 

 

 

 

 

 

 

 

Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options and Awards

 

1,576,684

 

1,588,502

 

1,581,620

 

1,588,677

 

 

 

 

 

 

 

 

 

 

 

Outstanding Common Stock Options Having No Dilutive Effect

 

1,015

 

1,166

 

1,015

 

1,166

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

2



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Statement of Comprehensive Income

 

(Unaudited)

 

(dollars thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30

 

June 30

 

 

 

2013

 

2012

 

2013

 

2012

 

Net Income

 

$

476,055

 

$

1,724,612

 

$

1,020,716

 

$

2,966,736

 

Less: Income from Discontinued Operations

 

 

1,313,771

 

 

2,204,680

 

Earnings from Continuing Operations

 

476,055

 

410,841

 

1,020,716

 

762,056

 

Foreign currency translation (loss) adjustments

 

(359,578

)

(1,126,230

)

(600,469

)

(687,427

)

Net actuarial (losses) and amortization of net actuarial losses and prior service cost and credits, net of taxes of $15,617 and $(41,149) in 2013 and $22,794 and $45,615 in 2012

 

27,958

 

39,588

 

(163,307

)

79,212

 

Unrealized gains on marketable equity securities, net of taxes of $1,408 and $1,866 in 2013 and $433 and $2,441 in 2012

 

2,439

 

741

 

3,233

 

4,219

 

Net adjustments for derivative instruments designated as cash flow hedges and other, net of taxes of $(643) and $(5,873) in 2013 and $1,112 and $(11,127) in 2012

 

(2,571

)

3,163

 

(23,493

)

(42,023

)

Other Comprehensive (Loss) from Continuing Operations

 

(331,752

)

(1,082,738

)

(784,036

)

(646,019

)

Comprehensive Income (Loss) from Continuing Operations

 

144,303

 

(671,897

)

236,680

 

116,037

 

Comprehensive Income from Discontinued Operations

 

 

794,098

 

 

1,904,353

 

Comprehensive Income

 

$

144,303

 

$

122,201

 

$

236,680

 

$

2,020,390

 

 

 

 

June 30
2013

 

December 31
 2012

 

Supplemental Accumulated Other Comprehensive Income Information, net of tax:

 

 

 

 

 

Cumulative foreign currency translation loss adjustments

 

$

(887,058

)

$

(79,353

)

Net actuarial losses and prior service cost and credits

 

(2,408,363

)

(3,595,554

)

Cumulative unrealized gains on marketable equity securities

 

33,973

 

31,363

 

Cumulative gains on derivative instruments designated as cash flow hedges

 

35,023

 

49,866

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

3



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Statement of Cash Flows

 

(Unaudited)

 

(dollars in thousands)

 

 

 

Six Months Ended June 30

 

 

 

2013

 

2012

 

Cash Flow From (Used in) Operating Activities:

 

 

 

 

 

Net earnings

 

$

1,020,716

 

$

2,966,736

 

Adjustments to reconcile earnings to net cash from operating activities -

 

 

 

 

 

Depreciation

 

460,369

 

675,097

 

Amortization of intangibles

 

396,314

 

759,605

 

Share-based compensation

 

177,294

 

283,127

 

Acquired in-process and collaborations research and development

 

 

260,000

 

Trade receivables

 

(90,823

)

743,512

 

Inventories

 

(232,247

)

(379,478

)

Other, net

 

(554,809

)

(1,016,840

)

Net Cash From Operating Activities

 

1,176,814

 

4,291,759

 

 

 

 

 

 

 

Cash Flow From (Used in) Investing Activities:

 

 

 

 

 

Acquisitions of property and equipment

 

(564,884

)

(878,446

)

Acquisitions of businesses and technology

 

 

(660,000

)

Purchases of investment securities, net

 

(1,507,053

)

(2,677,257

)

Other

 

 

12,308

 

Net Cash (Used in) Investing Activities

 

(2,071,937

)

(4,203,395

)

 

 

 

 

 

 

Cash Flow From (Used in) Financing Activities:

 

 

 

 

 

Proceeds from issuance of short-term debt and other

 

3,149,857

 

2,696,769

 

Payment of long-term debt

 

 

(54,000

)

Contingent consideration payment related to a business acquisition

 

 

(120,849

)

Transfer of cash and cash equivalents to AbbVie Inc.

 

(5,901,400

)

 

Purchases of common shares

 

(1,215,151

)

(1,722,114

)

Proceeds from stock options exercised, including income tax benefit

 

142,604

 

1,046,318

 

Dividends paid

 

(444,097

)

(1,565,532

)

Net Cash (Used in) From Financing Activities

 

(4,268,187

)

280,592

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(66,599

)

(129,000

)

 

 

 

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

(5,229,909

)

239,956

 

Cash and Cash Equivalents, Beginning of Year

 

10,802,163

 

6,812,820

 

Cash and Cash Equivalents, End of Period

 

$

5,572,254

 

$

7,052,776

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

4



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Balance Sheet

 

(Unaudited)

 

(dollars in thousands)

 

 

 

June 30
2013

 

December 31
2012

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

5,572,254

 

$

10,802,163

 

Investments, primarily bank time deposits and U.S. treasury bills

 

3,821,338

 

4,371,821

 

Trade receivables, less allowances of $309,950 in 2013 and $405,921 in 2012

 

3,938,998

 

7,612,860

 

Inventories:

 

 

 

 

 

Finished products

 

1,857,257

 

2,345,455

 

Work in process

 

353,804

 

628,874

 

Materials

 

514,118

 

817,984

 

Total inventories

 

2,725,179

 

3,792,313

 

Prepaid expenses, deferred income taxes, and other receivables

 

3,240,172

 

4,743,426

 

Current assets held for disposition

 

533,183

 

 

Total Current Assets

 

19,831,124

 

31,322,583

 

Investments

 

154,268

 

273,595

 

Property and Equipment, at Cost

 

12,520,032

 

18,928,887

 

Less: accumulated depreciation and amortization

 

6,751,383

 

10,865,840

 

Net Property and Equipment

 

5,768,649

 

8,063,047

 

Intangible Assets, net of amortization

 

5,642,826

 

8,588,285

 

Goodwill

 

9,357,505

 

15,774,127

 

Deferred Income Taxes and Other Assets

 

2,077,860

 

3,213,307

 

Non-current Assets Held for Disposition

 

71,114

 

 

 

 

$

42,903,346

 

$

67,234,944

 

Liabilities and Shareholders’ Investment

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Short-term borrowings

 

$

4,259,614

 

$

2,081,839

 

Trade accounts payable

 

1,042,248

 

1,796,990

 

Salaries, wages and commissions

 

800,814

 

1,427,765

 

Other accrued liabilities

 

3,893,569

 

6,787,995

 

Dividends payable

 

218,048

 

221,340

 

Income taxes payable

 

138,772

 

655,424

 

Current portion of long-term debt

 

264,164

 

308,823

 

Current liabilities held for disposition

 

302,385

 

 

Total Current Liabilities

 

10,919,614

 

13,280,176

 

Long-term Debt

 

3,410,759

 

18,085,302

 

Post-employment Obligations, Deferred Income Taxes and Other Long-term Liabilities

 

6,139,332

 

9,056,234

 

Non-current Liabilities Held for Disposition

 

5,995

 

 

Commitments and Contingencies

 

 

 

 

 

Shareholders’ Investment:

 

 

 

 

 

Preferred shares, one dollar par value Authorized – 1,000,000 shares, none issued

 

 

 

Common shares, without par value
Authorized - 2,400,000,000 shares
Issued at stated capital amount -
Shares: 2013: 1,681,959,233; 2012: 1,675,930,484

 

11,730,952

 

11,754,552

 

Common shares held in treasury, at cost -
Shares: 2013: 127,833,878; 2012: 99,262,992

 

(6,487,355

)

(5,590,909

)

Earnings employed in the business

 

20,318,892

 

24,150,996

 

Accumulated other comprehensive income (loss)

 

(3,226,425

)

(3,593,678

)

Total Abbott Shareholders’ Investment

 

22,336,064

 

26,720,961

 

Noncontrolling Interests in Subsidiaries

 

91,582

 

92,271

 

Total Shareholders’ Investment

 

22,427,646

 

26,813,232

 

 

 

$

42,903,346

 

$

67,234,944

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

5



 

Abbott Laboratories and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

 

June 30, 2013

(Unaudited)

 

Note 1 — Basis of Presentation

 

The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements.  However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made.  It is suggested that these statements be read in conjunction with the financial statements included in Abbott’s Annual Report on Form 10-K/A for the year ended December 31, 2012.  The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.  The Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2012 has been appropriately revised to reflect a contingent consideration payment related to a business acquisition as cash flow used in financing activities.  The amount had been previously reflected as cash flow used in investing activities.

 

Note 2 — Separation of AbbVie Inc.

 

On November 28, 2012, Abbott’s board of directors declared a special dividend distribution of all of the outstanding shares of common stock of AbbVie Inc. (AbbVie), the company formed to hold Abbott’s research-based proprietary pharmaceuticals business.  For each Abbott common share held at the close of business on December 12, 2012, Abbott shareholders received one share of AbbVie stock on January 1, 2013.  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.

 

The historical results of operations of the research-based proprietary pharmaceuticals business have been presented as discontinued operations in the Condensed Consolidated Statement of Earnings.  Discontinued operations include the results of AbbVie’s business except for certain corporate overhead costs and certain costs associated with transition services that will be provided by Abbott to AbbVie.  Discontinued operations also includes other costs incurred by Abbott to separate AbbVie as well as an allocation of interest assuming a uniform ratio of consolidated debt to equity for all of Abbott’s historical operations.  Prior-year balance sheets and statements of cash flows have not been adjusted to reflect the effect of the separation.

 

The following is a summary of the assets and liabilities transferred to AbbVie as part of the separation on January 1, 2013:  (dollars in billions)

 

Assets:

 

 

 

Cash and cash equivalents

 

$

5.9

 

Investments

 

2.2

 

Trade receivables, less allowances

 

3.2

 

Inventories

 

0.7

 

Prepaid expenses, deferred income taxes, and other current receivables

 

2.9

 

Net property and equipment

 

2.2

 

Intangible assets, net of amortization

 

2.3

 

Goodwill

 

6.1

 

Deferred income taxes and other assets

 

1.6

 

 

 

27.1

 

Liabilities:

 

 

 

Short-term borrowings

 

1.0

 

Trade accounts payable and other current liabilities

 

5.1

 

Long-term debt

 

14.6

 

Post-employment obligations, deferred income taxes and other long-term liabilities

 

3.1

 

 

 

23.8

 

Net Assets Transferred to AbbVie Inc.

 

$

3.3

 

 

In addition, approximately $1.1 billion of accumulated other comprehensive losses, net of income taxes, primarily related to the pension and other benefit plan net liabilities as well as foreign translation was transferred to AbbVie.

 

6



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Summarized financial information for discontinued operations for 2012 is as follows: (dollars in millions)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30 2012

 

June 30 2012

 

Net sales

 

$

4,494

 

$

8,667

 

Earnings before taxes

 

1,473

 

2,523

 

Taxes on earnings

 

159

 

318

 

Net earnings

 

1,314

 

2,205

 

 

Abbott and AbbVie entered into transitional services agreements prior to the separation pursuant to which Abbott and AbbVie are providing to each other, on an interim transitional basis, various services.  Transition services may be provided for up to 24 months with an option for a one-year extension by the recipient.  Services being provided by Abbott include certain information technology and back office support.  Billings by Abbott under these transitional services agreements are recorded as a reduction of the costs to provide the respective service in the applicable expense category in the Condensed Consolidated Statement of Earnings.  This transitional support will enable AbbVie to establish its stand-alone processes for various activities that were previously provided by Abbott and does not constitute significant continuing support of AbbVie’s operations.

 

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 are expected to be transferred to AbbVie in 2013 with the remainder transferring in 2014.  These assets and liabilities have been presented as held for disposition in the Condensed Consolidated Balance Sheet.  At June 30, 2013, the assets and liabilities held for disposition consist of inventories of $180 million, trade accounts receivable of $319 million, equipment of $30 million, other assets of $75 million, trade accounts payable of $243 million and other liabilities of $65 million.  Abbott’s obligation to transfer the net assets held for disposition to AbbVie of $296 million is included in Other accrued liabilities.

 

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 connection with the separation, Abbott has adjusted its employee stock compensation awards and separated its defined benefit programs for pensions and post-employment medical and dental benefit plans.  See notes 7 and 9 for additional information.

 

Note 3 — Supplemental Financial Information

 

Unvested restricted stock that contain non-forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two-class method.  Under the two-class method, net earnings are allocated between common shares and participating securities.  Net earnings allocated to common shares for the three months and six months ended June 30, 2013 were $473 million and $1.013 billion, respectively, and net earnings allocated to common shares for the three months and six months ended June 30, 2012 were $1.711 billion and $2.943 billion, respectively.

 

Other (income) expense, net, for the six months ended June 30, 2012 includes income of approximately $40 million from the resolution of a contractual agreement.  Other, net in Net cash from operating activities for 2012 includes payments of approximately $800 million to settle certain government investigations related to AbbVie’s business operations.  Other, net in Net cash from operating activities for 2013 and 2012 includes the effects of contributions to defined benefit plans of approximately $320 million in each period.

 

The components of long-term investments as of June 30, 2013 and December 31, 2012 are as follows:

 

 

 

June 30

 

December 31

 

(dollars in millions)

 

2013

 

2012

 

Equity securities

 

$

126

 

$

213

 

Other

 

28

 

61

 

Total

 

$

154

 

$

274

 

 

The reduction in long-term investments from December 31, 2012 to June 30, 2013 is due primarily to the separation of AbbVie on January 1, 2013.

 

7



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Note 4 — Other Comprehensive Income

 

The components of the changes in other comprehensive income from continuing operations, net of income taxes, is as follows:

 

 

 

Three Months Ended June 30

 

 

 

Cumulative Foreign
Currency Translation
Adjustments

 

Net Actuarial
Losses and Prior
Service Costs and
Credits

 

Cumulative
Unrealized Gains
on Marketable
Equity Securities

 

Cumulative Gains
on Derivative
Instruments
Designated as Cash
Flow Hedges

 

(dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Balance at March 31

 

$

(527

)

$

358

 

$

(2,436

)

$

(2,626

)

$

32

 

$

15

 

$

38

 

$

117

 

Other comprehensive income before reclassifications

 

(360

)

(1,090

)

 

 

7

 

5

 

12

 

29

 

Amounts reclassified from accumulated other comprehensive income (a)

 

 

(36

)

28

 

40

 

(5

)

(4

)

(15

)

(26

)

Net current period comprehensive income from continuing operations

 

(360

)

(1,126

)

28

 

40

 

2

 

1

 

(3

)

3

 

Balance at June 30

 

$

(887

)

$

(768

)

$

(2,408

)

$

(2,586

)

$

34

 

$

16

 

$

35

 

$

120

 

 

 

 

Six Months Ended June 30

 

 

 

Cumulative Foreign
Currency Translation
Adjustments

 

Net Actuarial
Losses and Prior
Service Costs and
Credits

 

Cumulative
Unrealized Gains
on Marketable
Equity Securities

 

Cumulative Gains
on Derivative
Instruments
Designated as Cash
Flow Hedges

 

(dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Balance at December 31, 2012 and 2011

 

$

(79

)

$

(73

)

$

(3,596

)

$

(2,731

)

$

31

 

$

38

 

$

50

 

$

167

 

Separation of AbbVie

 

(208

)

(8

)

1,351

 

66

 

 

(26

)

8

 

(5

)

Other comprehensive income before reclassifications

 

(600

)

(651

)

(219

)

 

14

 

5

 

(5

)

(3

)

Amounts reclassified from accumulated other comprehensive income (a)

 

 

(36

)

56

 

79

 

(11

)

(1

)

(18

)

(39

)

Net current period comprehensive income from continuing operations

 

(600

)

(687

)

(163

)

79

 

3

 

4

 

(23

)

(42

)

Balance at June 30

 

$

(887

)

$

(768

)

$

(2,408

)

$

(2,586

)

$

34

 

$

16

 

$

35

 

$

120

 

 


(a) Reclassified amounts for foreign currency translation are recorded in the Condensed Consolidated Statement of Earnings as Net foreign exchange loss (gain); gains on marketable equity securities as Other (income) expense and cash flow hedges as Cost of products sold.  Net actuarial losses and prior service cost is included as a component of net periodic benefit plan costs; see Note 7 for additional details.

 

Note 5 — Taxes on Earnings

 

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of lower statutory tax rates and tax exemptions in several foreign taxing jurisdictions.  As a result of the American Taxpayer Relief Act of 2012 signed into law in January 2013, Abbott recorded a tax benefit to taxes on continuing operations of approximately $103 million in the first quarter of 2013 for the retroactive extension of the research tax credit and the look-through rules of section 954(c)(6) of the Internal Revenue Code to the beginning of 2012.  Tax authorities in various jurisdictions regularly review Abbott’s income tax filings.  Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $550 million to $650 million, including cash adjustments, within the next twelve months as a result of concluding various tax matters.

 

8



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Note 6 — Litigation and Environmental Matters

 

Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of company-owned locations. Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure. No individual site cleanup exposure is expected to exceed $4 million, and the aggregate cleanup exposure is not expected to exceed $15 million.

 

Abbott is involved in various claims and legal proceedings, and Abbott estimates the range of possible loss for its legal proceedings and environmental exposures to be from approximately $65 million to $90 million. The recorded accrual balance at June 30, 2013 for these proceedings and exposures was approximately $75 million. This accrual represents management’s best estimate of probable loss, as defined by FASB ASC No. 450, “Contingencies.” Within the next year, legal proceedings may occur that may result in a change in the estimated loss accrued by Abbott. While it is not feasible to predict the outcome of all such proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations.

 

Note 7 — Post-Employment Benefits

 

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans.  Net cost recognized in continuing operations for the three and six months ended June 30 for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:

 

 

 

Defined Benefit Plans

 

Medical and Dental Plans

 

 

 

Three Months

 

Six Months

 

Three Months

 

Six Months

 

 

 

Ended June 30

 

Ended June 30

 

Ended June 30

 

Ended June 30

 

(dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Service cost — benefits earned during the period

 

$

76

 

$

59

 

$

152

 

$

118

 

$

11

 

$

8

 

$

23

 

$

16

 

Interest cost on projected benefit obligations

 

66

 

67

 

132

 

133

 

15

 

11

 

30

 

22

 

Expected return on plans’ assets

 

(94

)

(91

)

(187

)

(182

)

(9

)

(4

)

(18

)

(9

)

Net amortization

 

41

 

36

 

82

 

73

 

 

(1

)

 

(2

)

Net Cost

 

$

89

 

$

71

 

$

179

 

$

142

 

$

17

 

$

14

 

$

35

 

$

27

 

 

Abbott funds its domestic defined benefit plans according to IRS funding limitations.  International pension plans are funded according to applicable regulations.  In the first six months of 2013 and 2012, approximately $320 million was contributed to defined benefit plans and $40 million was contributed to the post-employment medical and dental benefit plans in each period.

 

The separation agreement with AbbVie obligates Abbott to transfer certain defined benefit and medical and dental plan liabilities and assets to AbbVie.  The net obligation is included in the assets and liabilities transferred to AbbVie as part of the separation on January 1, 2013.  Although the Abbott plans still hold some of the assets included in this net obligation, the AbbVie plans have the right to receive and Abbott has the obligation to complete the transfer of these assets.  Any such assets held by an Abbott plan as of June 30, 2013 will be transferred to the applicable AbbVie plan in 2013.  The following table summarizes these projected benefit obligations and assets at January 1, 2013:

 

(dollars in millions)

 

Defined Benefit
Plans

 

Medical and
Dental Plans

 

Projected benefit obligations

 

$

4,542

 

$

501

 

Plans’ assets

 

3,149

 

 

Net obligation transferred to AbbVie

 

$

1,393

 

$

501

 

 

In addition, Abbott transferred to AbbVie Accumulated other comprehensive income (loss), net of income taxes, of approximately $1.2 billion.

 

9



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Note 8 — Segment Information

 

Abbott’s principal business is the discovery, development, manufacture and sale of a broad line of health care products.  Abbott’s products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world.  As a result of the separation of AbbVie, Abbott no longer has a Proprietary Pharmaceutical Products segment and this business has been removed from the 2012 historical information presented below.  Abbott’s reportable segments are as follows:

 

Established Pharmaceutical Products — International sales of a broad line of branded generic pharmaceutical products.

 

Nutritional Products — Worldwide sales of a broad line of adult and pediatric nutritional products.

 

Diagnostic Products — Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites.  For segment reporting purposes, the Core Laboratories Diagnostics, Molecular Diagnostics, Point of Care and Ibis diagnostic divisions are aggregated and reported as the Diagnostic Products segment.

 

Vascular Products — Worldwide sales of coronary, endovascular, structural heart, vessel closure and other medical device products.

 

Non-reportable segments include the Diabetes Care and Medical Optics segments.

 

Abbott’s underlying accounting records are maintained on a legal entity basis for government and public reporting requirements.  Segment disclosures are on a performance basis consistent with internal management reporting.  The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost.  Remaining costs, if any, are not allocated to segments.  In addition, effective January 1, 2013, intangible asset amortization is not allocated to operating segments, and intangible assets and goodwill are not included in the measure of each segment’s assets.  After removal of intangible assets and goodwill from the measure of segment assets, the assets of the Established Pharmaceutical Products and the Vascular Products segments totaled $2.5 billion and $1.7 billion, respectively, as of June 30, 2013. The segment information below for 2012 has been adjusted to exclude intangible asset amortization.  The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.

 

 

 

Net Sales to External Customers

 

Operating Earnings

 

 

 

Three Months

 

Six Months

 

Three Months

 

Six Months

 

 

 

Ended June 30

 

Ended June 30

 

Ended June 30

 

Ended June 30

 

(dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Established Pharmaceutical Products

 

$

1,218

 

$

1,246

 

$

2,450

 

$

2,503

 

$

258

 

$

269

 

$

543

 

$

562

 

Nutritional Products

 

1,704

 

1,580

 

3,404

 

3,142

 

313

 

214

 

655

 

474

 

Diagnostic Products

 

1,135

 

1,078

 

2,223

 

2,120

 

242

 

233

 

503

 

427

 

Vascular Products

 

751

 

766

 

1,492

 

1,569

 

221

 

249

 

408

 

516

 

Total Reportable Segments

 

4,808

 

4,670

 

9,569

 

9,334

 

1,034

 

965

 

2,109

 

1,979

 

Other

 

638

 

643

 

1,255

 

1,263

 

 

 

 

 

 

 

 

 

Net Sales

 

$

5,446

 

$

5,313

 

$

10,824

 

$

10,597

 

 

 

 

 

 

 

 

 

Corporate functions and benefit plans costs

 

 

 

 

 

 

 

 

 

(127

)

(184

)

(247

)

(343

)

Non-reportable segments

 

 

 

 

 

 

 

 

 

99

 

105

 

187

 

186

 

Net interest expense

 

 

 

 

 

 

 

 

 

(24

)

(64

)

(49

)

(130

)

Share-based compensation (a)

 

 

 

 

 

 

 

 

 

(52

)

(57

)

(177

)

(185

)

Amortization of intangible assets

 

 

 

 

 

 

 

 

 

(197

)

(195

)

(396

)

(404

)

Other, net (b)

 

 

 

 

 

 

 

 

 

(132

)

(40

)

(272

)

(110

)

Consolidated Earnings from Continuing Operations Before Taxes

 

 

 

 

 

 

 

 

 

$

601

 

$

530

 

$

1,155

 

$

993

 

 


(a)         Approximately 40 to 45 percent of the annual net cost of share-based awards will typically be recognized in the first quarter due to the timing of the granting of share-based awards.

(b)         Other, net includes the Net foreign exchange loss (gain) in the Condensed Consolidated Statement of Earnings, expenses associated with restructuring programs and other costs.  For the six months ended June 30, 2012, it also includes income from the resolution of a contractual agreement.

 

10



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Note 9 — Incentive Stock Programs

 

In connection with the separation of AbbVie on January 1, 2013, Abbott modified its outstanding equity awards granted under incentive stock programs for its employees.  The awards were generally modified such that immediately following the separation, the awardees held the same number of awards in Abbott stock and an equal number of awards in AbbVie stock.  The exercise price on outstanding Abbott options was adjusted and the exercise price on the AbbVie options granted under this modification was established with the intention of generally preserving the value of the awards immediately prior to the separation.  This modification did not result in additional compensation expense.

 

In the first six months of 2013, Abbott granted 4,410,648 stock options, 856,157 replacement stock options, 835,300 restricted stock awards and 6,065,329 restricted stock units under its incentive stock programs.  At June 30, 2013, approximately 130 million shares were reserved for future grants.  Information regarding the number of options outstanding and exercisable at June 30, 2013 is as follows:

 

 

 

Outstanding

 

Exercisable

 

Number of shares

 

46,570,725

 

39,436,059

 

Weighted average remaining life (years)

 

4.2

 

3.8

 

Weighted average exercise price

 

$

26.13

 

$

24.99

 

Aggregate intrinsic value (in millions)

 

$

417

 

$

398

 

 

The total unrecognized share-based compensation cost at June 30, 2013 amounted to approximately $230 million which is expected to be recognized over the next three years.

 

Note 10 — Financial Instruments, Derivatives and Fair Value Measures

 

Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar.  These contracts, totaling $389 million and $1.6 billion at June 30, 2013 and December 31, 2012, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value.  Contracts totaling $1.0 billion were transferred to AbbVie as part of the separation on January 1, 2013.  Accumulated gains and losses as of June 30, 2013 will be included in Cost of products sold at the time the products are sold, generally through the next twelve months.  The amount of hedge ineffectiveness was not significant in 2013 and 2012.

 

Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity.  For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies and Japanese yen, in exchange for primarily U.S. dollars and other European currencies.  For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar, European currencies and Japanese yen.  At June 30, 2013 and December 31, 2012, Abbott held $11.5 billion and $18.2 billion, respectively, of such foreign currency forward exchange contracts, of which $4.3 billion of these contracts were transferred to AbbVie as part of the separation on January 1, 2013.

 

Abbott has designated foreign denominated short-term debt as a hedge of the net investment in a foreign subsidiary of approximately $540 million and approximately $615 million as of June 30, 2013 and December 31, 2012, respectively.  Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax.

 

Abbott is a party to interest rate swap contracts totaling approximately $1.5 billion at June 30, 2013 and $9.5 billion at December 31, 2012 to manage its exposure to changes in the fair value of fixed-rate debt.  $8.0 billion of these contracts related to debt issued by AbbVie Inc. in the fourth quarter of 2012 and were transferred to AbbVie as part of the separation on January 1, 2013. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates.  The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt.  Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.  No hedge ineffectiveness was recorded in income in 2013 or 2012 for these hedges.

 

11



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

The following table summarizes the amounts and location of certain derivative financial instruments as of June 30, 2013 and December 31, 2012:

 

 

 

Fair Value - Assets

 

Fair Value - Liabilities

 

(dollars in millions)

 

June 30
2013

 

Dec. 31
2012

 

Balance Sheet Caption

 

June 30
2013

 

Dec. 31
2012

 

Balance Sheet Caption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps designated as fair value hedges

 

$

104

 

$

185

 

Deferred income taxes and other assets

 

$

 

$

 80

 

Post-employment obligations, deferred income taxes and other long-term liabilities

 

Foreign currency forward exchange contracts —

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging instruments

 

30

 

22

 

Prepaid expenses,

 

 

11

 

Other accrued liabilities

 

Others not designated as hedges

 

95

 

98

 

deferred income taxes, and other receivables

 

169

 

135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt designated as a hedge of net investment in a foreign subsidiary

 

 

 

n/a

 

540

 

615

 

Short-term borrowings

 

 

 

$

229

 

$

305

 

 

 

$

709

 

$

841

 

 

 

 

The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in a foreign subsidiary and the amounts and location of income (expense) and gain (loss) reclassified into income in the second quarter and first six months of 2013 and 2012 and for certain other derivative financial instruments.  The amount of hedge ineffectiveness was not significant in 2013 and 2012 for these hedges.

 

 

 

Gain (loss) Recognized in Other
Comprehensive Income (loss)

 

Income (expense) and Gain (loss)
Reclassified into Income

 

 

 

 

 

Three Months
Ended June 30

 

Six Months
 Ended June 30

 

Three Months
Ended June 30

 

Six Months
 Ended June 30

 

Income Statement

 

(dollars in millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Caption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward exchange contracts designated as cash flow hedges

 

$

14

 

$

52

 

$

31

 

$

(2

)

$

11

 

$

26

 

$

14

 

$

39

 

Cost of products sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt designated as a hedge of net investment in a foreign subsidiary

 

25

 

(25

)

75

 

10

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps designated as fair value hedges

 

n/a

 

n/a

 

n/a

 

n/a

 

(71

)

93

 

(81

)

83

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward exchange contracts not designated as hedges

 

n/a

 

n/a

 

n/a

 

n/a

 

50

 

112

 

140

 

138

 

Net foreign exchange loss (gain)

 

 

The interest rate swaps are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates.  The hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market.

 

12



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

The carrying values and fair values of certain financial instruments as of June 30, 2013 and December 31, 2012 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values.  The counterparties to financial instruments consist of select major international financial institutions.  Abbott does not expect any losses from nonperformance by these counterparties.

 

 

 

June 30 2013

 

December 31 2012

 

(dollars in millions)

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 

Long-term Investment Securities:

 

 

 

 

 

 

 

 

 

Equity securities

 

$

126

 

$

126

 

$

213

 

$

213

 

Other

 

28

 

26

 

61

 

56

 

Total Long-term Debt

 

(3,675

)

(4,189

)

(18,394

)

(19,588

)

Foreign Currency Forward Exchange Contracts:

 

 

 

 

 

 

 

 

 

Receivable position

 

125

 

125

 

120

 

120

 

(Payable) position

 

(169

)

(169

)

(146

)

(146

)

Interest Rate Hedge Contracts

 

 

 

 

 

 

 

 

 

Receivable position

 

104

 

104

 

185

 

185

 

(Payable) position

 

 

 

(80

)

(80

)

 

The fair value of the debt was determined based on significant other observable inputs, including current interest rates.

 

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:

 

 

 

 

 

Basis of Fair Value Measurement

 

(dollars in millions)

 

Outstanding
Balances

 

Quoted
Prices in
Active
Markets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

June 30, 2013:

 

 

 

 

 

 

 

 

 

Equity securities

 

$

62

 

$

62

 

$

 

$

 

Interest rate swap derivative financial instruments

 

104

 

 

104

 

 

Foreign currency forward exchange contracts

 

125

 

 

125

 

 

Total Assets

 

$

291

 

$

62

 

$

229

 

$

 

 

 

 

 

 

 

 

 

 

 

Fair value of hedged long-term debt

 

$

1,641

 

$

 

$

1,641

 

$

 

Foreign currency forward exchange contracts

 

169

 

 

169

 

 

Contingent consideration related to business combinations

 

195

 

 

 

195

 

Total Liabilities

 

$

2,005

 

$

 

$

1,810

 

$

195

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012:

 

 

 

 

 

 

 

 

 

Equity securities

 

$

 76

 

$

76

 

$

 

$

 —

 

Interest rate swap derivative financial instruments

 

185

 

 

185

 

 

Foreign currency forward exchange contracts

 

120

 

 

120

 

 

Total Assets

 

$

381

 

$

76

 

$

305

 

$

  —

 

 

 

 

 

 

 

 

 

 

 

Fair value of hedged long-term debt

 

$

9,632

 

$

 

$

9,632

 

$

 —

 

Interest rate swap derivative financial instruments

 

80

 

 

80

 

 

Foreign currency forward exchange contracts

 

146

 

 

146

 

 

Contingent consideration related to business combinations

 

323

 

 

 

323

 

Total Liabilities

 

$

10,181

 

$

 

$

9,858

 

$

323

 

 

The fair value of the debt was determined based on the face value of the debt adjusted for the fair value of the interest rate swaps, which is based on a discounted cash flow analysis.  The fair value of the contingent consideration was determined based on an independent appraisal adjusted for the time value of money, exchange, payments and other changes in fair value.

 

13



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

Note 11 — Goodwill and Intangible Assets

 

Foreign currency translation adjustments and other adjustments decreased goodwill in the first six months of 2013 and 2012 by approximately $290 million and approximately $350 million, respectively.  In addition, in connection with the separation of AbbVie on January 1, 2013, Abbott transferred approximately $6.1 billion of goodwill to AbbVie. The amount of goodwill related to reportable segments at June 30, 2013 was $2.9 billion for the Established Pharmaceutical Products segment, $210 million for the Nutritional Products segment, $386 million for the Diagnostic Products segment, and $2.7 billion for the Vascular Products segment.  Other than the effects of the separation of AbbVie, there were no reductions of goodwill relating to the disposal of all or a portion of a business.  There was no reduction of goodwill relating to impairments.

 

The gross amount of amortizable intangible assets, primarily product rights and technology was $11.8 billion as of June 30, 2013 and $17.6 billion as of December 31, 2012, and accumulated amortization was $6.4 billion as of June 30, 2013 and $9.7 billion as of December 31, 2012.  Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, was approximately $258 million at June 30, 2013 and $691 million at December 31, 2012.  Gross amortizable intangible assets, accumulated amortization and indefinite-lived intangible assets of $5.8 billion, $3.9 billion and $416 million, respectively, were transferred to AbbVie as part of the separation on January 1, 2013.  Abbott’s estimated annual amortization expense for intangible assets is approximately $795 million in 2013, $655 million in 2014, $600 million in 2015, $580 million in 2016 and $545 million in 2017.  Amortizable intangible assets are amortized over 2 to 20 years (average 11 years).

 

Note 12 — Restructuring Plans

 

In the third quarter 2012, Abbott management approved plans to streamline various commercial operations in order to reduce costs and improve efficiencies in Abbott’s core diagnostics, established pharmaceutical and nutritionals businesses. Abbott recorded employee related severance charges of approximately $167 million in 2012.  Additional charges of approximately $22 million were also recorded in 2012, primarily for asset impairments. Approximately $70 million is recorded in Cost of products sold and approximately $119 million as Selling, general and administrative expense. Through December 31, 2012, no significant cash payments were made relating to these actions.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2013

 

Restructuring charges recorded in 2012

 

$

167

 

Payments and other adjustments

 

(73

)

Accrued balance at June 30

 

$

94

 

 

In 2011 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2013

 

2012

 

Accrued balance at December 31, 2012 and 2011

 

$

129

 

$

177

 

Transfer of liability to AbbVie

 

(62

)

 

Payments and other adjustments

 

(40

)

(6

)

Accrued balance at June 30

 

$

27

 

$

171

 

 

Additional charges of $16 million and $10 million were recorded in the first six months of 2013 and 2012, respectively, relating to these restructurings, primarily for accelerated depreciation.

 

14



 

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited), continued

 

In 2012 and 2010, Abbott management approved restructuring plans primarily related to the acquisition of Solvay Pharmaceuticals.  These plans streamline operations, improve efficiencies and reduce costs in certain sites and functions as well as in certain commercial organizations in various countries.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2013

 

2012

 

Accrued balance at December 31, 2012 and 2011

 

$

115

 

$

108

 

Transfer of liability to AbbVie

 

(115

)

 

Payments and other adjustments

 

 

(90

)

Accrued balance at June 30

 

$

 

$

18

 

 

In 2011 and 2008, Abbott management approved plans to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2013

 

2012

 

Accrued balance at December 31, 2012 and 2011

 

$

56

 

$

79

 

Payments and other adjustments

 

(6

)

(17

)

Accrued balance at June 30

 

$

50

 

$

62

 

 

Additional charges of approximately $4 million and $8 million were recorded in the first six months of 2013 and 2012, respectively, relating to this restructuring, primarily for product transfer costs.

 

Note 13 — Subsequent Events — Business Acquisitions

 

In July 2013, Abbott announced that it entered into agreements to acquire IDEV Technologies and OptiMedica.  The acquisition of IDEV Technologies will expand Abbott’s endovascular portfolio and the acquisition of OptiMedica will provide Abbott with an immediate entry point into the laser assisted cataract surgery market.  Under the terms of the agreement, Abbott will acquire all of the outstanding equity of IDEV Technologies for $310 million, net of cash and debt held by IDEV. Under the terms of the agreement, Abbott will acquire OptiMedica for $250 million in cash, net of cash held by OptiMedica, plus additional payments totaling up to $150 million upon completion of certain development, regulatory and sales milestones.

 

15



 

FINANCIAL REVIEW

 

Results of Operations

 

The following table details sales by reportable segment for the three months and six months ended June 30.  Percent changes are versus the prior year and are based on unrounded numbers.

 

 

 

Net Sales to External Customers

 

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

(dollars in millions)

 

2013

 

Percent
Change

 

2012

 

Percent
Change

 

2013

 

Percent
Change

 

2012

 

Percent
Change

 

Established Pharmaceutical Products

 

$

1,218

 

(2.3

)

$

1,246

 

(6.0

)

$

2,450

 

(2.1

)

$

2,503

 

(3.9

)

Nutritional Products

 

1,704

 

7.9

 

1,580

 

6.3

 

3,404

 

8.3

 

3,142

 

8.2

 

Diagnostic Products

 

1,135

 

5.3

 

1,078

 

3.8

 

2,223

 

4.9

 

2,120

 

4.9

 

Vascular Products

 

751

 

(2.0

)

766

 

(8.3

)

1,492

 

(4.9

)

1,569

 

(6.6

)

Total Reportable Segments

 

4,808

 

3.0

 

4,670

 

(0.3

)

9,569

 

2.5

 

9,334

 

1.4

 

Other

 

638

 

(0.8

)

643

 

(1.9

)

1,255

 

(0.7

)

1,263

 

(1.1

)

Net Sales

 

$

5,446

 

2.5

 

$

5,313

 

(0.5

)

$

10,824

 

2.1

 

$

10,597

 

1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total U.S.

 

$

1,560

 

(2.8

)

$

1,605

 

3.0

 

$

3,094

 

(3.0

)

$

3,191

 

3.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total International

 

$

3,886

 

4.8

 

$

3,708

 

(2.0

)

$

7,730

 

4.4

 

$

7,406

 

 

 

The net sales growth for the second quarter and first six months of 2013 reflects unit growth, partially offset by unfavorable exchange.  Excluding 1.7 percent of unfavorable exchange for the second quarter and first six months of 2013, net sales increased 4.2 percent and 3.8 percent, respectively.  The relatively stronger U.S. dollar decreased second quarter 2013 Total International sales by 2.4 percent, decreased Established Pharmaceutical Products segment sales by 2.5 percent, decreased Nutritional Product segment sales by 0.5 percent, decreased Diagnostic Products segment sales by 2.3 percent and decreased Vascular Products segment sales by 1.9 percent over the second quarter of 2012.  The relatively stronger U.S. dollar decreased the first six months 2013 Total International sales by 2.4 percent, decreased Established Pharmaceutical Products segment sales by 2.8 percent, decreased Nutritional Product segment sales by 0.4 percent, decreased Diagnostic Products segment sales by 2.1 percent and decreased Vascular Products segment sales by 1.8 percent over the first six months of 2012.  In addition to unfavorable exchange, the decrease in 2013 and 2012 Vascular Products sales reflects the winding down of royalty and supply agreements related to certain third-party products, including Promus.  Excluding this royalty and supply agreement revenue in both periods and the unfavorable effect of exchange, year-to-date Vascular Products sales decreased 0.9 percent in 2013 and increased 4.5 percent in 2012.  The decrease in 2013 is due primarily to pricing pressures on drug eluting stents and other coronary products as a result of market competition in major markets, partially offset by the sales of new products.

 

The net sales growth for the second quarter and first six months of 2012 reflects unit growth, partially offset by unfavorable exchange.  Excluding 5.0 percent and 3.2 percent of unfavorable exchange for the second quarter and first six months of 2012, net sales increased 4.5 percent and 4.3 percent, respectively.  The relatively stronger U.S. dollar decreased second quarter 2012 Total International sales by 7.0 percent, decreased Established Pharmaceutical Products segment sales by 9.8 percent, decreased Nutritional Product segment sales by 2.0 percent, decreased Diagnostic Products segment sales by 4.9 percent and decreased Vascular Products segment sales by 3.6 percent over the second quarter of 2011.  The relatively stronger U.S. dollar decreased the first six months 2012 Total International sales by 4.6 percent, decreased Established Pharmaceutical Products segment sales by 6.7 percent, decreased Nutritional Product segment sales by 1.2 percent, decreased Diagnostic Products segment sales by 3.2 percent and decreased Vascular Products segment sales by 2.0 percent over the first six months of 2011.

 

16



 

FINANCIAL REVIEW

(continued)

 

A comparison of significant product group sales for the six months ended June 30 is as follows.  Percent changes are versus the prior year and are based on unrounded numbers.

 

(dollars in millions)

 

2013

 

Percent
Change

 

2012

 

Percent
Change

 

Established Pharmaceutical Products sales —

 

 

 

 

 

 

 

 

 

Key Emerging Markets

 

$

1,175

 

3

 

$

1,136

 

3

 

Other Markets

 

1,275

 

(7

)

1,367

 

(9

)

 

 

 

 

 

 

 

 

 

 

Nutritionals —

 

 

 

 

 

 

 

 

 

U.S. Pediatric Nutritionals

 

756

 

 

759

 

20

 

International Pediatric Nutritionals

 

1,193

 

21

 

990

 

7

 

U.S. Adult Nutritionals

 

677

 

(1

)

681

 

5

 

International Adult Nutritionals

 

778

 

9

 

712

 

2

 

 

 

 

 

 

 

 

 

 

 

Diagnostics —

 

 

 

 

 

 

 

 

 

Immunochemistry

 

1,696

 

4

 

1,630

 

5

 

 

 

 

 

 

 

 

 

 

 

Vascular Products (1) —

 

 

 

 

 

 

 

 

 

Drug Eluting Stents (DES) and Bioresorbable Vascular Scaffold (BVS) products

 

776

 

(3

)

804

 

4

 

Other Coronary products

 

292