UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172018
OR
oTRANSITION 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. | ||
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| 36-0698440 |
100 Abbott Park Road
Abbott Park, Illinois 60064-6400
Telephone: (224) 667-6100
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 l9341934 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x |
| Accelerated Filer o |
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Non-Accelerated Filer o |
| Smaller reporting company o |
(Do not check if a smaller reporting company) |
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| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 SeptemberJune 30, 2017,2018, Abbott Laboratories had 1,740,600,6871,754,319,284 common shares without par value outstanding.
Abbott Laboratories
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Item 1. Financial Statements and Supplementary Data |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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30 | ||
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30 | ||
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 31 | |
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33 |
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Earnings
(Unaudited)
(dollars in millions except per share data; shares in thousands)
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| Three Months Ended |
| Nine Months Ended |
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| Three Months Ended |
| Six Months Ended |
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| September 30 |
| September 30 |
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| June 30 |
| June 30 |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
| $ | 6,829 |
| $ | 5,302 |
| $ | 19,801 |
| $ | 15,520 |
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| $ | 7,767 |
| $ | 6,637 |
| $ | 15,157 |
| $ | 12,972 |
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Cost of products sold, excluding amortization of intangible assets |
| 2,857 |
| 2,285 |
| 9,074 |
| 6,712 |
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| 3,282 |
| 3,189 |
| 6,349 |
| 6,251 |
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Amortization of intangible assets |
| 501 |
| 140 |
| 1,415 |
| 429 |
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| 562 |
| 392 |
| 1,146 |
| 914 |
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Research and development |
| 562 |
| 352 |
| 1,622 |
| 1,079 |
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| 575 |
| 520 |
| 1,164 |
| 1,073 |
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Selling, general and administrative |
| 2,099 |
| 1,628 |
| 6,655 |
| 5,063 |
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| 2,466 |
| 2,150 |
| 5,008 |
| 4,590 |
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Total operating cost and expenses |
| 6,019 |
| 4,405 |
| 18,766 |
| 13,283 |
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| 6,885 |
| 6,251 |
| 13,667 |
| 12,828 |
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Operating earnings |
| 810 |
| 897 |
| 1,035 |
| 2,237 |
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| 882 |
| 386 |
| 1,490 |
| 144 |
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Interest expense |
| 218 |
| 117 |
| 658 |
| 278 |
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| 210 |
| 214 |
| 437 |
| 440 |
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Interest (income) |
| (36 | ) | (22 | ) | (89 | ) | (75 | ) |
| (21 | ) | (31 | ) | (49 | ) | (53 | ) | ||||||||
Net foreign exchange loss (gain) |
| (6 | ) | 9 |
| (34 | ) | 497 |
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Other expense (income), net |
| 8 |
| 972 |
| (1,157 | ) | 999 |
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Earnings (loss) from continuing operations before taxes |
| 626 |
| (179 | ) | 1,657 |
| 538 |
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Taxes on earnings (loss) from continuing operations |
| 65 |
| 178 |
| 440 |
| 240 |
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Earnings (loss) from continuing operations |
| 561 |
| (357 | ) | 1,217 |
| 298 |
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Net foreign exchange (gain) loss |
| (6 | ) | (12 | ) | (9 | ) | (28 | ) | |||||||||||||||||
Net loss on extinguishment of debt |
| — |
| — |
| 14 |
| — |
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Other (income) expense, net |
| (78 | ) | (80 | ) | (111 | ) | (1,246 | ) | |||||||||||||||||
Earnings from continuing operations before taxes |
| 777 |
| 295 |
| 1,208 |
| 1,031 |
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Taxes on earnings from continuing operations |
| 59 |
| 25 |
| 81 |
| 375 |
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Earnings from continuing operations |
| 718 |
| 270 |
| 1,127 |
| 656 |
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Earnings from discontinued operations, net of tax |
| 42 |
| 28 |
| 88 |
| 288 |
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| 15 |
| 13 |
| 24 |
| 46 |
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Gain on sale of discontinued operations, net of tax |
| — |
| — |
| — |
| 16 |
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Net earnings from discontinued operations, net of tax |
| 42 |
| 28 |
| 88 |
| 304 |
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Net Earnings (Loss) |
| $ | 603 |
| $ | (329 | ) | $ | 1,305 |
| $ | 602 |
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Basic Earnings (Loss) Per Common Share — |
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Net Earnings |
| $ | 733 |
| $ | 283 |
| $ | 1,151 |
| $ | 702 |
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Basic Earnings Per Common Share — |
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Continuing operations |
| $ | 0.32 |
| $ | (0.24 | ) | $ | 0.70 |
| $ | 0.20 |
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| $ | 0.41 |
| $ | 0.15 |
| $ | 0.64 |
| $ | 0.37 |
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Discontinued operations |
| 0.02 |
| 0.02 |
| 0.05 |
| 0.21 |
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| 0.01 |
| 0.01 |
| 0.01 |
| 0.03 |
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Net earnings (loss) |
| $ | 0.34 |
| $ | (0.22 | ) | $ | 0.75 |
| $ | 0.41 |
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Net earnings |
| $ | 0.42 |
| $ | 0.16 |
| $ | 0.65 |
| $ | 0.40 |
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Diluted Earnings (Loss) Per Common Share — |
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Diluted Earnings Per Common Share — |
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Continuing operations |
| $ | 0.32 |
| $ | (0.24 | ) | $ | 0.69 |
| $ | 0.20 |
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| $ | 0.40 |
| $ | 0.15 |
| $ | 0.63 |
| $ | 0.37 |
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Discontinued operations |
| 0.02 |
| 0.02 |
| 0.05 |
| 0.20 |
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| 0.01 |
| 0.01 |
| 0.01 |
| 0.03 |
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Net earnings (loss) |
| $ | 0.34 |
| $ | (0.22 | ) | $ | 0.74 |
| $ | 0.40 |
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Net earnings |
| $ | 0.41 |
| $ | 0.16 |
| $ | 0.64 |
| $ | 0.40 |
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Cash Dividends Declared Per Common Share |
| $ | 0.265 |
| $ | 0.26 |
| $ | 0.795 |
| $ | 0.78 |
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| $ | 0.28 |
| $ | 0.265 |
| $ | 0.56 |
| $ | 0.53 |
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Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share |
| 1,743,757 |
| 1,476,366 |
| 1,737,310 |
| 1,476,351 |
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| 1,757,836 |
| 1,740,524 |
| 1,755,691 |
| 1,734,008 |
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Dilutive Common Stock Options |
| 10,399 |
| — |
| 8,866 |
| 6,329 |
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| 11,114 |
| 8,359 |
| 11,490 |
| 8,099 |
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Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options |
| 1,754,156 |
| 1,476,366 |
| 1,746,176 |
| 1,482,680 |
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| 1,768,950 |
| 1,748,883 |
| 1,767,181 |
| 1,742,107 |
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Outstanding Common Stock Options Having No Dilutive Effect |
| 282 |
| 12,103 |
| 282 |
| 5,445 |
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| 93 |
| 5,258 |
| 93 |
| 5,258 |
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The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
(dollars in millions)
|
| Three Months Ended |
| Nine Months Ended |
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| September 30 |
| September 30 |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Net Earnings (Loss) |
| $ | 603 |
| $ | (329 | ) | $ | 1,305 |
| $ | 602 |
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Foreign currency translation gain adjustments |
| 285 |
| 89 |
| 1,106 |
| 406 |
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Net actuarial gains (losses) and amortization of net actuarial (losses) and prior service (cost) and credits, net of taxes of $11 and $34 in 2017 and $8 and $5 in 2016 |
| 23 |
| 15 |
| 86 |
| (14 | ) | ||||
Unrealized gains (losses) on marketable equity securities, net of taxes of $2 and $62 in 2017 and $(28) and $(28) in 2016 |
| (136 | ) | 613 |
| (54 | ) | (143 | ) | ||||
Net (losses) for derivative instruments designated as cash flow hedges and other, net of taxes of $(10) and $(49) in 2017 and $(7) and $(31) in 2016 |
| (38 | ) | (27 | ) | (140 | ) | (124 | ) | ||||
Other comprehensive income |
| 134 |
| 690 |
| 998 |
| 125 |
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Comprehensive Income |
| $ | 737 |
| $ | 361 |
| $ | 2,303 |
| $ | 727 |
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| Three Months Ended |
| Six Months Ended |
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| June 30 |
| June 30 |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net Earnings |
| $ | 733 |
| $ | 283 |
| $ | 1,151 |
| $ | 702 |
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Foreign currency translation gain (loss) adjustments |
| (1,359 | ) | 288 |
| (1,026 | ) | 821 |
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Net actuarial gains (losses) and amortization of net actuarial (losses) and prior service (cost) and credits, net of taxes of $15 and $32 in 2018 and $11 and $23 in 2017 |
| 61 |
| 29 |
| 84 |
| 63 |
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Unrealized gains (losses) on marketable equity securities, net of taxes of $7 and $60 in 2017 |
| — |
| 2 |
| — |
| 82 |
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Net gains (losses) for derivative instruments designated as cash flow hedges and other, net of taxes of $48 and $28 in 2018 and $(15) and $(39) in 2017 |
| 118 |
| (37 | ) | 86 |
| (102 | ) | ||||
Other comprehensive income (loss) |
| (1,180 | ) | 282 |
| (856 | ) | 864 |
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Comprehensive Income (Loss) |
| $ | (447 | ) | $ | 565 |
| $ | 295 |
| $ | 1,566 |
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| September 30, |
| December 31, |
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| June 30, |
| December 31, |
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Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax: |
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Cumulative foreign currency translation (loss) adjustments |
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| $ | (3,711 | ) | $ | (4,959 | ) |
| $ | (4,478 | ) | $ | (3,452 | ) |
Net actuarial (losses) and prior service cost and credits |
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| (2,192 | ) | (2,284 | ) | |||||||||
Net actuarial (losses) and prior service (costs) and credits |
| (2,437 | ) | (2,521 | ) | |||||||||||||
Cumulative unrealized gains (losses) on marketable equity securities |
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| (123 | ) | (69 | ) |
| — |
| (5 | ) | ||||
Cumulative (losses) gains on derivative instruments designated as cash flow hedges and other |
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| (90 | ) | 49 |
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Cumulative gains (losses) on derivative instruments designated as cash flow hedges and other |
| 2 |
| (84 | ) | |||||||||||||
Accumulated other comprehensive income (loss) |
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| $ | (6,116 | ) | $ | (7,263 | ) |
| $ | (6,913 | ) | $ | (6,062 | ) |
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Balance Sheet
(Unaudited)
(dollars in millions)
|
| September 30, |
| December 31, |
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| June 30, |
| December 31, |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
| $ | 11,012 |
| $ | 18,620 |
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| $ | 3,065 |
| $ | 9,407 |
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Short-term investments |
| 187 |
| 155 |
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| 199 |
| 203 |
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Trade receivables, less allowances of $279 in 2017 and $250 in 2016 |
| 4,800 |
| 3,248 |
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Trade receivables, less allowances of $319 in 2018 and $294 in 2017 |
| 5,192 |
| 5,249 |
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Inventories: |
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Finished products |
| 2,273 |
| 1,624 |
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| 2,264 |
| 2,339 |
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Work in process |
| 456 |
| 294 |
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| 563 |
| 472 |
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Materials |
| 754 |
| 516 |
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| 887 |
| 790 |
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Total inventories |
| 3,483 |
| 2,434 |
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| 3,714 |
| 3,601 |
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Prepaid expenses and other receivables |
| 1,895 |
| 1,806 |
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| 1,935 |
| 1,667 |
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Current assets held for disposition |
| — |
| 513 |
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| 17 |
| 20 |
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Total Current Assets |
| 21,377 |
| 26,776 |
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| 14,122 |
| 20,147 |
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Investments |
| 1,386 |
| 2,947 |
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| 940 |
| 883 |
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Property and equipment, at cost |
| 14,698 |
| 12,366 |
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| 15,309 |
| 15,265 |
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Less: accumulated depreciation and amortization |
| 7,479 |
| 6,661 |
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| 7,877 |
| 7,658 |
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Net property and equipment |
| 7,219 |
| 5,705 |
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| 7,432 |
| 7,607 |
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Intangible assets, net of amortization |
| 18,578 |
| 4,539 |
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| 19,951 |
| 21,473 |
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Goodwill |
| 22,066 |
| 7,683 |
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| 23,844 |
| 24,020 |
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Deferred income taxes and other assets |
| 1,565 |
| 2,263 |
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| 2,005 |
| 1,944 |
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Non-current assets held for disposition |
| 57 |
| 2,753 |
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| 121 |
| 176 |
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| $ | 72,248 |
| $ | 52,666 |
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| $ | 68,415 |
| $ | 76,250 |
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Liabilities and Shareholders’ Investment |
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Current Liabilities: |
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Short-term borrowings |
| $ | 211 |
| $ | 1,322 |
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| $ | 341 |
| $ | 206 |
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Trade accounts payable |
| 1,858 |
| 1,178 |
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| 2,503 |
| 2,402 |
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Salaries, wages and commissions |
| 1,103 |
| 752 |
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| 1,034 |
| 1,187 |
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Other accrued liabilities |
| 3,617 |
| 2,581 |
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| 3,887 |
| 3,811 |
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Dividends payable |
| 462 |
| 391 |
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| 492 |
| 489 |
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Income taxes payable |
| 180 |
| 188 |
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| 188 |
| 309 |
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Current portion of long-term debt |
| 504 |
| 3 |
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| 506 |
| 508 |
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Current liabilities held for disposition |
| — |
| 245 |
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Total Current Liabilities |
| 7,935 |
| 6,660 |
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| 8,951 |
| 8,912 |
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Long-term debt |
| 23,310 |
| 20,681 |
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| 19,823 |
| 27,210 |
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Post-employment obligations, deferred income taxes and other long-term liabilities |
| 8,785 |
| 4,549 |
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| 8,867 |
| 9,030 |
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Non-current liabilities held for disposition |
| — |
| 59 |
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Commitments and Contingencies |
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Shareholders’ Investment: |
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Preferred shares, one dollar par value Authorized — 1,000,000 shares, none issued |
| — |
| — |
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| — |
| — |
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Common shares, without par value Authorized — 2,400,000,000 shares |
| 23,118 |
| 13,027 |
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Common shares held in treasury, at cost — Shares: 2017: 223,724,084; 2016: 234,606,250 |
| (10,290 | ) | (10,791 | ) | |||||||||
Common shares, without par value Authorized — 2,400,000,000 shares |
| 23,317 |
| 23,206 |
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Common shares held in treasury, at cost — Shares: 2018: 215,256,082; 2017: 222,305,719 |
| (9,907 | ) | (10,225 | ) | |||||||||
Earnings employed in the business |
| 25,320 |
| 25,565 |
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| 24,080 |
| 23,978 |
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Accumulated other comprehensive income (loss) |
| (6,116 | ) | (7,263 | ) |
| (6,913 | ) | (6,062 | ) | ||||
Total Abbott Shareholders’ Investment |
| 32,032 |
| 20,538 |
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| 30,577 |
| 30,897 |
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Noncontrolling Interests in Subsidiaries |
| 186 |
| 179 |
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| 197 |
| 201 |
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Total Shareholders’ Investment |
| 32,218 |
| 20,717 |
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| 30,774 |
| 31,098 |
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| $ | 72,248 |
| $ | 52,666 |
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| $ | 68,415 |
| $ | 76,250 |
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The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(dollars in millions)
|
| Nine Months Ended September 30 |
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| Six Months Ended June 30 |
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| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Cash Flow From (Used in) Operating Activities: |
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Net earnings |
| $ | 1,305 |
| $ | 602 |
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| $ | 1,151 |
| $ | 702 |
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Adjustments to reconcile net earnings to net cash from operating activities - |
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Depreciation |
| 763 |
| 605 |
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| 556 |
| 508 |
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Amortization of intangible assets |
| 1,415 |
| 429 |
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| 1,146 |
| 914 |
| ||||
Share-based compensation |
| 338 |
| 263 |
|
| 313 |
| 263 |
| ||||
Impact of currency devaluation |
| — |
| 481 |
| |||||||||
Amortization of inventory step-up |
| 840 |
| — |
|
| 32 |
| 822 |
| ||||
Gain on sale of businesses |
| (1,163 | ) | (25 | ) |
| — |
| (1,151 | ) | ||||
Mylan N.V. equity investment adjustment |
| — |
| 947 |
| |||||||||
Trade receivables |
| (169 | ) | (116 | ) |
| (137 | ) | (56 | ) | ||||
Inventories |
| 39 |
| (152 | ) |
| (336 | ) | (127 | ) | ||||
Other, net |
| 562 |
| (1,001 | ) |
| (373 | ) | 50 |
| ||||
Net Cash From Operating Activities |
| 3,930 |
| 2,033 |
|
| 2,352 |
| 1,925 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash Flow From (Used in) Investing Activities: |
|
|
|
|
|
|
|
|
|
| ||||
Acquisitions of property and equipment |
| (790 | ) | (802 | ) |
| (573 | ) | (527 | ) | ||||
Acquisitions of businesses and technologies, net of cash acquired |
| (13,027 | ) | (73 | ) |
| — |
| (13,027 | ) | ||||
Proceeds from business dispositions |
| 5,442 |
| 25 |
|
| 48 |
| 5,471 |
| ||||
Proceeds from the sale of Mylan N.V. shares |
| 1,977 |
| — |
|
| — |
| 1,924 |
| ||||
Sales (Purchases) of other investment securities, net |
| (98 | ) | (982 | ) | |||||||||
Sales (purchases) of other investment securities, net |
| (42 | ) | (28 | ) | |||||||||
Other |
| 30 |
| 34 |
|
| 30 |
| 27 |
| ||||
Net Cash (Used in) Investing Activities |
| (6,466 | ) | (1,798 | ) |
| (537 | ) | (6,160 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash Flow From (Used in) Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||
Net (repayments of) short-term debt and other |
| (1,424 | ) | (682 | ) | |||||||||
Net borrowings (repayments) of short-term debt and other |
| 140 |
| (1,429 | ) | |||||||||
Repayments of long-term debt |
| (2,508 | ) | (11 | ) |
| (7,280 | ) | (2,507 | ) | ||||
Payment of debt issuance costs |
| (8 | ) | (170 | ) | |||||||||
Payment of contingent consideration |
| (13 | ) | (25 | ) |
| — |
| (13 | ) | ||||
Purchases of common shares |
| (106 | ) | (522 | ) |
| (131 | ) | (98 | ) | ||||
Proceeds from stock options exercised |
| 275 |
| 206 |
|
| 170 |
| 186 |
| ||||
Dividends paid |
| (1,385 | ) | (1,153 | ) |
| (985 | ) | (922 | ) | ||||
Net Cash (Used in) Financing Activities |
| (5,169 | ) | (2,357 | ) |
| (8,086 | ) | (4,783 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of exchange rate changes on cash and cash equivalents |
| 97 |
| (379 | ) |
| (71 | ) | 73 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net Decrease in Cash and Cash Equivalents |
| (7,608 | ) | (2,501 | ) |
| (6,342 | ) | (8,945 | ) | ||||
Cash and Cash Equivalents, Beginning of Year |
| 18,620 |
| 5,001 |
|
| 9,407 |
| 18,620 |
| ||||
Cash and Cash Equivalents, End of Period |
| $ | 11,012 |
| $ | 2,500 |
|
| $ | 3,065 |
| $ | 9,675 |
|
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
SeptemberJune 30, 2017
2018
(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 for the year ended December 31, 2016.2017. The condensed consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.
Note 2 — New Accounting Standards
Recently Adopted Accounting Standards
In March 2016,2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,2017-07, ImprovementsCompensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost which changes the financial statement presentation requirements for pension and other postretirement benefit expense. While service cost continues to Employee Share-Based Payment Accounting.be reported in the same financial statement line items as other current employee compensation costs, the ASU 2016-09 modifies several aspectsrequires all other components of the accounting for share-based payment transactions, including the accounting forpension and other postretirement benefit expense to be presented separately from service cost, and outside any subtotal of income taxes and classification on the statement of cash flows. from operations. Abbott adopted the standard in the first quarter of 20172018 and the following changes were made to the presentation of Abbott’s financial statements:
· All excess tax benefits or tax deficiencies are now recognized as income tax benefit or expense as applicable. Previously, Abbott recorded the benefits to Shareholders’ Investment. The tax benefit recorded in Abbott’s Condensed Consolidated Statement of Earnings forwas retrospectively adjusted, resulting in the third quarter andreclassification of approximately $80 million of income from Operating earnings to Other (income) expense, net in the first ninesix months of 2017 were $29 million and $92 million, respectively. The standard does not permit retrospective presentation of this benefit in prior years.2017.
·In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. Abbott adopted this standard beginning in the first quarter of 2018, and applied the guidance retrospectively to all periods presented. Abbott did not have any restricted cash balances in the periods presented except for $75 million of restricted cash acquired as part of the Alere Inc. acquisition in October 2017. The restrictions on this cash were eliminated prior to the end of 2017.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax benefit or deficiency is requiredeffects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Abbott adopted the standard on January 1, 2018, using a modified retrospective approach and recorded a cumulative catch-up adjustment to be classified as an operating activityEarnings employed in the business in the Condensed Consolidated Balance Sheet that was not significant.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies should present and classify certain cash receipts and cash payments in the statement of cash flows. Previously, it was required to be classified within financing activities.The ASU became effective for Abbott has adopted this standard on a prospective basis and has not revised the classification of the excess tax benefit in the prior year’sfirst quarter of 2018 and did not have a material impact to the Company’s Condensed Consolidated Statement of Cash Flows.
Note 2 — Discontinued Operations
On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. (Mylan) for 110 million shares (or approximately 22%) of a newly formed entity (Mylan N.V.) that combined Mylan’s existing business and Abbott’s developed markets branded generics pharmaceuticals business. Mylan N.V. is publicly traded. The shareholder agreement with Mylan N.V. included voting and other restrictions that prevented Abbott from exercising significant influence over the operating and financial policies of Mylan N.V.
In April 2015,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. Abbott sold 40.25 millionadopted the standard on January 1, 2018. Under the new standard, changes in the fair value of equity investments with readily determinable fair values are recorded in Other (income) expense, net within the Consolidated Statement of Earnings. Previously, such fair value changes were recorded in other comprehensive income. Abbott has elected the measurement alternative allowed by ASU 2016-01 for its equity investments without readily determinable fair values. These investments are measured at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the 110 million ordinary sharessame issuer. Changes in the measurement of Mylan N.V.these investments are being recorded in Other (income) expense, net within the Statement of Earnings. As a resultpart of this sale, Abbott’s ownership interestthe adoption, the cumulative-effect adjustment to Earnings employed in Mylan N.V. decreasedthe business in the Condensed Consolidated Balance Sheet for net unrealized losses on equity investments that were recorded in Accumulated other comprehensive income (loss) as of December 31, 2017 was not significant.
Abbott Laboratories and Subsidiaries
Notes to approximately 14%.the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
In May 2014, the first nine monthsFASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of 2017,the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Abbott sold 51 million ordinary sharesadopted the new standard as of Mylan N.V. and received $1.977 billionJanuary 1, 2018, using the modified retrospective approach method. Under this method, entities recognize the cumulative effect of applying the new standard at the date of initial application with no restatement of comparative periods presented. The cumulative effect of applying the new standard resulted in proceeds. Abbott recorded an immaterial pre-tax gainincrease to Earnings employed in the first nine monthsbusiness in the Condensed Consolidated Balance Sheet of 2017,$23 million which was recognizedrecorded on January 1, 2018. The new standard has been applied only to those contracts that were not completed as of January 1, 2018. The impact of adopting ASU 2014-09 was not significant to individual financial statement line items in the Other expense (income), net line of theCondensed Consolidated Balance Sheet and Condensed Consolidated Statement of Earnings. As a result of these share sales, Abbott’s ownership interest in Mylan N.V. decreased from approximately 14% to 3.4%.
Recent Accounting Standards Not Yet Adopted
OnIn February 10, 2015,2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from accumulated other comprehensive income to retained earnings. The standard becomes effective for Abbott completed the sale of its animal health business to Zoetis Inc. Abbott received cash proceeds of $230 million and reported an after-tax gain on the sale of approximately $130 millionbeginning in the first quarter of 2015. 2019 and early adoption is permitted. Abbott is currently evaluating the impact the new guidance will have on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which makes changes to the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The standard becomes effective for Abbott beginning in the first quarter of 2019 and early adoption is permitted. Abbott is currently evaluating the effect that the new guidance will have on its consolidated financial statements.
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 received an additional $25 millionbeginning in the first quarter of proceeds related to2019 and early adoption is permitted. Adoption requires application of the expiration of a holdback agreement associated withnew guidance for all periods presented. Abbott is currently evaluating the impact the new guidance will have on its consolidated financial statements.
Note 3 — Revenue
Abbott’s revenues are derived primarily from the sale of this businessa broad line of health care products under short-term receivable arrangements. Patent protection and reported an after-tax gainlicenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott’s products are generally sold directly to retailers, wholesalers, distributors, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world. Abbott has four reportable segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Cardiovascular and Neuromodulation Products. Diabetes Care is a non-reportable segment and is included in Other in the following table.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
The following tables provide detail by sales category:
|
| Three Months Ended June 30, 2018 |
| Three Months Ended June 30, 2017 |
| ||||||||||||||
(in millions) |
| U.S. |
| Int’l |
| Total |
| U.S. |
| Int’l |
| Total |
| ||||||
Established Pharmaceutical Products — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Key Emerging Markets |
| $ | — |
| $ | 866 |
| $ | 866 |
| $ | — |
| $ | 798 |
| $ | 798 |
|
Other |
| — |
| 263 |
| 263 |
| — |
| 223 |
| 223 |
| ||||||
Total |
| — |
| 1,129 |
| 1,129 |
| — |
| 1,021 |
| 1,021 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nutritionals — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pediatric Nutritionals |
| 469 |
| 582 |
| 1,051 |
| 459 |
| 528 |
| 987 |
| ||||||
Adult Nutritionals |
| 312 |
| 495 |
| 807 |
| 314 |
| 430 |
| 744 |
| ||||||
Total |
| 781 |
| 1,077 |
| 1,858 |
| 773 |
| 958 |
| 1,731 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diagnostics — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core Laboratory |
| 248 |
| 880 |
| 1,128 |
| 232 |
| 788 |
| 1,020 |
| ||||||
Molecular |
| 38 |
| 84 |
| 122 |
| 41 |
| 73 |
| 114 |
| ||||||
Point of Care |
| 108 |
| 31 |
| 139 |
| 112 |
| 27 |
| 139 |
| ||||||
Rapid Diagnostics |
| 258 |
| 226 |
| 484 |
| — |
| — |
| — |
| ||||||
Total |
| 652 |
| 1,221 |
| 1,873 |
| 385 |
| 888 |
| 1,273 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cardiovascular and Neuromodulation — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rhythm Management |
| 262 |
| 281 |
| 543 |
| 273 |
| 279 |
| 552 |
| ||||||
Electrophysiology |
| 193 |
| 235 |
| 428 |
| 154 |
| 189 |
| 343 |
| ||||||
Heart Failure |
| 117 |
| 46 |
| 163 |
| 123 |
| 36 |
| 159 |
| ||||||
Vascular |
| 284 |
| 466 |
| 750 |
| 295 |
| 436 |
| 731 |
| ||||||
Structural Heart |
| 118 |
| 197 |
| 315 |
| 104 |
| 164 |
| 268 |
| ||||||
Neuromodulation |
| 173 |
| 49 |
| 222 |
| 161 |
| 46 |
| 207 |
| ||||||
Total |
| 1,147 |
| 1,274 |
| 2,421 |
| 1,110 |
| 1,150 |
| 2,260 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
| 122 |
| 364 |
| 486 |
| 92 |
| 260 |
| 352 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ | 2,702 |
| $ | 5,065 |
| $ | 7,767 |
| $ | 2,360 |
| $ | 4,277 |
| $ | 6,637 |
|
|
| Six Months Ended June 30, 2018 |
| Six Months Ended June 30, 2017 |
| ||||||||||||||
(in millions) |
| U.S. |
| Int’l |
| Total |
| U.S. |
| Int’l |
| Total |
| ||||||
Established Pharmaceutical Products — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Key Emerging Markets |
| $ | — |
| $ | 1,659 |
| $ | 1,659 |
| $ | — |
| $ | 1,528 |
| $ | 1,528 |
|
Other |
| — |
| 514 |
| 514 |
| — |
| 443 |
| 443 |
| ||||||
Total |
| — |
| 2,173 |
| 2,173 |
| — |
| 1,971 |
| 1,971 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nutritionals — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pediatric Nutritionals |
| 917 |
| 1,128 |
| 2,045 |
| 891 |
| 1,023 |
| 1,914 |
| ||||||
Adult Nutritionals |
| 622 |
| 947 |
| 1,569 |
| 612 |
| 847 |
| 1,459 |
| ||||||
Total |
| 1,539 |
| 2,075 |
| 3,614 |
| 1,503 |
| 1,870 |
| 3,373 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diagnostics — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core Laboratory |
| 476 |
| 1,671 |
| 2,147 |
| 448 |
| 1,483 |
| 1,931 |
| ||||||
Molecular |
| 77 |
| 163 |
| 240 |
| 86 |
| 140 |
| 226 |
| ||||||
Point of Care |
| 218 |
| 62 |
| 280 |
| 222 |
| 52 |
| 274 |
| ||||||
Rapid Diagnostics |
| 581 |
| 462 |
| 1,043 |
| — |
| — |
| — |
| ||||||
Total |
| 1,352 |
| 2,358 |
| 3,710 |
| 756 |
| 1,675 |
| 2,431 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cardiovascular and Neuromodulation — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rhythm Management |
| 526 |
| 552 |
| 1,078 |
| 533 |
| 530 |
| 1,063 |
| ||||||
Electrophysiology |
| 375 |
| 444 |
| 819 |
| 299 |
| 360 |
| 659 |
| ||||||
Heart Failure |
| 231 |
| 85 |
| 316 |
| 232 |
| 69 |
| 301 |
| ||||||
Vascular |
| 570 |
| 919 |
| 1,489 |
| 599 |
| 835 |
| 1,434 |
| ||||||
Structural Heart |
| 227 |
| 381 |
| 608 |
| 211 |
| 313 |
| 524 |
| ||||||
Neuromodulation |
| 341 |
| 93 |
| 434 |
| 297 |
| 85 |
| 382 |
| ||||||
Total |
| 2,270 |
| 2,474 |
| 4,744 |
| 2,171 |
| 2,192 |
| 4,363 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
| 216 |
| 700 |
| 916 |
| 254 |
| 580 |
| 834 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ | 5,377 |
| $ | 9,780 |
| $ | 15,157 |
| $ | 4,684 |
| $ | 8,288 |
| $ | 12,972 |
|
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
Abbott recognizes revenue from product sales upon the transfer of control, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. For maintenance agreements that provide service beyond Abbott’s standard warranty and other service agreements, revenue is recognized ratably over the contract term. A time-based measure of progress appropriately reflects the transfer of services to the customer. Payment terms between Abbott and its customers vary by the type of customer, country of sale, and the products or services offered. The term between invoicing and the payment due date is not significant.
Management exercises judgment in estimating variable consideration. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Abbott provides rebates to government agencies, wholesalers, group purchasing organizations and other private entities.
Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government agency price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, Abbott estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when Abbott records its sale of discontinued operationsthe product. Settlement of $16 million.the rebate generally occurs from one to six months after sale. Abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Historically, adjustments to prior years’ rebate accruals have not been material to net income.
Other allowances charged against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because Abbott’s historical returns are low, and because sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant.
Abbott also applies judgment in determining the timing of revenue recognition related to contracts that include multiple performance obligations. The total transaction price of the contract is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. For goods or services for which observable standalone selling prices are not available, Abbott uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
Remaining Performance Obligations
As of June 30, 2018, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $2.8 billion in the Diagnostics segment and approximately $340 million in the Cardiovascular and Neuromodulation segment. Abbott expects to recognize revenue on approximately 60% of these remaining performance obligations over the next 24 months, approximately 15% over the subsequent 12 months and the remainder thereafter.
These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations, extended warranty or service obligations related to previously sold equipment, and remote monitoring services related to previously implanted devices. Abbott has applied the practical expedient described in Accounting Standards Codification (ASC) 606-10-50-14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.
Assets Recognized for Costs to Obtain a Contract with a Customer
Abbott has applied the practical expedient in ASC 340-40-25-4 and records as an expense the incremental costs of obtaining contracts with customers in the period of occurrence when the amortization period of the asset that Abbott otherwise would have recognized is one year or less. Upfront commission fees paid to sales personnel as a result of obtaining or renewing contracts with customers are incremental to obtaining the contract. Abbott capitalizes these amounts as contract costs. Capitalized commission fees are amortized based on the contract duration to which the assets relate which ranges from two to ten years. The amounts as of June 30, 2018, were not significant.
Additionally, the cost of transmitters provided to customers that use Abbott’s remote monitoring service with respect to certain medical devices are capitalized as contract costs. Capitalized transmitter costs are amortized based on the timing of the transfer of services to which the assets relate, which typically ranges from eight to ten years. The amounts as of June 30, 2018, were not significant.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
Other Contract Assets and Liabilities
Abbott discloses Trade receivables separately in the Condensed Consolidated Balance Sheet at their net realizable value. Contract assets primarily relate to Abbott’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were not significant.
Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. Abbott’s contract liabilities arise primarily in the cardiovascular and neuromodulation reportable segment when payment is received upfront for various multi-period extended service arrangements. Changes in the contract liabilities during the period are as follows:
|
|
|
| |
(in millions) |
|
|
| |
Contract Liabilities |
|
|
| |
Balance at January 1, 2018 |
| $ | 198 |
|
Unearned revenue from cash received during the period |
| 162 |
| |
Revenue recognized that was included in contract liability balance at beginning of period |
| (103 | ) | |
Balance at June 30, 2018 |
| $ | 257 |
|
Note 4 — Discontinued 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 retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation, as well as certain non-income related taxes attributable to AbbVie’s business prior to the separation. AbbVie generally will be liable for all other taxes attributable to its business. Earnings from discontinued operations, net of tax of $88$24 million and $288$46 million in the first ninesix months of 20172018 and 2016,2017, respectively, were driven primarily by the recognition of net tax benefits as a result of the resolution of various tax positions related to AbbVie’s operations for years prior to the separation.
Note 5 — Assets Held for Disposition
As discussed in Note 8 - Business Acquisitions, in conjunction with the acquisition of Alere Inc. (Alere), Abbott sold the Triage® MeterPro cardiovascular and toxicology business and the assets and liabilities related to its B-type Natriuretic Peptide assay business run on Beckman Coulter analyzers to Quidel Corporation (Quidel). The legal transfer of certain assets and liabilities related to these businesses did not occur at the close of the sale to Quidel due to, among other factors, the time required to transfer marketing authorizations and other regulatory requirements in various countries. Under the terms of the sale agreement with Abbott, Quidel is subject to the risks and entitled to the benefits generated by these operations and assets. The assets presented as held for disposition in the Condensed Consolidated Balance Sheet as of June 30, 2018 and December 31, 2017, primarily relate to the businesses sold to Quidel.
(in millions) |
| June 30, |
| December 31, |
| ||
Trade receivables, net |
| $ | 13 |
| $ | 12 |
|
Total inventories |
| 4 |
| 8 |
| ||
Current assets held for disposition |
| 17 |
| 20 |
| ||
Net property and equipment |
| — |
| 56 |
| ||
Intangible assets, net of amortization |
| 19 |
| 18 |
| ||
Goodwill |
| 102 |
| 102 |
| ||
Non-current assets held for disposition |
| 121 |
| 176 |
| ||
Total assets held for disposition |
| $ | 138 |
| $ | 196 |
|
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
Note 3 — Assets and Liabilities Held for Disposition
In September 2016, Abbott announced that it entered into a definitive agreement to sell Abbott Medical Optics (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. In February 2017, Abbott completed the sale of AMO to Johnson & Johnson and recognized a pre-tax gain of $1.163 billion including working capital adjustments, which was reported in the Other expense (income), net line of the Condensed Consolidated Statement of Earnings in the first nine months of 2017. Abbott recorded an after-tax gain of $728 million in the first nine months of 2017 related to the sale of AMO.
The operating results of AMO up to the date of sale continued to be included in Earnings (loss) from continuing operations as they did not qualify for reporting as discontinued operations. For the three months ended September 30, 2017 and 2016, the AMO earnings before taxes included in Abbott’s consolidated earnings were nil and $2 million, respectively. For the first nine months ended September 30, 2017 and 2016, the AMO losses before taxes included in Abbott’s consolidated earnings were $18 million and $42 million, respectively. The following assets and liabilities of this business were reported as held for disposition in Abbott’s Condensed Consolidated Balance Sheet as of December 31, 2016:
(in millions) |
| December 31, |
| |
Trade receivables, net |
| $ | 222 |
|
Total inventories |
| 240 |
| |
Prepaid expenses and other current assets |
| 51 |
| |
Current assets held for disposition |
| 513 |
| |
Net property and equipment |
| 247 |
| |
Intangible assets, net of amortization |
| 529 |
| |
Goodwill |
| 1,966 |
| |
Deferred income taxes and other assets |
| 11 |
| |
Non-current assets held for disposition |
| 2,753 |
| |
Total assets held for disposition |
| $ | 3,266 |
|
|
|
|
| |
Trade accounts payable |
| $ | 71 |
|
Salaries, wages, commissions and other accrued liabilities |
| 174 |
| |
Current liabilities held for disposition |
| 245 |
| |
Post-employment obligations, deferred income taxes and other long-term liabilities |
| 59 |
| |
Total liabilities held for disposition |
| $ | 304 |
|
Note 46 — Supplemental Financial Information
Shares of 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. Earnings (loss) from continuing operationsContinuing Operations allocated to common shares for the three months ended SeptemberJune 30, 2018 and 2017 and 2016 were $558$714 million and $(357)$269 million, respectively and for the ninesix months ended SeptemberJune 30, 2018 and 2017 and 2016 were $1.211$1.121 billion and $297$653 million, respectively. Net earnings (loss) allocated to common shares for the three months ended SeptemberJune 30, 2018 and 2017 and 2016 were $601$730 million and $(329)$281 million, respectively, and for the ninesix months ended SeptemberJune 30, 2018 and 2017 and 2016 were $1.299$1.144 billion and $600$698 million, respectively.
On September 30, 2016, Abbott recorded expense of $947 million to adjust its holding of Mylan N.V. ordinary shares due to a decline in the fair value of the securities which was considered by Abbott to be other than temporary. The adjustment reflected Mylan N.V.’s share price as of September 30, 2016 and was included in the Other expense (income), net line of the Condensed Consolidated Statement of Earnings for 2016.
The Other, net line in Net cash from operating activities in the Condensed Consolidated Statement of Cash Flows for the first ninesix months of 2018 includes the payment of cash taxes of approximately $425 million. The first six months of 2017 and 2016 includes the effects of contributions to defined benefit plans of $335 million and $540 million, respectively, and to the post-employment medical and dental benefit plans of $11 million and $9 million, respectively.$321 million. The first ninesix months of 2017 also includes the impact of improved working capital management and approximately $435$430 million of tax expense related to business dispositions, which has not yet been paid, and is taxed at a discrete tax rate. The first nine months of 2016 also includes the non-cash impact of approximately $539 million of net tax benefits primarily associated with the resolution of various tax positions
Abbott Laboratories and Subsidiariesdispositions.
NotesIn February 2017, Abbott completed the sale of Abbott Medical Optics (AMO) to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
from prior years, as well as cash taxes paidJohnson & Johnson and recognized a pre-tax gain of approximately $140 million related to the disposition of businesses. The foreign currency loss related to Venezuela$1.151 billion, which is reported in the first nine months of 2016 reduced Abbott’s cash by approximately $410 million and is shown on the Effect of exchange rate changes on cash and cash equivalents lineOther (income) expense, net within the Condensed Consolidated Statement of Cash Flows.
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 operationsEarnings 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 quartersix months 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,2017. Abbott recorded a foreign currency exchange lossan after-tax gain of $481$721 million in the first ninesix months of 20162017 related to revalue its net monetary assets in Venezuela. Abbott is continuing to use the DICOM rate to report thesale of AMO. The operating results of operations andAMO up through the date of sale continued to remeasure net monetary assetsbe included in Earnings from Continuing Operations as they did not qualify for Venezuela atreporting as discontinued operations. For the end of each quarter. As of Septemberthree months ended June 30, 2017, Abbott’s Venezuelan operations represented less than 0.01% ofthe AMO earnings before taxes included in Abbott’s consolidated assetsearnings were nil. For the first six months ended June 30, 2017, the AMO losses before taxes included in Abbott’s consolidated earnings were $18 million.
In March 2017, Abbott sold 44 million ordinary shares of Mylan N.V. received upon the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. Abbott received $1.685 billion in proceeds from the sale of these shares. In June 2017, Abbott sold an additional 6 million ordinary shares of Mylan N.V. and any additional foreign currency losses related to Venezuela are not expected to be material.received $239 million in proceeds. Abbott recorded an immaterial pre-tax gain in the first six months of 2017, which was recognized in the Other (income) expense, net line of the Condensed Consolidated Statement of Earnings.
The components of long-term investments as of SeptemberJune 30, 20172018 and December 31, 20162017 are as follows:
Long-term Investments |
| September 30, |
| December 31, |
| ||
(in millions) |
| 2017 |
| 2016 |
| ||
Equity securities |
| $ | 1,300 |
| $ | 2,906 |
|
Other |
| 86 |
| 41 |
| ||
Total |
| $ | 1,386 |
| $ | 2,947 |
|
As discussed in Note 2, in the first nine months of 2017, Abbott sold 51 million ordinary shares of Mylan N.V., thereby reducing Abbott’s investment in equity securities by approximately $2 billion.
Long-term Investments |
| June 30, |
| December 31, |
| ||
(in millions) |
| 2018 |
| 2017 |
| ||
Equity securities |
| $ | 856 |
| $ | 797 |
|
Other |
| 84 |
| 86 |
| ||
Total |
| $ | 940 |
| $ | 883 |
|
Abbott’s equity securities as of SeptemberJune 30, 2017,2018, include approximately $353$340 million of investments in mutual funds that are held in a rabbi trust and were acquired as part of the St. Jude Medical, Inc. (St. Jude Medical) business acquisition. These investments, which are specifically designated as available for the purpose of paying benefits under a deferred compensation plan, are not available for general corporate purposes and are subject to creditor claims in the event of insolvency.
Abbott also holds certain investments as of June 30, 2018 with a carrying value of approximately $260 million that are accounted for under the equity method of accounting and other equity investments with a carrying value of approximately $245 million that do not have a readily determinable fair value. The $245 million carrying value includes an unrealized gain of approximately $50 million on an investment. The gain was recorded in the second quarter of 2018 and relates to an observable price change for a similar investment of the same issuer.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
Note 57 — Changes in Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss), net of income taxes, are as follows:
|
| Three Months Ended September 30 |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
| Cumulative Foreign Currency Translation Adjustments |
| Net Actuarial Losses and Prior Service Costs and Credits |
| Cumulative Unrealized Gains (Losses) on Marketable Equity Securities |
| Cumulative Gains (Losses) on Derivative Instruments Designated as Cash Flow Hedges |
|
| Three Months Ended June 30 |
| ||||||||||||||||||||||||||||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| Cumulative Foreign |
| Net Actuarial |
| Cumulative |
| Cumulative Gains |
| ||||||||||||||||||||||||
Balance at June 30 |
| $ | (3,996 | ) | $ | (4,512 | ) | $ | (2,215 | ) | $ | (1,987 | ) | $ | 13 |
| $ | (691 | ) | $ | (52 | ) | $ | (33 | ) | |||||||||||||||||||||||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||||||||||||||||||
| $ | (3,119 | ) | $ | (4,284 | ) | $ | (2,498 | ) | $ | (2,244 | ) | $ | — |
| $ | 11 |
| $ | (116 | ) | $ | (15 | ) | ||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications |
| 285 |
| 89 |
| — |
| — |
| (136 | ) | (362 | ) | (44 | ) | (30 | ) |
| (1,359 | ) | 288 |
| 30 |
| — |
| — |
| 2 |
| 81 |
| (38 | ) | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| — |
| 23 |
| 15 |
| — |
| 975 |
| 6 |
| 3 |
|
| — |
| — |
| 31 |
| 29 |
| — |
| — |
| 37 |
| 1 |
| ||||||||||||||||
Net current period comprehensive income (loss) |
| 285 |
| 89 |
| 23 |
| 15 |
| (136 | ) | 613 |
| (38 | ) | (27 | ) |
| (1,359 | ) | 288 |
| 61 |
| 29 |
| — |
| 2 |
| 118 |
| (37 | ) | ||||||||||||||||
Balance at September 30 |
| $ | (3,711 | ) | $ | (4,423 | ) | $ | (2,192 | ) | $ | (1,972 | ) | $ | (123 | ) | $ | (78 | ) | $ | (90 | ) | $ | (60 | ) | |||||||||||||||||||||||||
Balance at June 30 |
| $ | (4,478 | ) | $ | (3,996 | ) | $ | (2,437 | ) | $ | (2,215 | ) | $ | — |
| $ | 13 |
| $ | 2 |
| $ | (52 | ) |
|
| Nine Months Ended September 30 |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
| Cumulative Foreign Currency Translation Adjustments |
| Net Actuarial Losses and Prior Service Costs and Credits |
| Cumulative Unrealized Gains (Losses) on Marketable Equity Securities |
| Cumulative Gains (Losses) on Derivative Instruments Designated as Cash Flow Hedges |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||||||||||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| Cumulative Foreign |
| Net Actuarial |
| Cumulative |
| Cumulative Gains |
| ||||||||||||||||||||||||
Balance at December 31, 2016 and 2015 |
| $ | (4,959 | ) | $ | (4,829 | ) | $ | (2,284 | ) | $ | (1,958 | ) | $ | (69 | ) | $ | 65 |
| $ | 49 |
| $ | 64 |
| |||||||||||||||||||||||||
(in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||||||||||||||||||
| $ | (3,452 | ) | $ | (4,959 | ) | $ | (2,521 | ) | $ | (2,284 | ) | $ | (5 | ) | $ | (69 | ) | $ | (84 | ) | $ | 49 |
| ||||||||||||||||||||||||||
Reclassified to Earnings employed in the business for adoption of ASU 2016-01 |
| — |
| — |
| — |
| — |
| 5 |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Impact of business dispositions |
| 142 |
| — |
| 6 |
| — |
| — |
| — |
| 1 |
| — |
|
| — |
| 142 |
| — |
| 6 |
| — |
| — |
| — |
| 1 |
| ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
| 1,106 |
| 406 |
| — |
| (62 | ) | 47 |
| (1,118 | ) | (151 | ) | (77 | ) |
| (1,026 | ) | 821 |
| 20 |
| — |
| — |
| 183 |
| 29 |
| (107 | ) | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| — |
| 86 |
| 48 |
| (101 | ) | 975 |
| 11 |
| (47 | ) |
| — |
| — |
| 64 |
| 63 |
| — |
| (101 | ) | 57 |
| 5 |
| ||||||||||||||||
Net current period comprehensive income (loss) |
| 1,106 |
| 406 |
| 86 |
| (14 | ) | (54 | ) | (143 | ) | (140 | ) | (124 | ) |
| (1,026 | ) | 821 |
| 84 |
| 63 |
| — |
| 82 |
| 86 |
| (102 | ) | ||||||||||||||||
Balance at September 30 |
| $ | (3,711 | ) | $ | (4,423 | ) | $ | (2,192 | ) | $ | (1,972 | ) | $ | (123 | ) | $ | (78 | ) | $ | (90 | ) | $ | (60 | ) | |||||||||||||||||||||||||
Balance at June 30 |
| $ | (4,478 | ) | $ | (3,996 | ) | $ | (2,437 | ) | $ | (2,215 | ) | $ | — |
| $ | 13 |
| $ | 2 |
| $ | (52 | ) |
Reclassified amounts for foreign currency translation are recorded in the Condensed Consolidated Statement of Earnings as Net foreign exchange loss (gain); loss; gains (losses) on marketable equity securities as Other (income) expense, (income), net and cash flow hedges as Cost of products sold. Net actuarial losses and prior service cost are included as a component of net periodic benefit plan costs; see Note 1315 for additional details.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
Note 68 — 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 $5.9 billion of St. Jude Medical’s debt was assumed, repaid or refinanced by Abbott. The transactionacquisition 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 competebusiness competes in nearly every area of the cardiovascular device market, as well as in the neuromodulation market.
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 2016 and a $2.0 billion 120-day senior unsecured bridge term loan facility which was subsequently repaid.
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 |
| $ | 15.4 |
|
Goodwill, non-deductible |
| 14.9 |
| |
Acquired net tangible assets |
| 3.1 |
| |
Deferred income taxes recorded at acquisition |
| (4.5 | ) | |
Net debt |
| (5.3 | ) | |
Total preliminary allocation of fair value |
| $ | 23.6 |
|
The goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. The acquired tangible assets consist primarily of trade accounts receivable of approximately $1.2 billion, inventory of approximately $1.7 billion, other current assets of $207 million, property and equipment of approximately $1.5 billion, and other long-term assets of $471 million. The acquired tangible liabilities consist of trade accounts payable and other current liabilities of approximately $1.1 billion and other non-current liabilities of approximately $850 million.
In the first nine months of 2017, consolidated Abbott results include $4.4 billion of sales and a pre-tax loss of approximately $1.2 billion related to the St. Jude Medical acquisition, including approximately $1.0 billion of intangible amortization and $840 million of inventory step-up amortization. The pre-tax loss excludes acquisition, integration and restructuring-related costs.
In 2016, Abbott and St. Jude Medical agreed to sell certain businesses to Terumo Corporation (Terumo) for approximately $1.12 billion. The sale included the St. Jude Medical Angio-Seal™ and Femoseal™ vascular closure and Abbott’s Vado® Steerable Sheath businesses. The sale closed on January 20, 2017 and no gain or loss was recorded in the Condensed Consolidated Statement of Earnings.
On October 3, 2017, Abbott acquired Alere, Inc. (Alere), a diagnostic device and service provider, for $51.00 per common share in cash, which equated to a purchase price of approximately $4.6$4.5 billion. As part of the acquisition, Abbott tendered for Alere’s preferred shares for a total value of approximately $0.7 billion. In addition, approximately $2.96$3.0 billion of Alere’s debt was assumed and subsequently repaid. The transactionacquisition establishes Abbott as a leader in point of care testing, expands Abbott’s global diagnostics presence and provides access to new products, channels and geographies. Abbott utilized a combination of cash on hand and debt to fund the acquisition. See Note 10 — Debt and Lines of Credit for further details regarding the debt utilized for the acquisition. As the acquisition of Alere was completed after September 30, 2017, Abbott’s consolidated financial statements do not include the financial condition or the operating results of Alere in any of the periods presented herein.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
The preliminary allocation of the fair value of the Alere 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 |
| $ | 3.3 |
|
| $ | 3.4 |
|
Goodwill, non-deductible |
| 4.1 |
|
| 4.2 |
| ||
Acquired net tangible assets |
| 1.0 |
|
| 0.9 |
| ||
Deferred income taxes recorded at acquisition |
| (0.5 | ) |
| (0.7 | ) | ||
Net debt |
| (2.6 | ) |
| (2.6 | ) | ||
Preferred stock |
| (0.7 | ) |
| (0.7 | ) | ||
Total preliminary allocation of fair value |
| $ | 4.6 |
|
| $ | 4.5 |
|
The goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. The goodwill is identifiable to the Diagnostic Products reportable segment. The acquired tangible assets consist primarily of trade accounts receivable of approximately $425$430 million, inventory of approximately $440$425 million, other current assets of $213$215 million, property and equipment of approximately $480$540 million, and other long-term assets of $147$112 million. The acquired tangible liabilities consist of trade accounts payable and other current liabilities of approximately $570$625 million and other non-current liabilities of approximately $160 million.
In the third quarter of 2017, Alere entered into agreements to sell its Triage MeterPro cardiovascular and toxicology business and the assets and liabilities related to its B-type Natriuretic Peptide assay business run on Beckman Coulter analyzers to Quidel Corporation (Quidel).Quidel. The transactions with Quidel reflect a total purchase price of $400 million payable at the close of the transaction, $240 million payable in six annual installments beginning approximately six months after the close of the transaction, and contingent consideration with a maximum value of $40 million. In the third quarter of 2017, Alere entered into an agreement with Siemens Diagnostics Holding II B.V. (Siemens) to sell its subsidiary, Epocal Inc., for approximately $200 million.million payable at the close of the transaction. Alere agreed to divest these businesses in connection with the review by the Federal Trade Commission and the European Commission of Abbott’s agreement to acquire Alere. The sale to Quidel closed on October 6, 2017, and the sale to Siemens closed on October 31, 2017.
If the acquisitions of St. Jude Medical and Alere had occurred at the beginning of 2016, unaudited pro forma consolidated net No gain or loss on these sales would have been approximately $21.6 billion and the unaudited pro forma consolidated net loss from continuing operations would have been approximately $875 million for the first nine months of 2016. This includes amortization of approximately $955 million of inventory step-up and $1.3 billion of intangibles related to St. Jude Medical and Alere. For the third quarter of 2016, unaudited pro forma consolidated net sales would have been approximately $7.3 billion and the unaudited pro forma consolidated net loss from continuing operations would have been approximately $490 million. This includes amortization of approximately $20 million of inventory step-up and $425 million of intangibles related to St. Jude Medical and Alere.
For the first nine months of 2017, unaudited pro forma consolidated net sales would have been approximately $21.3 billion and unaudited pro forma consolidated net earnings from continuing operations would have been approximately $1.6 billion, which includes $225 million of intangible amortization related to Alere. For the third quarter of 2017, unaudited pro forma consolidated net sales would have been approximately $7.3 billion and unaudited pro forma consolidated net earnings from continuing operations would have been approximately $515 million, which includes $75 million of intangible amortization related to Alere. The unaudited pro forma consolidated net earnings from continuing operations for the third quarter and first nine months of 2017 exclude inventory step-up amortization related to St. Jude Medical of approximately $20 million and $840 million, respectively, which was recorded in 2017 but included in the 2016 unaudited pro forma results noted inConsolidated Statement of Earnings.
Abbott Laboratories and Subsidiaries
Notes to the paragraph above. 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 and Alere acquisitions 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.Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
On July 17, 2017, Abbott commenced a tender offer to purchase for cash the 1.77 million outstanding shares of Alere’s Series B Convertible Perpetual Preferred Stock at a price of $402 per share, plus accrued but unpaid dividends to, but not including, the settlement date of the tender offer. This tender offer was subject to the satisfaction of certain conditions, including Abbott’s acquisition of Alere and upon there being validly tendered (and not properly withdrawn) at the expiration date of the tender offer that number of shares of Preferred Stock that equaled at least a majority of the Preferred Stock issued and outstanding at the expiration of the tender offer. The tender offer expired on October 3, 2017. All conditions to the offer were satisfied and Abbott accepted for payment the 1.748 million shares of Preferred Stock that were validly tendered (and not properly withdrawn). The remaining shares were cashed out for an amount equal to the $400.00 per share liquidation preference of such shares, plus accrued but unpaid dividends, without interest. Payment for all of the offer price for such shares has beenof Preferred Stock was made in the fourth quarter of 2017.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
Note 79 — Goodwill and Intangible Assets
The total amount of goodwill reported was $22.1$23.8 billion at SeptemberJune 30, 20172018 and $7.7$24.0 billion at December 31, 2016. Goodwill increased by $14.9 billion during the first nine months of 2017 due to the completion of the St. Jude Medical acquisition, partially offset by a decrease of $1.1 billion due to the sale of certain businesses to Terumo Corporation. Foreign currency translation adjustments increased goodwill by approximately $578 million in the first nine months of 2017. The amountamounts reported at June 30, 2018 and December 31, 2016 excludes2017 exclude goodwill reported in non-current assets held for disposition. InForeign currency translation adjustments decreased goodwill by approximately $288 million in the first ninesix months of 2017, approximately $2.0 billion of2018. Purchase price accounting adjustments associated with the Alere acquisition increased goodwill was included as part of the net assets sold in the AMO divestiture.by $113 million. The amount of goodwill related to reportable segments at SeptemberJune 30, 20172018 was $3.2$3.1 billion for the Established Pharmaceutical Products segment, $286 million for the Nutritional Products segment, $416 million$4.2 billion for the Diagnostic Products segment, and $17.2$15.3 billion for the Cardiovascular and Neuromodulation Products segment. The Cardiovascular and Neuromodulation Products segment includes the amount previously reported under Abbott’s Vascular Products segment as well as the goodwill related to the St. Jude Medical acquisition. There was no significant reduction of goodwill relating to impairments.impairments in the first six months of 2018.
The gross amount of amortizable intangible assets, primarily product rights and technology was $22.4$25.6 billion as of SeptemberJune 30, 2018 and December 31, 2017, and $10.4accumulated amortization was $9.3 billion as of June 30, 2018 and $8.1 billion as of December 31, 2016, and accumulated amortization was $7.5 billion as of September 30, 2017 and $6.2 billion as of December 31, 2016. The gross amount of amortizable intangible assets increased by $11.5 billion during the first nine months of 2017 due to the completion of the St. Jude Medical acquisition. Foreign currency translation2017. Purchase price allocation adjustments increased intangible assets by $157$120 million and foreign currency translation adjustments decreased intangible assets by $180 million during the first ninesix months of 2017.2018. The June 30, 2018 and December 31, 20162017 amounts exclude net intangible assets reported in non-current assets held for disposition. As part of the sale of AMO in the first nine months of 2017, approximately $529 million of netAbbott’s estimated annual amortization expense for intangible assets were includedis approximately $2.4 billion in the net2018, $2.3 billion in 2019, $2.1 billion in 2020, $2.0 billion in 2021 and $2.0 billion in 2022. Amortizable intangible assets sold.are amortized over 2 to 20 years (weighted average 14 years).
Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, were approximately $3.7$3.6 billion and $349 million$3.9 billion as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. Indefinite-livedThe decrease in indefinite-lived intangible assets increased by $3.9 billion due to the completion of the St. Jude Medical acquisition. Induring the first ninesix months of 2016, Abbott recorded an impairment of a $59 million in-process research and development project related2018 relates to a non-reportable segment. Abbott’s estimated annual amortization expense for intangible assets is approximately $1.9 billion in 2017, $2.1 billion in 2018, $2.0 billion in 2019, $1.8 billion in 2020 and $1.8 billion in 2021. Amortizable intangible assets are amortized over 2 to 20 years (weighted average 11 years). These amounts do not include amortization expensepurchase price allocation adjustments associated with the intangible assets acquired as part ofAlere acquisition.
Abbott Laboratories and Subsidiaries
Notes to the Alere acquisition, which closed on October 3, 2017.Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
Note 810 — Restructuring Plans
In 2017 and 2018, Abbott management approved restructuring plans as part of the integration of the acquisition of St. Jude Medical into the cardiovascular and neuromodulation segment and Alere into the diagnostics segment, in order to leverage economies of scale and reduce costs. In the first ninesix months of 2017,2018, charges of approximately $162$33 million, including one-time employee termination benefits were recognized, of which approximately $4 million is recorded in Cost of products sold, approximately $10 million is recorded in Research and development and approximately $19 million as Selling, general and administrative expense. Abbott also assumed restructuring liabilities of approximately $20 million as part of the St Jude Medical acquisition. The following summarizes the activity for the first ninesix months of 20172018 related to these actions and the status of the related accrual as of SeptemberJune 30, 2017:2018:
(in millions) |
|
|
| |
Liabilities assumed as part of business acquisition |
| $ | 20 |
|
Restructuring charges recorded in 2017 |
| 162 |
| |
Payments and other adjustments |
| (112 | ) | |
Accrued balance at September 30, 2017 |
| $ | 70 |
|
(in millions) |
|
|
| |
Accrued balance at December 31, 2017 |
| $ | 68 |
|
Restructuring charges recorded in 2018 |
| 33 |
| |
Payments and other adjustments |
| (43 | ) | |
Accrued balance at June 30, 2018 |
| $ | 58 |
|
From 2014 to 2017,2018, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbott businesses including the vascular, nutritional, and established pharmaceuticals and vascular businesses. In the first ninesix months of 2017,2018, charges of approximately $87$12 million were recognized, of which approximately $4$7 million is recorded in Cost of products sold approximately $76 million is recorded in Research and development and approximately $7$5 million as Selling, general and administrative expense. The following summarizes the activity for the first ninesix months of 20172018 related to these restructuring actions and the status of the related accrual as of SeptemberJune 30, 2017:2018:
(in millions) |
|
|
| |
Accrued balance at December 31, 2016 |
| $ | 66 |
|
Restructuring charges recorded in 2017 |
| 87 |
| |
Payments and other adjustments |
| (27 | ) | |
Accrued balance at September 30, 2017 |
| $ | 126 |
|
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
(in millions) |
|
|
| |
Accrued balance at December 31, 2017 |
| $ | 141 |
|
Restructuring charges recorded in 2018 |
| 12 |
| |
Payments and other adjustments |
| (49 | ) | |
Accrued balance at June 30, 2018 |
| $ | 104 |
|
Note 911 — Incentive Stock Programs
In connection with the completion of the St. Jude Medical acquisition in the first quartersix months of 2017, unvested St. Jude Medical2018, Abbott granted 5,715,959 stock options, and restricted stock units were assumed by Abbott and converted into Abbott options and restricted stock units (as applicable) of substantially equivalent value, in accordance with the merger agreement. The number of shares underlying the converted options was 7,364,571 at a weighted average exercise price of $30.50. The number of restricted stock units converted was 2,324,500 at a weighted average grant date fair value of $37.69.
In the first nine months of 2017, Abbott granted 4,985,970 stock options, 580,203864,846 restricted stock awards and 7,001,7377,845,773 restricted stock units under its incentive stock programs. At SeptemberJune 30, 2017,2018, approximately 170143 million shares were reserved for future grants. This reserve reflects the shares authorized by Abbott’s shareholders in April 2017. Information regarding the number of options outstanding and exercisable at SeptemberJune 30, 20172018 is as follows:
|
| Outstanding |
| Exercisable |
|
| Outstanding |
| Exercisable |
| ||||
Number of shares |
| 38,381,732 |
| 22,782,532 |
|
| 35,715,493 |
| 22,611,954 |
| ||||
Weighted average remaining life (years) |
| 5.8 |
| 4.5 |
|
| 6.6 |
| 5.6 |
| ||||
Weighted average exercise price |
| $ | 36.36 |
| $ | 34.34 |
|
| $ | 41.53 |
| $ | 37.59 |
|
Aggregate intrinsic value (in millions) |
| $ | 652 |
| $ | 433 |
|
| $ | 695 |
| $ | 529 |
|
The total unrecognized share-based compensation cost at SeptemberJune 30, 20172018 amounted to approximately $328$512 million which is expected to be recognized over the next three years.
Note 1012 — Debt and Lines of Credit
InOn January 5, 2018, Abbott paid off its $2.8 billion 5-year term loan and the first quarterremaining $1.150 billion balance under its revolving credit agreement.
On February 16, 2018, the board of 2017, as partdirectors authorized the redemption of up to $5 billion of currently outstanding long-term notes in addition to the $3.95 billion repaid in January 2018.
On March 22, 2018, Abbott redeemed all of the acquisition of St. Jude Medical, Abbott’s long-term debt increased due to the assumption of outstanding debt previously issued by St. Jude Medical. Abbott exchanged certain St. Jude Medical debt obligations with an aggregate$947 million principal amount of approximately $2.9its 5.125% Notes due 2019, as well as $1.055 billion for debt issued byof the $2.850 billion principal amount of its 2.35% Notes due 2019. Abbott which consists of:
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Followingincurred a net charge of $14 million related to the early repayment of this exchange, approximately $194.2 million of existing St. Jude Medical notes remain outstanding across the five series of existing notes which have the same coupons and maturities as those listed above. There were no significant costs associated with the exchange of debt.
In addition, during the first quarter of 2017,On June 22, 2018, Abbott assumed and subsequently repaid the following St. Jude Medical debt obligations:
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On January 4, 2017, as part of funding the cash portion of the St. Jude Medical acquisition, Abbott borrowed $2.0$1.795 billion under a 120-day senior unsecured bridge term loan facility. This facility was repaid during the first quarteroutstanding principal amount of 2017.
During the first nine months of 2017, Abbott issued 364-day yen-denominated debt, of which $195 million was outstanding at September 30, 2017. Abbott also paid off a $479 million yen-denominated short-term debt.
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, which was automatically extended for up to 90 days on January 29, 2017, expired on April 30, 2017 and was not renewed since Abbott did not need this bridge facility to finance the Alere acquisition. The fees associated with the bridge facilities were recognized in interest expense.2.35% Notes due 2019.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
On July 31, 2017, Abbott entered into a 5-year term loan agreement that allowed Abbott to borrow up to $2.8 billion on an unsecured basis for the acquisition of Alere. On October 3, 2017, Abbott borrowed $2.8 billion under this term loan agreement to finance the acquisition of Alere, to repay certain indebtedness of Abbott and Alere, and to pay fees and expenses in connection with the acquisition. Borrowings under the term loan will bear interest based on a Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings.
On October 3, 2017 Abbott borrowed $1.7 billion of revolving loans under its unused lines of credit. Proceeds from such borrowing were used to finance the acquisition of Alere, to repay certain indebtedness of Abbott and Alere, and to pay fees and expenses in connection with the acquisition. These lines of credit are part of a 2014 revolving credit agreement that provides Abbott with the ability to borrow up to $5 billion on an unsecured basis. Advances under the revolving credit agreement, including the $1.7 billion borrowing in October 2017, will mature and be payable on July 10, 2019. The $1.7 billion borrowing will bear interest based on a Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings. Prior to October 3, 2017, no amounts were previously drawn under the revolving credit agreement.
Note 1113 — 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, with gross notional amounts totaling $3.6$2.9 billion at SeptemberJune 30, 20172018 and $2.6$3.3 billion at December 31, 20162017 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. Accumulated gains and losses as of SeptemberJune 30, 20172018 will be included in Cost of products sold at the time the products are sold, generally through the next twelve to eighteen months. The amount of hedge ineffectiveness was not significant in 20172018 and 2016.2017.
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 including the British pound, 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 and European currencies. At SeptemberJune 30, 20172018 and December 31, 2016,2017, Abbott held the gross notional amount of $16.3$18.5 billion and $14.9$20.1 billion, respectively, of such foreign currency forward exchange contracts.
In March 2017, Abbott repaid its $479 million foreign denominated short-term debt which was designated as a hedge of the net investment in a foreign subsidiary. At December 31, 2016, the value of this short-term debt was $454 million and changes in the fair value of the debt up through the date of repayment due to changes in exchange rates were recorded in Accumulated other comprehensive income (loss), net of tax.
Abbott is a party to interest rate hedge contracts totaling approximately $4.0 billion at SeptemberJune 30, 20172018 and $5.5 billion at December 31, 20162017 to manage its exposure to changes in the fair value of fixed-rate debt. In the second quarter of 2017, Abbott unwound approximately $1.5 billion in interest rate swaps relating to the 2.00% Note due in 2020 and the 2.55% Note due in 2022. The proceeds received were not significant. 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. The amount of hedge ineffectiveness was not significant in 20172018 and 2016.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)2017.
The following table summarizes the amounts and location of certain derivative financial instruments as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
|
| Fair Value - Assets |
| Fair Value - Liabilities |
|
| Fair Value - Assets |
| Fair Value - Liabilities |
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(in millions) |
| Sept. 30, |
| Dec. 31, |
| Balance Sheet Caption |
| Sept. 30, |
| Dec. 31, |
| Balance Sheet Caption |
|
| June 30, |
| Dec. 31, |
| Balance Sheet Caption |
| June 30, |
| Dec. 31, |
| Balance Sheet Caption |
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Interest rate swaps designated as fair value hedges |
| $ | — |
| $ | 8 |
| Deferred income taxes and other assets |
| $ | 53 |
| $ | 74 |
| Post-employment obligations, deferred income taxes and other long-term liabilities |
|
| $ | — |
| $ | — |
| Deferred income taxes and other assets |
| $ | 230 |
| $ | 93 |
| Post-employment obligations, deferred income taxes and other long-term liabilities |
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Foreign currency forward exchange contracts: |
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Hedging instruments |
| 23 |
| 99 |
| Prepaid expenses and other receivables |
| 111 |
| 15 |
| Other accrued liabilities |
|
| 55 |
| 21 |
| Prepaid expenses and other receivables |
| 33 |
| 106 |
| Other accrued liabilities |
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Others not designated as hedges |
| 197 |
| 177 |
| Prepaid expenses and other receivables |
| 118 |
| 67 |
| Other accrued liabilities |
|
| 183 |
| 117 |
| Prepaid expenses and other receivables |
| 128 |
| 99 |
| Other accrued liabilities |
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Debt designated as a hedge of net investment in a foreign subsidiary |
| — |
| — |
| n/a |
| — |
| 454 |
| Short-term borrowings |
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|
| $ | 220 |
| $ | 284 |
|
|
| $ | 282 |
| $ | 610 |
|
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|
| $ | 238 |
| $ | 138 |
|
|
| $ | 391 |
| $ | 298 |
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Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
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 certain other derivative financial instruments, as well as the amounts and location of income (expense) and gain (loss) reclassified into income for the three months and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017. The amount of hedge ineffectiveness was not significant in 20172018 and 20162017 for these hedges.
|
| Gain (loss) Recognized in Other |
| Income (expense) and Gain (loss) |
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| Gain (loss) Recognized in Other |
| Income (expense) and Gain (loss) |
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| Three Months |
| Nine Months |
| Three Months |
| Nine Months |
| Income Statement |
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| Three Months |
| Six Months |
| Three Months |
| Six Months |
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(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Caption |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Income Statement |
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Foreign currency forward exchange contracts designated as cash flow hedges |
| $ | (57 | ) | $ | (45 | ) | $ | (202 | ) | $ | (96 | ) | $ | (7 | ) | $ | 5 |
| $ | (14 | ) | $ | 59 |
| Cost of products sold |
|
| $ | 113 |
| $ | (54 | ) | $ | 27 |
| $ | (145 | ) | $ | (53 | ) | $ | (2 | ) | $ | (83 | ) | $ | (7 | ) | Cost of products sold |
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Debt designated as a hedge of net investment in a foreign subsidiary |
| — |
| (6 | ) | (25 | ) | (83 | ) | n/a |
| n/a |
| n/a |
| n/a |
| n/a |
|
| — |
| — |
| — |
| (25 | ) | n/a |
| n/a |
| n/a |
| n/a |
| n/a |
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Interest rate swaps designated as fair value hedges |
| n/a |
| n/a |
| n/a |
| n/a |
| (1 | ) | (50 | ) | 13 |
| 95 |
| Interest expense |
|
| n/a |
| n/a |
| n/a |
| n/a |
| (31 | ) | 40 |
| (137 | ) | 14 |
| Interest expense |
|
GainsLosses of $26$2 million and losses of $5$51 million were recognized in the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, related to foreign currency forward exchange contracts not designated as a hedge. Losses of $16$50 million and gainslosses of $16$42 million were recognized in the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, related to foreign currency forward exchange contracts not designated as a hedge. These amounts are reported in the Condensed Consolidated Statement of Earnings on the Net foreign exchange (gain) loss (gain) line.
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.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
The carrying values and fair values of certain financial instruments as of SeptemberJune 30, 20172018 and December 31, 20162017 are shown in the following table. 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.
|
| September 30, 2017 |
| December 31, 2016 |
|
| June 30, 2018 |
| December 31, 2017 |
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(in millions) |
| Carrying |
| Fair |
| Carrying |
| Fair |
|
| Carrying |
| Fair |
| Carrying |
| Fair |
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Investment Securities: |
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Equity securities |
| $ | 1,300 |
| $ | 1,300 |
| $ | 2,906 |
| $ | 2,906 |
|
| $ | 856 |
| $ | 856 |
| $ | 797 |
| $ | 797 |
|
Other |
| 86 |
| 86 |
| 41 |
| 42 |
|
| 84 |
| 84 |
| 86 |
| 86 |
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Total Long-term Debt |
| (23,814 | ) | (25,166 | ) | (20,684 | ) | (21,147 | ) |
| (20,329 | ) | (20,841 | ) | (27,718 | ) | (29,018 | ) | ||||||||
Foreign Currency Forward Exchange Contracts: |
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| ||||||||
Receivable position |
| 220 |
| 220 |
| 276 |
| 276 |
|
| 238 |
| 238 |
| 138 |
| 138 |
| ||||||||
(Payable) position |
| (229 | ) | (229 | ) | (82 | ) | (82 | ) |
| (161 | ) | (161 | ) | (205 | ) | (205 | ) | ||||||||
Interest Rate Hedge Contracts: |
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| ||||||||
Receivable position |
| — |
| — |
| 8 |
| 8 |
| |||||||||||||||||
(Payable) position |
| (53 | ) | (53 | ) | (74 | ) | (74 | ) |
| (230 | ) | (230 | ) | (93 | ) | (93 | ) |
The fair value of the debt was determined based on significant other observable inputs, including current interest rates.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
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 |
|
|
|
| Basis of Fair Value Measurement |
| ||||||||||||||||
(in millions) |
| Outstanding |
| Quoted |
| Significant |
| Significant |
|
| Outstanding |
| Quoted |
| Significant |
| Significant |
| ||||||||
September 30, 2017: |
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June 30, 2018: |
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| |||||||||||||||||
Equity securities |
| $ | 992 |
| $ | 992 |
| $ | — |
| $ | — |
|
| $ | 353 |
| $ | 353 |
| $ | — |
| $ | — |
|
Foreign currency forward exchange contracts |
| 220 |
| — |
| 220 |
| — |
| |||||||||||||||||
Total Assets |
| $ | 1,212 |
| $ | 992 |
| $ | 220 |
| $ | — |
| |||||||||||||
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| |||||||||||||||||
Fair value of hedged long-term debt |
| $ | 3,940 |
| $ | — |
| $ | 3,940 |
| $ | — |
| |||||||||||||
Foreign currency forward exchange contracts |
| 229 |
| — |
| 229 |
| — |
| |||||||||||||||||
Interest rate swap derivative financial instruments |
| 53 |
| — |
| 53 |
| — |
| |||||||||||||||||
Contingent consideration related to business combinations |
| 130 |
| — |
| — |
| 130 |
| |||||||||||||||||
Total Liabilities |
| $ | 4,352 |
| $ | — |
| $ | 4,222 |
| $ | 130 |
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December 31, 2016: |
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|
|
|
|
|
|
|
| |||||||||||||||||
Equity securities |
| $ | 2,676 |
| $ | 2,676 |
| $ | — |
| $ | — |
| |||||||||||||
Interest rate swap derivative financial instruments |
| 8 |
| — |
| 8 |
| — |
| |||||||||||||||||
Foreign currency forward exchange contracts |
| 276 |
| — |
| 276 |
| — |
|
| 238 |
| — |
| 238 |
| — |
| ||||||||
Total Assets |
| $ | 2,960 |
| $ | 2,676 |
| $ | 284 |
| $ | — |
|
| $ | 591 |
| $ | 353 |
| $ | 238 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fair value of hedged long-term debt |
| $ | 5,413 |
| $ | — |
| $ | 5,413 |
| $ | — |
|
| $ | 3,763 |
| $ | — |
| $ | 3,763 |
| $ | — |
|
Interest rate swap derivative financial instruments |
| 74 |
| — |
| 74 |
| — |
|
| 230 |
| — |
| 230 |
| — |
| ||||||||
Foreign currency forward exchange contracts |
| 82 |
| — |
| 82 |
| — |
|
| 161 |
| — |
| 161 |
| — |
| ||||||||
Contingent consideration related to business combinations |
| 136 |
| — |
| — |
| 136 |
|
| 125 |
| — |
| — |
| 125 |
| ||||||||
Total Liabilities |
| $ | 5,705 |
| $ | — |
| $ | 5,569 |
| $ | 136 |
|
| $ | 4,279 |
| $ | — |
| $ | 4,154 |
| $ | 125 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
December 31, 2017: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Equity securities |
| $ | 374 |
| $ | 374 |
| $ | — |
| $ | — |
| |||||||||||||
Foreign currency forward exchange contracts |
| 138 |
| — |
| 138 |
| — |
| |||||||||||||||||
Total Assets |
| $ | 512 |
| $ | 374 |
| $ | 138 |
| $ | — |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Fair value of hedged long-term debt |
| $ | 3,898 |
| $ | — |
| $ | 3,898 |
| $ | — |
| |||||||||||||
Interest rate swap derivative financial instruments |
| 93 |
| — |
| 93 |
| — |
| |||||||||||||||||
Foreign currency forward exchange contracts |
| 205 |
| — |
| 205 |
| — |
| |||||||||||||||||
Contingent consideration related to business combinations |
| 120 |
| — |
| — |
| 120 |
| |||||||||||||||||
Total Liabilities |
| $ | 4,316 |
| $ | — |
| $ | 4,196 |
| $ | 120 |
|
Equity securities are principally comprised of Mylan N.V. ordinary shares. The fair value of the Mylan equity securities was determined based on the value of the publicly-traded ordinary shares. In the first nine months of 2017, Abbott sold 51 million ordinary shares of Mylan N.V which had a value of approximately $2 billion. As a result of this sale, Abbott’s ownership interest in Mylan N.V. decreased from approximately 14% to 3.4%. The fair value of 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 foreign currency forward exchange contracts is determined using a market approach, which utilizes values for comparable derivative instruments. The
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
September 30, 2017
(Unaudited)
fair value of the contingent consideration was determined based on an independent appraisal adjusted for the time value of money and other changes in fair value.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
Note 1214 — 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 $10 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 $40$85 million to $45$130 million. The recorded accrual balance at SeptemberJune 30, 20172018 for these proceedings and exposures was approximately $45$105 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 1315 — 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 months and ninesix months ended SeptemberJune 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 |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| Defined Benefit Plans |
| Medical and Dental Plans |
|
| Three Months |
| Six Months |
| Three Months |
| Six Months |
| ||||||||||||||||||||||||||||||||||||
|
| Three Months |
| Nine Months |
| Three Months |
| Nine Months |
|
| Ended June 30 |
| Ended June 30 |
| Ended June 30 |
| Ended June 30 |
| ||||||||||||||||||||||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||||||||||
Service cost - benefits earned during the period |
| $ | 71 |
| $ | 66 |
| $ | 213 |
| $ | 200 |
| $ | 6 |
| $ | 7 |
| $ | 19 |
| $ | 20 |
|
| $ | 67 |
| $ | 70 |
| $ | 145 |
| $ | 142 |
| $ | 6 |
| $ | 6 |
| $ | 13 |
| $ | 13 |
|
Interest cost on projected benefit obligations |
| 72 |
| 72 |
| 215 |
| 218 |
| 12 |
| 11 |
| 34 |
| 33 |
|
| 77 |
| 71 |
| 155 |
| 143 |
| 12 |
| 11 |
| 24 |
| 22 |
| ||||||||||||||||
Expected return on plan assets |
| (154 | ) | (142 | ) | (459 | ) | (426 | ) | (9 | ) | (9 | ) | (25 | ) | (26 | ) |
| (171 | ) | (153 | ) | (342 | ) | (305 | ) | (8 | ) | (8 | ) | (16 | ) | (16 | ) | ||||||||||||||||
Net amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Actuarial loss, net |
| 41 |
| 34 |
| 123 |
| 97 |
| 6 |
| 4 |
| 18 |
| 13 |
|
| 49 |
| 40 |
| 103 |
| 82 |
| 9 |
| 6 |
| 17 |
| 12 |
| ||||||||||||||||
Prior service cost (credit) |
| — |
| — |
| — |
| — |
| (11 | ) | (12 | ) | (34 | ) | (34 | ) |
| 1 |
| — |
| 1 |
| — |
| (12 | ) | (12 | ) | (23 | ) | (23 | ) | ||||||||||||||||
Net cost - continuing operations |
| $ | 30 |
| $ | 30 |
| $ | 92 |
| $ | 89 |
| $ | 4 |
| $ | 1 |
| $ | 12 |
| $ | 6 |
|
| $ | 23 |
| $ | 28 |
| $ | 62 |
| $ | 62 |
| $ | 7 |
| $ | 3 |
| $ | 15 |
| $ | 8 |
|
In the first quarter of 2018, Abbott adopted ASU 2017-07 which requires all components of pension and other postretirement benefit expense except service cost to be presented outside any subtotal of income from operations. These amounts are now classified as non-operating (income) loss. Abbott’s Condensed Consolidated Statement of Earnings was retrospectively adjusted, resulting in the reclassification of approximately $40 million and $80 million of income from the Operating earnings line to the Other (income) expense, net line in the second quarter and first six months of 2017, respectively.
In the first ninesix months of 2017, Abbott recognized a $10 million curtailment gain related to the disposition of AMO.
Abbott funds its domestic defined benefit plans according to IRS funding limitations. International pension plans are funded according to similar regulations. In the first ninesix months of 2018 and 2017, and 2016, $335$58 million and $540$321 million, respectively, were contributed to defined benefit plans and $11 million and $9 million, respectively, werewas contributed to the post-employment medical and dental benefit plans.plans in each year.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
Note 1416 — Taxes on Earnings
Taxes on earnings from continuing operations reflect the estimated annual effective rates and include charges for interest and penalties. In the first ninesix months of 2018, taxes on earnings from continuing operations include approximately $71 million in excess tax benefits associated with share-based compensation. Earnings from discontinued operations, net of tax, in the first six months of 2018 reflect the recognition of $24 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years which decreased the gross amount of unrecognized tax benefits by $31 million. In the first six months of 2017, taxes on earnings from continuing operations include $435$430 million of tax expense related to the gain on the sale of the AMO business, which is taxed at a discrete tax rate. Earnings from discontinued operations, net of tax, of $88$46 million for the first ninesix months of 2017 primarily reflects the recognition of net tax benefits as a result of the resolution of various tax positions related to prior years, which decreases the gross amount of unrecognized tax benefits by approximately $80 million. In the first nine months of 2016, taxes on earnings from continuing operations includes the impact of a net tax benefit of approximately $250 million as a result of the resolution of various tax 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 sale of AMO. Earnings from discontinued operations, net of tax, in the first nine months of 2016 reflects the recognition of $289 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years. The conclusion of these tax matters decreased the gross amount of unrecognized tax benefits by approximately $546 million in 2016.
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 between $200$500 million and $350$700 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters. In the U.S., Abbott’s federal income tax returns through 2013 are settled through 2013 and St. Jude Medical’sexcept for the federal income tax returns of the former Alere consolidated group which are settled through 2013 except for one item.2012.
Note 15 — Subsequent EventThe Tax Cuts and Jobs Act (“TCJA”) was enacted in the U.S. on December 22, 2017. The TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.
On October 3,In the fourth quarter of 2017, Abbott completedrecorded an estimate of net tax expense of $1.46 billion for the acquisitionimpact of Alere Inc. The transaction establishes Abbott as a global leaderthe TCJA, which was included in Taxes on Earnings from Continuing Operations in the pointConsolidated Statement of care diagnostics marketEarnings. The estimate was provisional and expandsincluded a charge of approximately $2.89 billion for the opportunitiestransition tax, partially offset by a net benefit of approximately $1.42 billion for future growth in the global diagnostics market. See Note 6remeasurement of deferred tax assets and liabilities and a net benefit of approximately $10 million related to certain other impacts of the TCJA.
In the first six months of 2018, Abbott recorded a $16 million adjustment to the condensed consolidated financial statementsprovisional transition tax liability for associated effects related to state tax. This adjustment increases the estimate of net tax expense for the impact of TCJA to $1.476 billion.
Given the significant complexity of the TCJA, Abbott will continue to evaluate and analyze the impact of this legislation. The $1.476 billion estimate is provisional and is based on Abbott’s latest analysis of the TCJA and may be materially adjusted in future periods due to among other things, additional information regarding this acquisition.analysis performed by Abbott and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, or the Financial Accounting Standards Board.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SeptemberJune 30, 2017
2018
(Unaudited)
Note 1617 — 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. On January 4, 2017, Abbott completed the acquisition of St. Jude Medical. Beginning with the first quarter of 2017, Abbott’s cardiovascular and neuromodulation business includes the results of its historical Vascular Products segment and the results of the businesses acquired from St. Jude Medical from the date of acquisition.
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, physician offices and alternate-care testing sites. For segment reporting purposes, the Core Laboratories Diagnostics, Rapid Diagnostics, Molecular Diagnostics and Point of Care and Ibis diagnosticDiagnostics divisions are aggregated and reported as the Diagnostic Products segment.
Cardiovascular and Neuromodulation Products — Worldwide sales of cardiac rhythm management, electrophysiology, heart failure, vascular, structural heart and neuromodulation products. For segment reporting purposes, the Cardiac Arrhythmias & Heart Failure, Vascular, Neuromodulation and Structural Heart divisions are aggregated and reported as the Cardiovascular and Neuromodulation segment.
Non-reportable segments include AMO through the date of sale and Diabetes Care.
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. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. 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, 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. As a result of the acquisition of St. Jude Medical, the total assets of the Cardiovascular and Neuromodulation segment increased from $1.425 billion at December 31, 2016 to $5.202 billion at September 30, 2017. The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and is not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.
|
| Net Sales to External Customers |
| Operating Earnings |
|
| Net Sales to External Customers |
| Operating Earnings |
| ||||||||||||||||||||||||||||||||||||||||
|
| Three Months |
| Nine Months |
| Three Months |
| Nine Months |
|
| Three Months |
| Six Months |
| Three Months |
| Six Months |
| ||||||||||||||||||||||||||||||||
|
| Ended Sept. 30 |
| Ended Sept. 30 |
| Ended Sept. 30 |
| Ended Sept. 30 |
|
| Ended June 30 |
| Ended June 30 |
| Ended June 30 |
| Ended June 30 |
| ||||||||||||||||||||||||||||||||
(in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||||||||||
Established Pharmaceutical Products |
| $ | 1,171 |
| $ | 1,012 |
| $ | 3,142 |
| $ | 2,880 |
| $ | 271 |
| $ | 211 |
| $ | 591 |
| $ | 551 |
|
| $ | 1,129 |
| $ | 1,021 |
| $ | 2,173 |
| $ | 1,971 |
| $ | 208 |
| $ | 180 |
| $ | 375 |
| $ | 320 |
|
Nutritional Products |
| 1,768 |
| 1,755 |
| 5,141 |
| 5,166 |
| 403 |
| 438 |
| 1,146 |
| 1,148 |
|
| 1,858 |
| 1,731 |
| 3,614 |
| 3,373 |
| 424 |
| 392 |
| 789 |
| 743 |
| ||||||||||||||||
Diagnostic Products |
| 1,279 |
| 1,213 |
| 3,710 |
| 3,557 |
| 353 |
| 301 |
| 975 |
| 856 |
|
| 1,873 |
| 1,273 |
| 3,710 |
| 2,431 |
| 489 |
| 338 |
| 932 |
| 622 |
| ||||||||||||||||
Cardiovascular and Neuromodulation Products |
| 2,224 |
| 708 |
| 6,587 |
| 2,175 |
| 682 |
| 249 |
| 1,990 |
| 786 |
|
| 2,421 |
| 2,260 |
| 4,744 |
| 4,363 |
| 761 |
| 689 |
| 1,485 |
| 1,308 |
| ||||||||||||||||
Total Reportable Segments |
| 6,442 |
| 4,688 |
| 18,580 |
| 13,778 |
| 1,709 |
| 1,199 |
| 4,702 |
| 3,341 |
|
| 7,281 |
| 6,285 |
| 14,241 |
| 12,138 |
| 1,882 |
| 1,599 |
| 3,581 |
| 2,993 |
| ||||||||||||||||
Other |
| 387 |
| 614 |
| 1,221 |
| 1,742 |
|
|
|
|
|
|
|
|
|
| 486 |
| 352 |
| 916 |
| 834 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Sales |
| $ | 6,829 |
| $ | 5,302 |
| $ | 19,801 |
| $ | 15,520 |
|
|
|
|
|
|
|
|
|
| $ | 7,767 |
| $ | 6,637 |
| $ | 15,157 |
| $ | 12,972 |
|
|
|
|
|
|
|
|
| ||||||||
Corporate functions and benefit plans costs |
|
|
|
|
|
|
|
|
| (129 | ) | (107 | ) | (326 | ) | (282 | ) |
|
|
|
|
|
|
|
|
| (140 | ) | (104 | ) | (292 | ) | (197 | ) | ||||||||||||||||
Non-reportable segments |
|
|
|
|
|
|
|
|
| 89 |
| 105 |
| 209 |
| 155 |
|
|
|
|
|
|
|
|
|
| 125 |
| 74 |
| 217 |
| 120 |
| ||||||||||||||||
Net interest expense |
|
|
|
|
|
|
|
|
| (182 | ) | (95 | ) | (569 | ) | (203 | ) |
|
|
|
|
|
|
|
|
| (189 | ) | (183 | ) | (388 | ) | (387 | ) | ||||||||||||||||
Share-based compensation (a) |
|
|
|
|
|
|
|
|
| (75 | ) | (49 | ) | (338 | ) | (263 | ) |
|
|
|
|
|
|
|
|
| (101 | ) | (92 | ) | (313 | ) | (263 | ) | ||||||||||||||||
Amortization of intangible assets |
|
|
|
|
|
|
|
|
| (501 | ) | (140 | ) | (1,415 | ) | (429 | ) |
|
|
|
|
|
|
|
|
| (562 | ) | (392 | ) | (1,146 | ) | (914 | ) | ||||||||||||||||
Other, net (b) |
|
|
|
|
|
|
|
|
| (285 | ) | (1,092 | ) | (606 | ) | (1,781 | ) |
|
|
|
|
|
|
|
|
| (238 | ) | (607 | ) | (451 | ) | (321 | ) | ||||||||||||||||
Earnings (loss) from continuing operations before taxes |
|
|
|
|
|
|
|
|
| $ | 626 |
| $ | (179 | ) | $ | 1,657 |
| $ | 538 |
| |||||||||||||||||||||||||||||
Earnings from continuing operations before taxes |
|
|
|
|
|
|
|
|
| $ | 777 |
| $ | 295 |
| $ | 1,208 |
| $ | 1,031 |
|
(a) Approximately 50 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 for the ninesix months ended SeptemberJune 30, 2018 includes inventory step-up amortization. Other, net for the three and six months ended June 30, 2018, includes restructuring charges and integration costs associated with the acquisitions of St. Jude Medical and Alere. Other, net for the six months ended June 30, 2017, includes the gain on the sale of the AMO business. Other, net for the three and ninesix months ended SeptemberJune 30, 2017, includes inventory step-up amortization, restructuring charges and integration costs associated with the acquisition of St. Jude Medical. Other, net for the nine months ended September 30, 2016, includes the $947 million adjustment of the Mylan equity investment and $481 million of foreign currency loss related to operations in Venezuela.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review - Results of Operations
Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott’s primary products are nutritional products, branded generic pharmaceuticals, diagnostic testing products and cardiovascular and neuromodulation products.
The following table details sales by reportable segment for the three months and ninesix months ended SeptemberJune 30. Percent changes are versus the prior year and are based on unrounded numbers.
|
| Net Sales to External Customers |
|
| Net Sales to External Customers |
| ||||||||||||||||||||
(in millions) |
| Three Months |
| Three Months |
| Total |
| Impact of |
| Total Change |
|
| Three Months |
| Three Months |
| Total |
| Impact of |
| Total Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Established Pharmaceutical Products |
| $ | 1,171 |
| $ | 1,012 |
| 15.7 | % | 1.4 | % | 14.3 | % |
| $ | 1,129 |
| $ | 1,021 |
| 10.5 | % | (1.8 | )% | 12.3 | % |
Nutritional Products |
| 1,768 |
| 1,755 |
| 0.8 |
| — |
| 0.8 |
|
| 1,858 |
| 1,731 |
| 7.3 |
| 0.9 |
| 6.4 |
| ||||
Diagnostic Products |
| 1,279 |
| 1,213 |
| 5.4 |
| 0.2 |
| 5.2 |
|
| 1,873 |
| 1,273 |
| 47.2 |
| 2.6 |
| 44.6 |
| ||||
Cardiovascular and Neuromodulation Products |
| 2,224 |
| 708 |
| 214.1 |
| 1.0 |
| 213.1 |
|
| 2,421 |
| 2,260 |
| 7.1 |
| 2.7 |
| 4.4 |
| ||||
Total Reportable Segments |
| 6,442 |
| 4,688 |
| 37.4 |
| 0.5 |
| 36.9 |
|
| 7,281 |
| 6,285 |
| 15.8 |
| 1.4 |
| 14.4 |
| ||||
Other |
| 387 |
| 614 |
| (36.9 | ) | 1.3 |
| (38.2 | ) |
| 486 |
| 352 |
| 38.2 |
| 6.0 |
| 32.2 |
| ||||
Net Sales |
| $ | 6,829 |
| $ | 5,302 |
| 28.8 |
| 0.6 |
| 28.2 |
|
| $ | 7,767 |
| $ | 6,637 |
| 17.0 |
| 1.7 |
| 15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total U.S. |
| $ | 2,313 |
| $ | 1,645 |
| 40.6 |
| — |
| 40.6 |
|
| $ | 2,702 |
| $ | 2,360 |
| 14.5 |
| — |
| 14.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total International |
| $ | 4,516 |
| $ | 3,657 |
| 23.5 |
| 0.9 |
| 22.6 |
|
| $ | 5,065 |
| $ | 4,277 |
| 18.4 |
| 2.6 |
| 15.8 |
|
|
| Net Sales to External Customers |
|
| Net Sales to External Customers |
| ||||||||||||||||||||
(in millions) |
| Nine Months |
| Nine Months |
| Total |
| Impact of |
| Total Change |
|
| Six Months |
| Six Months |
| Total |
| Impact of |
| Total Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Established Pharmaceutical Products |
| $ | 3,142 |
| $ | 2,880 |
| 9.1 | % | 1.1 | % | 8.0 | % |
| $ | 2,173 |
| $ | 1,971 |
| 10.2 | % | 0.5 | % | 9.7 | % |
Nutritional Products |
| 5,141 |
| 5,166 |
| (0.5 | ) | (0.6 | ) | 0.1 |
|
| 3,614 |
| 3,373 |
| 7.2 |
| 1.6 |
| 5.6 |
| ||||
Diagnostic Products |
| 3,710 |
| 3,557 |
| 4.3 |
| (0.8 | ) | 5.1 |
|
| 3,710 |
| 2,431 |
| 52.6 |
| 3.6 |
| 49.0 |
| ||||
Cardiovascular and Neuromodulation Products |
| 6,587 |
| 2,175 |
| 202.9 |
| (0.4 | ) | 203.3 |
|
| 4,744 |
| 4,363 |
| 8.7 |
| 3.7 |
| 5.0 |
| ||||
Total Reportable Segments |
| 18,580 |
| 13,778 |
| 34.8 |
| (0.3 | ) | 35.1 |
|
| 14,241 |
| 12,138 |
| 17.3 |
| 2.6 |
| 14.7 |
| ||||
Other |
| 1,221 |
| 1,742 |
| (29.9 | ) | (0.4 | ) | (29.5 | ) |
| 916 |
| 834 |
| 9.7 |
| 6.5 |
| 3.2 |
| ||||
Net Sales |
| $ | 19,801 |
| $ | 15,520 |
| 27.6 |
| (0.3 | ) | 27.9 |
|
| $ | 15,157 |
| $ | 12,972 |
| 16.8 |
| 2.8 |
| 14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total U.S. |
| $ | 6,997 |
| $ | 4,831 |
| 44.8 |
| — |
| 44.8 |
|
| $ | 5,377 |
| $ | 4,684 |
| 14.8 |
| — |
| 14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total International |
| $ | 12,804 |
| $ | 10,689 |
| 19.8 |
| (0.4 | ) | 20.2 |
|
| $ | 9,780 |
| $ | 8,288 |
| 18.0 |
| 4.5 |
| 13.5 |
|
Note: In order to compute results excluding the impact of exchange rates, current year U.S. dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates.
Net sales growth in the third quarter and first nine months of 2017 was driven by the acquisition of St. Jude Medical, Inc. (St. Jude Medical) which was completed on January 4, 2017, as well as growth in the Established Pharmaceutical Products and Diagnostic Products segments, excludingExcluding the impact of foreign exchange. Beginningexchange, net sales growth in 2018 was driven by growth in all of Abbott’s business segments and the acquisition of Alere Inc. (Alere) which closed in the firstfourth quarter of 2017, Abbott’s cardiovascular and neuromodulation business included the results of its historical Vascular Products segment and the results of the businesses acquired from St. Jude Medical from the date of acquisition. 2017. The decreaseincrease in the Other category for the third quarter and first nine months of 2017 reflects growth in Abbott’s Diabetes Care business, partially offset by the sale of the Abbott Medical Optics (AMO) segmentbusiness to Johnson & Johnson, partially offset by double-digit growth in Abbott’s Diabetes Care business.Johnson. The AMO segmentbusiness was included in Abbott’s results as a non-reportable segment up tothrough February 27, 2017. 2017, the date of the divestiture. Double-digit growth in Diabetes Care was led by FreeStyle® Libre, Abbott’s sensor-based continuous glucose monitoring (CGM) system, which removes the need for routine fingersticks for people with diabetes.
Excluding the impact of the Alere acquisition, the divestitures of AMO and the legacy St. Jude Medical acquisition, AMO resultsvascular closure business, and the impact of foreign exchange, total net sales increased 6.0 percent, U.S. sales increased 0.1 percent and international sales increased 8.78.0 percent in the thirdsecond quarter of 2017. Excluding the St. Jude Medical acquisition, AMO results2018 and the impact of foreign exchange, total net sales increased 4.1 percent, U.S. sales increased 2.0 percent and international sales increased 5.07.5 percent in the first ninesix months of 2018, respectively. Sales related to these divestitures totaled $187 million in the first six months of 2017. Abbott’s net sales were also positively impacted by changes in foreign currency exchange rates during the period compared to 2017. The relatively weaker U.S. dollar increased total international sales by 2.6 percent and total sales by 1.7 percent in the second quarter of 2018. The relatively weaker U.S. dollar increased total international sales by 4.5 percent and total sales by 2.8 percent in the first six months of 2018.
The table below provides detail by sales category for the ninesix months ended SeptemberJune 30. Percent changes are versus the prior year and are based on unrounded numbers.
(in millions) |
| Sept. 30, |
| Sept. 30, |
| Total |
| Impact of |
| Total Change |
|
| June 30, |
| June 30, |
| Total |
| Impact of |
| Total Change |
| ||||
Established Pharmaceutical Products — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Key Emerging Markets |
| $ | 2,413 |
| $ | 2,135 |
| 13.0 | % | 1.4 | % | 11.6 | % |
| $ | 1,659 |
| $ | 1,528 |
| 8.6 | % | (0.9 | )% | 9.5 | % |
Other Emerging Markets |
| 729 |
| 745 |
| (2.3 | ) | 0.2 |
| (2.5 | ) |
| 514 |
| 443 |
| 15.9 |
| 5.8 |
| 10.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nutritionals — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
International Pediatric Nutritionals |
| 1,562 |
| 1,664 |
| (6.1 | ) | (1.0 | ) | (5.1 | ) |
| 1,128 |
| 1,023 |
| 10.3 |
| 3.1 |
| 7.2 |
| ||||
U.S. Pediatric Nutritionals |
| 1,327 |
| 1,242 |
| 6.8 |
| — |
| 6.8 |
|
| 917 |
| 891 |
| 2.9 |
| — |
| 2.9 |
| ||||
International Adult Nutritionals |
| 1,317 |
| 1,278 |
| 3.0 |
| (1.1 | ) | 4.1 |
|
| 947 |
| 847 |
| 11.9 |
| 2.6 |
| 9.3 |
| ||||
U.S. Adult Nutritionals |
| 935 |
| 982 |
| (4.8 | ) | — |
| (4.8 | ) |
| 622 |
| 612 |
| 1.6 |
| — |
| 1.6 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diagnostics — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Core Laboratory |
| 2,964 |
| 2,840 |
| 4.3 |
| (1.1 | ) | 5.4 |
|
| 2,147 |
| 1,931 |
| 11.2 |
| 4.2 |
| 7.0 |
| ||||
Molecular |
| 341 |
| 339 |
| 0.6 |
| 0.5 |
| 0.1 |
|
| 240 |
| 226 |
| 6.4 |
| 2.7 |
| 3.7 |
| ||||
Point of Care |
| 405 |
| 378 |
| 7.3 |
| (0.1 | ) | 7.4 |
|
| 280 |
| 274 |
| 1.9 |
| 0.6 |
| 1.3 |
| ||||
Rapid Diagnostics |
| 1,043 |
| �� |
| n/m |
| n/m |
| n/m |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cardiovascular and Neuromodulation — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rhythm Management |
| 1,574 |
| — |
| n/m |
| n/m |
| n/m |
|
| 1,078 |
| 1,063 |
| 1.5 |
| 3.6 |
| (2.1 | ) | ||||
Electrophysiology |
| 1,001 |
| 10 |
| n/m |
| n/m |
| n/m |
|
| 819 |
| 659 |
| 24.3 |
| 4.2 |
| 20.1 |
| ||||
Heart Failure |
| 471 |
| — |
| n/m |
| n/m |
| n/m |
|
| 316 |
| 301 |
| 4.7 |
| 1.9 |
| 2.8 |
| ||||
Vascular |
| 2,158 |
| 1,905 |
| 13.3 |
| (0.4 | ) | 13.7 |
|
| 1,489 |
| 1,434 |
| 3.9 |
| 4.1 |
| (0.2 | ) | ||||
Structural Heart |
| 793 |
| 260 |
| 205.5 |
| (0.3 | ) | 205.8 |
|
| 608 |
| 524 |
| 16.0 |
| 5.4 |
| 10.6 |
| ||||
Neuromodulation |
| 590 |
| — |
| n/m |
| n/m |
| n/m |
|
| 434 |
| 382 |
| 13.5 |
| 1.7 |
| 11.8 |
|
Key Emerging Markets for the Established Pharmaceutical Products business include India, Russia, Brazil and China, along with several other markets that represent the most attractive long-term growth opportunities for Abbott’s branded generics product portfolio. Excluding the effect of foreign exchange, salesSales in the Key Emerging Markets increased 11.69.5 percent compared to the first nine months of 2016. Strong growth in Russia, China, and several countries across Latin America was partially offset by the impact associated with implementation of a new Goods and Services Tax (GST) system in India during the second quarter of 2017. Excluding the impact of GST, sales in Key Emerging Markets would have grown 13.2 percent in the first nine months of 2017. The 2.3 percent decrease in Other Emerging Markets in the first ninesix months of 2017, primarily reflectsexcluding the unfavorable impacteffect of Venezuelan operations. Excluding Venezuelaforeign exchange, due to double-digit growth across several geographies including India and China.
The 7.2 percent increase in International Pediatric Nutritional sales, excluding the effect of foreign exchange, was primarily driven by strong growth across several countries in Asia, including Greater China. In the U.S., the 2.9 percent increase in Pediatric Nutritional sales reflects higher Pedialyte consumption and market share gains in Other Emerging Markets increased 4.1the infant nutrition category. The 9.3 percent versus the first nine months of 2016.
Excludingincrease in International Adult Nutritional sales, excluding the effect of foreign exchange, International Pediatric Nutritional sales decreased 5.1 percentreflects continued strong growth of the Ensure® and Glucerna® brands in the first nine months of 2017. Challenging conditions in the infant formula market in various emerging markets negatively impacted international performance.Asia and Latin America. In the U.S., above-market Pediatricthe 1.6 percent increase in Adult Nutritional sales was driven by the growth of 6.8Ensure products.
The 49.0 percent was led by the continued momentum of several recently launched infant formula products as well as growth of the PediaSure® toddler brand. Excludingincrease in Diagnostics sales, excluding the effect of foreign exchange, International Adult Nutritional sales increased 4.1 percent compared to the first nine months of 2016 led by continued market growth across priority geographies while U.S. Adult Nutritional sales decreased 4.8 percent due to competitive and market dynamics.
Excluding the effect of foreign exchange, the 5.1 percent increase in Diagnostics sales was primarily driven by share gainsAlere which was acquired in the Core Laboratory and Pointfourth quarter of Care markets in the U.S. and higher sales to various international markets. During the quarter, Abbott continued the international roll-out of its recently launched Alinity systems for the core laboratory, including “Alinity c” for clinical chemistry, “Alinity i” for immunoassay diagnostics and “Alinity s” for blood and plasma screening.
Excluding the effect of foreign exchange, the 203.3 percent increase in the Cardiovascular and Neuromodulation Products segment was driven by the acquisition of St. Jude Medical which was completed on January 4, 2017. Excluding the impact of the acquisition, as well as the impact of foreign exchange, sales in Diagnostics increased 6.1 percent driven primarily by share gains in Core Laboratory in the U.S. and internationally.
The 5.0 percent increase in Cardiovascular and Neuromodulation Products segment were essentially flatsales, excluding the effect of foreign exchange, was driven by double-digit growth in Electrophysiology, Neuromodulation and Structural Heart. The growth in Electrophysiology reflects strong performance in cardiac mapping and ablation as well as share gains from the recent U.S. launch of Abbott’s Confirm RxTM Insertable Cardiac Monitor (ICM), the world’s first and only smartphone-compatible ICM designed to help physicians remotely identify cardiac arrhythmias. In May 2018, Abbott announced U.S. FDA clearance of the AdvisorTM HD Grid Mapping Catheter, Sensor EnabledTM, which creates detailed maps of the heart and expands Abbott’s electrophysiology product portfolio. The growth in Neuromodulation reflects higher revenue for various products for the treatment of chronic pain and movement disorders. Growth in Structural Heart was driven by several product areas including the AMPLATZERTM PFO Occluder and MitraClip®, Abbott’s market-leading device for the minimally-invasive treatment of mitral regurgitation. In July, Abbott announced U.S. FDA approval for a next-generation version of MitraClip.
In Heart Failure, sales growth was led by higher international sales. In Vascular, higher international drug eluting stent (DES) sales and growth in vessel closure and other revenues offset lower U.S. DES sales due to lower market share. During the second quarter, Abbott received approval from the U.S. FDA for XIENCETM Sierra, the newest generation of its coronary stent system. During the second quarter, XIENCE Sierra also received national reimbursement in Japan to treat people with coronary artery disease. In Rhythm Management, market share gains in the first nine months of 2017 versus the prior year as lower coronary stent sales and the comparison impact from the favorable 2016 resolution of a third-party royalty agreementnew patient segment were offset by higher Structural Heart and endovascular sales.replacement cycle dynamics.
The gross profit margin percentage for Abbott was 50.850.5 percent for the thirdsecond quarter of 20172018 compared to 54.346.0 percent for the thirdsecond quarter of 2016.2017. The gross profit margin percentage was 47.050.6 percent for the first ninesix months of 20172018 compared to 54.044.8 percent for the first ninesix months of 2016.2017. The decreaseincrease primarily reflects higher intangible amortization expense andthe favorable comparison versus the prior year which included inventory step-up amortization related to the St. Jude Medical acquisition. The increase also reflects margin improvement in various businesses including Diabetes Care and Cardiovascular and Neuromodulation.
Research and development expenses increased by $210$55 million, or 59.310.5 percent, in the thirdsecond quarter of 2017,2018, and increased by $543$91 million, or 50.38.4 percent, in the first ninesix months of 2017,2018, due primarily to the addition of the acquired St. Jude Medical business.Alere business as well as higher spending in other areas including Cardiovascular and Neuromodulation. For the ninesix months ended SeptemberJune 30, 2017,2018, research and development expenditures totaled $718$508 million for the Cardiovascular and Neuromodulation Products segment, $382$293 million for the Diagnostic Products segment, $119$98 million for the Nutritional Products segment and $92 million for the Established Pharmaceutical Products segment and $142 million for the Nutritional Products segment.
Selling, general and administrative expenses for the thirdsecond quarter and first ninesix months of 20172018 increased 28.914.7 percent and 31.59.1 percent, respectively, due primarily to the addition of the acquired St. Jude MedicalAlere business as well as the incremental expenseshigher spending to integrate St. Jude Medical with Abbott’s existing vascular business,drive continued growth and market expansion in various businesses, partially offset by the impact of cost improvement initiatives across various functions and businesses.lower acquisition-related expenses.
On September 30, 2016,In the first quarter of 2018, Abbott recorded expenseretrospectively adopted Accounting Standards Update (ASU) 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of $947 millionNet Periodic Pension Cost and Net Periodic Postretirement Benefit Cost which changes the financial statement presentation requirements for pension and other postretirement benefit expense. While service cost continues to adjust its holding of Mylan N.V. ordinary shares due to a declinebe reported in the fair valuesame financial statement line items as other current employee compensation costs, the ASU requires all other components of pension and other postretirement benefit cost to be presented separately from service cost, and outside any subtotal of income from operations. As a result of the securities which was considered by Abbott to benew accounting standard, approximately $80 million of pension and other than temporary. The adjustment reflected Mylan N.V.’s share price as of September 30, 2016 and was includedpost retirement related income is now being reported in Other (income) expense, net in the Other expense (income), net linefirst six months of the Condensed Consolidated Statement of Earnings for 2016.2018 and 2017.
In April 2017, Abbott received a warning letter from the U.S. Food and Drug Administration (FDA) related to its manufacturing facility in Sylmar, CA which was acquired by Abbott on January 4, 2017 as part of the acquisition of St. Jude Medical. This facility manufactures implantable cardioverter defibrillators, cardiac resynchronization therapy defibrillators, and monitors. The warning letter relates to the FDA’s observations from an inspection of this facility. Abbott has prepared a comprehensive plan of corrective actions which has been provided to the FDA. Execution of the plan is progressing.
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 $5.9 billion of St. Jude Medical’s debt was assumed, repaid or refinanced by Abbott. The transactionacquisition 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 competebusiness competes in nearly every area of the cardiovascular device market, as well as in the neuromodulation market.
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 2016 and a $2.0 billion 120-day senior unsecured bridge term loan facility which was subsequently repaid.
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 |
| $ | 15.4 |
|
Goodwill, non-deductible |
| 14.9 |
| |
Acquired net tangible assets |
| 3.1 |
| |
Deferred income taxes recorded at acquisition |
| (4.5 | ) | |
Net debt |
| (5.3 | ) | |
Total preliminary allocation of fair value |
| $ | 23.6 |
|
The goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. The acquired tangible assets consist primarily of trade accounts receivable of approximately $1.2 billion, inventory of approximately $1.7 billion, other current assets of $207 million, property and equipment of approximately $1.5 billion, and other long-term assets of $471 million. The acquired tangible liabilities consist of trade accounts payable and other current liabilities of approximately $1.1 billion and other non-current liabilities of approximately $850 million.
In the first nine months of 2017, consolidated Abbott results include $4.4 billion of sales and a pre-tax loss of approximately $1.2 billion related to the St. Jude Medical acquisition, including approximately $1.0 billion of intangible amortization and $840 million of inventory step-up amortization. The pre-tax loss excludes acquisition, integration and restructuring-related costs.
In 2016, Abbott and St. Jude Medical agreed to sell certain businesses to Terumo Corporation (Terumo) for approximately $1.12 billion. The sale included the St. Jude Medical Angio-Seal™Angio-Seal and Femoseal™Femoseal vascular closure and Abbott’s Vado®Vado Steerable Sheath businesses. The sale closed on January 20, 2017 and no gain or loss was recorded in the Condensed Consolidated Statement of Earnings.
On October 3, 2017, Abbott acquired Alere, Inc. (Alere), a diagnostic device and service provider, for $51.00 per common share in cash, which equated to a purchase price of approximately $4.6$4.5 billion. As part of the acquisition, Abbott tendered for Alere’s preferred shares for a total value of approximately $0.7 billion. In addition, approximately $2.96$3.0 billion of Alere’s debt was assumed and subsequently repaid. The transactionacquisition establishes Abbott as a leader in point of care testing, expands Abbott’s global diagnostics presence and provides access to new products, channels and geographies. Abbott utilized a combination of cash on hand and debt to fund the acquisition. See Note 10 — Debt and Lines of Credit for further details regarding the debt utilized for the acquisition. As the acquisition of Alere was completed after September 30, 2017, Abbott’s consolidated financial statements do not include the financial condition or the operating results of Alere in any of the periods presented herein.
The preliminary allocation of the fair value of the Alere 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 |
| $ | 3.3 |
|
| $ | 3.4 |
|
Goodwill, non-deductible |
| 4.1 |
|
| 4.2 |
| ||
Acquired net tangible assets |
| 1.0 |
|
| 0.9 |
| ||
Deferred income taxes recorded at acquisition |
| (0.5 | ) |
| (0.7 | ) | ||
Net debt |
| (2.6 | ) |
| (2.6 | ) | ||
Preferred stock |
| (0.7 | ) |
| (0.7 | ) | ||
Total preliminary allocation of fair value |
| $ | 4.6 |
|
| $ | 4.5 |
|
The goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. The goodwill is identifiable to the Diagnostic Products reportable segment. The acquired tangible assets consist primarily of trade accounts receivable of approximately $425$430 million, inventory of approximately $440$425 million, other current assets of $213$215 million, property and equipment of approximately $480$540 million, and other long-term assets of $147$112 million. The acquired tangible liabilities consist of trade accounts payable and other current liabilities of approximately $570$625 million and other non-current liabilities of approximately $160 million.
In the third quarter of 2017, Alere entered into agreements to sell its Triage MeterPro cardiovascular and toxicology business and the assets and liabilities related to its B-type Natriuretic Peptide assay business run on Beckman Coulter analyzers to Quidel Corporation (Quidel). The transactions with Quidel reflect a total purchase price of $400 million payable at the close of the transaction, $240 million payable in six annual installments beginning approximately six months after the close of the transaction, and contingent consideration with a maximum value of $40 million. In the third quarter of 2017, Alere entered into an agreement with Siemens Diagnostics Holding II B.V. (Siemens) to sell its subsidiary, Epocal Inc., for approximately $200 million.million payable at the close of the transaction. Alere agreed to divest these businesses in connection with the review by the Federal Trade Commission and the European Commission of Abbott’s agreement to acquire Alere. The sale to Quidel closed on October 6, 2017, and the sale to Siemens closed on October 31, 2017.
If the acquisitions of St. Jude Medical and Alere had occurred at the beginning of 2016, unaudited pro forma consolidated net No gain or loss on these sales would have been approximately $21.6 billion and the unaudited pro forma consolidated net loss from continuing operations would have been approximately $875 million for the first nine months of 2016. This includes amortization of approximately $955 million of inventory step-up and $1.3 billion of intangibles related to St. Jude Medical and Alere. For the third quarter of 2016, unaudited pro forma consolidated net sales would have been approximately $7.3 billion and the unaudited pro forma consolidated net loss from continuing operations would have been approximately $490 million. This includes amortization of approximately $20 million of inventory step-up and $425 million of intangibles related to St. Jude Medical and Alere.
For the first nine months of 2017, unaudited pro forma consolidated net sales would have been approximately $21.3 billion and unaudited pro forma consolidated net earnings from continuing operations would have been approximately $1.6 billion, which includes $225 million of amortization related to Alere. For the third quarter of 2017, unaudited pro forma consolidated net sales would have been approximately $7.3 billion and unaudited pro forma consolidated net earnings from continuing operations would have been approximately $515 million, which includes $75 million of amortization related to Alere. The unaudited pro forma consolidated net earnings from continuing operations for the third quarter and first nine months of 2017 exclude inventory step-up amortization related to St. Jude Medical of approximately $20 million and $840 million, respectively, which was recorded in 2017 but included in the 2016 unaudited pro forma results noted in the paragraph above. The unaudited pro forma information is not necessarily indicativeConsolidated Statement of the consolidated results of operations that would have been realized had the St. Jude Medical and Alere acquisitions 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.Earnings.
On July 17, 2017, Abbott commenced a tender offer to purchase for cash the 1.77 million outstanding shares of Alere’s Series B Convertible Perpetual Preferred Stock at a price of $402 per share, plus accrued but unpaid dividends to, but not including, the settlement date of the tender offer. This tender offer was subject to the satisfaction of certain conditions, including Abbott’s acquisition of Alere and upon there being validly tendered (and not properly withdrawn) at the expiration date of the tender offer that number of shares of Preferred Stock that equaled at least a majority of the Preferred Stock issued and outstanding at the expiration of the tender offer. The tender offer expired on October 3, 2017. All conditions to the offer were satisfied and Abbott accepted for payment the 1.748 million shares of Preferred Stock that were validly tendered (and not properly withdrawn). The remaining shares were cashed out for an amount equal to the $400.00 per share liquidation preference of such shares, plus accrued but unpaid dividends, without interest. Payment for all of the offer price for such shares has beenof Preferred Stock was made in the fourth quarter of 2017.
Restructuring Plans
The results for the first ninesix months of 20172018 reflect charges under approved restructuring plans as part of the integration of the acquisition of St. Jude Medical and Alere, as well as costs related to other actions associated with the company’s plans to streamline various operations. Abbott recorded employee related severance and other charges of approximately $249$45 million in the first ninesix months
of 20172018 related to these initiatives. Approximately $4$11 million is recognized in Cost of products sold, $76$10 million is recognized in Research and development and approximately $169$24 million is recognized in Selling, general and administrative expense. See Note 810 to the financial statements, “Restructuring Plans,” for additional information regarding these charges.
Other (Income) Expense, net
Other (income) expense, net decreased by $2 million in the second quarter of 2018 compared to 2017 and decreased by $1.1 billion in the first six months of 2018 compared to 2017. The decrease in the first six months of 2018 compared to 2017 was due to a pre-tax gain of $1.151 billion recorded in the first quarter of 2017 from Abbott’s completion of the sale of AMO to Johnson & Johnson.
Interest Expense, (Income), net
Interest expense, (income), net increased $87$6 million in the thirdsecond quarter of 20172018 and $366$1 million in the first ninesix months of 20172018 compared to 20162017 as lower interest income due primarilyto lower cash balances more than offset lower interest expense due to the $15.1 billionrepayment of debt issued in November 2016 related to the financing of the St. Jude Medical acquisition which closed on January 4, 2017.debt.
Taxes on Earnings from Continuing Operations
Taxes on earnings from continuing operations reflect the estimated annual effective rates and include charges for interest and penalties. In the first ninesix months of 2018, taxes on earnings from continuing operations include approximately $71 million in excess tax benefits associated with share-based compensation. Earnings from discontinued operations, net of tax, in the first six months of 2018 reflect the recognition of $24 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years which decreased the gross amount of unrecognized tax benefits by $31 million. In the first six months of 2017, taxes on earnings from continuing operations include $435$430 million of tax expense related to the gain on the sale of the AMO business, which is taxed at a discrete tax rate. Earnings from discontinued operations, net of tax, of $88$46 million for the first ninesix months of 2017 primarily reflects the recognition of net tax benefits as a result of the resolution of various tax positions related to prior years, which decreases the gross amount of unrecognized tax benefits by approximately $80 million. In the first nine months of 2016, taxes on earnings from continuing operations includes the impact of a net tax benefit of approximately $250 million as a result of the resolution of various tax 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 sale of AMO. Earnings from discontinued operations, net of tax, in the first nine months of 2016 reflects the recognition of $289 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years. The conclusion of these tax matters decreased the gross amount of unrecognized tax benefits by approximately $546 million in 2016.
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 between $200$500 million and $350$700 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters. In the U.S., Abbott’s federal income tax returns through 2013 are settled through 2013 and St. Jude Medical’sexcept for the federal income tax returns of the former Alere consolidated group which are settled through 2013 except2012.
The Tax Cuts and Jobs Act (“TCJA”) was enacted in the U.S. on December 22, 2017. The TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.
In the fourth quarter of 2017, Abbott recorded an estimate of net tax expense of $1.46 billion for one item.the impact of the TCJA, which was included in Taxes on Earnings from Continuing Operations in the Consolidated Statement of Earnings. The estimate was provisional and included a charge of approximately $2.89 billion for the transition tax, partially offset by a net benefit of approximately $1.42 billion for the remeasurement of deferred tax assets and liabilities and a net benefit of approximately $10 million related to certain other impacts of the TCJA.
In the first six months of 2018, Abbott recorded a $16 million adjustment to the provisional transition tax liability for associated effects related to state tax. This adjustment increases the estimate of net tax expense for the impact of TCJA to $1.476 billion.
Given the significant complexity of the TCJA, Abbott will continue to evaluate and analyze the impact of this legislation. The $1.476 billion estimate is provisional and is based on Abbott’s latest analysis of the TCJA and may be materially adjusted in future periods due to among other things, additional analysis performed by Abbott and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, or the Financial Accounting Standards Board.
Discontinued Operations
On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. (Mylan) for 110 million shares (or approximately 22%) of a newly formed entity (Mylan N.V.) that combined Mylan’s existing business and Abbott’s developed markets branded generics pharmaceuticals business. Mylan N.V. is publicly traded. The shareholder agreement with Mylan N.V. included voting and other restrictions that prevented Abbott from exercising significant influence over the operating and financial policies of Mylan N.V.
In April 2015, Abbott sold 40.25 million of its 110 million ordinary shares of Mylan N.V. As a result of this sale, Abbott’s ownership interest in Mylan N.V. decreased to approximately 14%.
In the first nine months of 2017, Abbott sold 51 million ordinary shares of Mylan N.V. and received $1.977 billion in proceeds. Abbott recorded an immaterial pre-tax gain in the first nine months of 2017, which was recognized in the Other expense (income), net line of the Condensed Consolidated Statement of Earnings. As a result of these share sales, Abbott’s ownership interest in Mylan N.V. decreased from approximately 14% to 3.4%.
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 retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation, as well as certain non-income related taxes attributable to AbbVie’s business prior to the separation. AbbVie generally will be liable for all other taxes attributable to its business.
Earnings from discontinued operations, net of tax of $88$24 million and $288$46 million in the first ninesix months of 20172018 and 2016,2017, respectively, were driven primarily by the recognition of net tax benefits as a result of the resolution of various tax positions related to AbbVie’s operations for years prior to the separation.
In the first quarter of 2016, Abbott received an additional $25 million of proceeds related to the expiration of a holdback agreement associated with the sale of the animal health business and reported an after-tax gain on the sale in discontinued operations of $16 million.
Assets and Liabilities Held for Disposition
In September 2016,As discussed in Note 8 - Business Acquisitions, in conjunction with the acquisition of Alere, Abbott announced that it entered into a definitive agreement to sell AMO, its vision caresold the Triage MeterPro cardiovascular and toxicology 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. In February 2017, Abbott completed the sale of AMO to Johnson & Johnson and recognized a pre-tax gain of $1.163 billion including working capital adjustments, which was reported in the Other expense (income), net line of the Condensed Consolidated Statement of Earnings in the first nine months of 2017. Abbott recorded an after-tax gain of $728 million in the first nine months of 2017 related to the sale of AMO.
The operating results of AMO up to the date of sale continued to be included in Earnings (loss) from continuing operations as they did not qualify for reporting as discontinued operations. For the three months ended September 30, 2017 and 2016, the AMO earnings before taxes included in Abbott’s consolidated earnings were nil and $2 million, respectively. For the first nine months ended September 30, 2017 and 2016, the AMO losses before taxes included in Abbott’s consolidated earnings were $18 million and $42 million, respectively. The following assets and liabilities related to its B-type Natriuretic Peptide assay business run on Beckman Coulter analyzers to Quidel. The legal transfer of this business were reportedcertain assets and liabilities related to these businesses did not occur at the close of the sale to Quidel due to, among other factors, the time required to transfer marketing authorizations and other regulatory requirements in various countries. Under the terms of the sale agreement with Abbott, Quidel is subject to the risks and entitled to the benefits generated by these operations and assets. The assets presented as held for disposition in Abbott’sthe Condensed Consolidated Balance Sheet as of June 30, 2018 and December 31, 2016:2017, primarily relate to the businesses sold to Quidel.
(in millions) |
| December 31, |
| |
Trade receivables, net |
| $ | 222 |
|
Total inventories |
| 240 |
| |
Prepaid expenses and other current assets |
| 51 |
| |
Current assets held for disposition |
| 513 |
| |
Net property and equipment |
| 247 |
| |
Intangible assets, net of amortization |
| 529 |
| |
Goodwill |
| 1,966 |
| |
Deferred income taxes and other assets |
| 11 |
| |
Non-current assets held for disposition |
| 2,753 |
| |
Total assets held for disposition |
| $ | 3,266 |
|
|
|
|
| |
Trade accounts payable |
| $ | 71 |
|
Salaries, wages, commissions and other accrued liabilities |
| 174 |
| |
Current liabilities held for disposition |
| 245 |
| |
Post-employment obligations, deferred income taxes and other long-term liabilities |
| 59 |
| |
Total liabilities held for disposition |
| $ | 304 |
|
(in millions) |
| June 30, |
| December 31, |
| ||
Trade receivables, net |
| $ | 13 |
| $ | 12 |
|
Total inventories |
| 4 |
| 8 |
| ||
Current assets held for disposition |
| 17 |
| 20 |
| ||
Net property and equipment |
| — |
| 56 |
| ||
Intangible assets, net of amortization |
| 19 |
| 18 |
| ||
Goodwill |
| 102 |
| 102 |
| ||
Non-current assets held for disposition |
| 121 |
| 176 |
| ||
Total assets held for disposition |
| $ | 138 |
| $ | 196 |
|
Liquidity and Capital Resources SeptemberJune 30, 20172018 Compared with December 31, 20162017
The reduction of cash and cash equivalents from $18.6$9.4 billion at December 31, 20162017 to $11.0$3.1 billion at SeptemberJune 30, 20172018 primarily reflects the use of cash to fund the cash portion of the St. Jude Medical acquisition, repaymentsrepayment of debt pension contributions, and dividends paid in the first nine monthspayment of 2017,dividends, partially offset by cash generated from operations in the first six months of 2018. Working capital was $5.2 billion at June 30, 2018 and proceeds from$11.2 billion at December 31, 2017. The $6.0 billion decrease in working capital in 2018 is primarily due to the disposition of businessesreduction in Cash and the sale of a portion of Abbott’s investment in Mylan ordinary shares.cash equivalents as discussed above.
Net cash from operating activities for the first ninesix months of 20172018 totaled $3.9$2.352 billion, an increase of $1.9 billion$427 million over the prior year due primarily to the favorable impact of improvedhigher segment operating earnings, continued improvements in working capital management, as well as the acquisitiontiming of the St. Jude Medical businessespension contributions and lower pension contributions.acquisition-related expenses. Other, net in Net cash from operating activities for the first six months of 2018 was a use of $373 million and includes the impact of approximately $425 million of cash taxes paid. The Other, net line in Net cash from operating activities for the first ninesix months of 2017 of $562$50 million includes the impact of improved working capital management and approximately $435$430 million of tax expense associated with the disposition of businesses, which has not yet been paid.businesses. Other net, in the first six months of 2017 also includes contributions to defined benefit pension plans of $335$321 million.Other, net in Net cash from operating activities for the first nine months of 2016 includes contributions to defined benefit pension plans of $540 million as well as approximately $140 million of cash taxes paid related to the disposition of businesses. Other, net in 2016 also includes the non-cash impact of approximately $539 million of net tax benefits primarily associated with the resolution of various tax positions from prior years. The foreign currency loss related to Venezuela in the first nine months of 2016 reduced Abbott’s cash by approximately $410 million and is shown on the Effect of exchange rate changes on cash and cash equivalents line within the Condensed Consolidated Statement of Cash Flows. Abbott expects to fund cash dividends, capital expenditures and its other investments in its businesses with cash flow from operating activities, cash on hand, short-term investments and borrowings.
Working capital was $13.4 billion at September 30,In the first six months of 2017, and $20.1 billion at December 31, 2016.Abbott sold 50 million of the Mylan N.V. ordinary shares received upon the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. The $6.7 billion decrease in working capital in 2017 is primarily due to the reduction in Cash andsale of these shares generated cash equivalents which is discussed above and improved working capital management.
Since January 2010, Venezuela has been designated as a highly inflationary economy under U.S. GAAP. In 2014 and 2015, the governmentproceeds 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.$1.9 billion.
On January 5, 2018, Abbott paid off its $2.8 billion 5-year term loan and the remaining $1.150 billion balance under its revolving credit agreement. On February 17, 2016,16, 2018, the Venezuelan government announced thatboard of directors authorized the three-tier exchange rate system would be reducedredemption of up to two rates renamed$5 billion of currently outstanding long-term notes in addition to 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$3.95 billion repaid in January 2018. On March 22, 2018, Abbott redeemed all of the first quarter$947 million principal amount 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,its 5.125% Notes due 2019, as well as $1.055 billion of the accelerating deterioration$2.850 billion principal amount of economic conditions in the country,its 2.35% Notes due 2019. Abbott concluded that it was appropriate to moveincurred a net charge of $14 million related to the DICOM rate at the endearly repayment of this debt. On June 22, 2018, Abbott redeemed $1.3 billion of the first quarter$1.795 billion outstanding principal amount of 2016. As a result, Abbott recorded a foreign currency exchange loss of $481 million in the first nine months of 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 September 30, 2017, Abbott’s Venezuelan operations represented less than 0.01% of Abbott’s consolidated assets and any additional foreign currency losses related to Venezuela are not expected to be material.2.35% Notes due 2019.
At SeptemberJune 30, 2017,2018, Abbott’s long-term debt rating was BBB by Standard & Poor’s Corporation and Baa3Baa2 by Moody’s Investors Service. Abbott expects to maintain an investment grade rating. Abbott has readily available financial resources, including lines of credit of $5.0 billion as of September, 30, 2017, which expire in 2019. On October 3, 2017, in connection with the Alere acquisition, Abbott borrowed $1.7 billion under these lines of credit. Abbott’s borrowings will bear interest based on a Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings.
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 the first ninesix months of 2016, Abbott repurchased 10.4 million shares at a cost of $408 million under the program authorized in 2014.
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.
In each of the first threetwo quarters of 2017,2018, Abbott declared a quarterly dividend of $0.265$0.28 per share on its common shares, which represents an increase of approximately 2%6% over the $0.26$0.265 per share quarterly dividend declared in each of the first threetwo quarters of 2016.2017.
Recently Issued Accounting Standards Not Yet Adopted
In February 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from accumulated other comprehensive income to retained earnings. The standard becomes effective for Abbott beginning in the first quarter of 2019 and early adoption is permitted. Abbott is currently evaluating the impact the new guidance will have on its consolidated financial statements.
In August 2017, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which makes changes to the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The standard becomes effective for Abbott beginning in the first quarter of 2019 and early adoption is permitted. Abbott is currently evaluating the effect that ASU 2017-12 will have on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost which changes the financial statement presentation requirements for pension and other postretirement benefit expense. While service cost will continue to be reported in the same financial statement line items as other current employee compensation costs, the ASU requires all other components of pension and other postretirement benefit expense to be presented separately from service cost, and outside any subtotal of income from operations. 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 2017-07 will have on its consolidated financial statements.
In October 2016, the FASB issued 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 2016-16new guidance will have on its consolidated financial statements.
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 —Revenue 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.Standard
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 mostsupersedes nearly all previously existing revenue recognition guidance. The standard becomes effectivecore principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Abbott in the first quarter of 2018. Abbott’s revenues are primarily comprised of product sales. Abbott has made substantial progress in the evaluation ofadopted the new standard including a detailed reviewas of Abbott’s revenue streams and contracts. Based onJanuary 1, 2018, using the work performed to date, Abbott currently does not expectmodified retrospective approach method. Under this method, entities recognize the adoptioncumulative effect of applying the new standard at the date of initial application with no restatement of comparative periods presented. The cumulative effect of applying the new standard resulted in an increase to have a materialEarnings employed in the business in the Condensed Consolidated Balance Sheet of $23 million which was recorded at January 1, 2018. The impact of adopting ASU 2014-09 was not significant to individual financial statement line items on its consolidated financial statements. Abbott is continuingthe Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Earnings.
See Note 2 to evaluate the effect that the standard will have on its consolidated financial statements, including the new disclosure requirements. Abbott will continue to monitor“New Accounting Standards,” for 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.information regarding recently issued accounting standards.
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, in the 20162017 Annual Report on Form 10-K.
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, in the 20162017 Annual Report on Form 10-K.
PART I. FINANCIAL INFORMATION
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Market Price Sensitive Investments
The fair value of the available-for-sale equity securities held by Abbott was approximately $1.0 billion as of September 30, 2017 and $2.7 billion as of December 31, 2016. The decrease is due primarily to the sale of 51 million ordinary shares of Mylan N.V., thereby reducing Abbott’s equity securities by approximately $2.0 billion during the first nine months of 2017. All available-for-sale equity securities are subject to potential changes in market value. A hypothetical 20 percent decrease in the share prices of these investments would decrease their fair value at September 30, 2017 by approximately $200 million. Abbott monitors these investments for other than temporary declines in market value, and charges impairment losses to income when an other than temporary decline in value occurs.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Chief Executive Officer, Miles D. White, and Chief Financial Officer, Brian B. Yoor, evaluated the effectiveness of Abbott Laboratories’ disclosure controls and procedures as of the end of the period covered by this report, and concluded that Abbott Laboratories’ disclosure controls and procedures were effective to ensure that information Abbott is required to disclose in the reports that it files or submits with the Securities and Exchange Commission (the “Commission”) under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbott’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. During the quarter ended SeptemberJune 30, 2017,2018, there were no changes in Abbott’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Abbott’s internal control over financial reporting.
Abbott is involved in various claims, legal proceedings and investigations, including (as of June 30, 2018, except where noted below) those described in ourbelow. While it is not feasible to predict the outcome of such pending claims, proceedings and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations.
In its 2017 Annual Report on Form 10-K, forAbbott reported that Alere Toxicology Services, Inc. had reached an agreement with the year ended December 31, 2016U.S. Environmental Protection Agency and Quarterly Report on Form 10-Q foragreed to pay a civil penalty of $186,225 with respect to potential violations of the quarterly period ended March 31, 2017.Resources Conservation and Recovery Act and associated regulations at its Austin, Texas facility. The civil penalty was paid in February 2018 and the matter was closed during the second quarter of 2018 in accordance with the agreement terms.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
Period |
| (a) Total |
| (b) Average |
| (c) Total Number |
| (d) Maximum |
| ||
July 1, 2017 – July 31, 2017 |
| 13,770 | (1) | $ | 48.826 |
| — |
| $ | 925,131,209 | (2) |
August 1, 2017 – August 31, 2017 |
| 16,041 | (1) | $ | 49.852 |
| — |
| $ | 925,131,209 | (2) |
September 1, 2017 – September 30, 2017 |
| 16,835 | (1) | $ | 51.901 |
| — |
| $ | 925,131,209 | (2) |
Total |
| 46,646 | (1) | $ | 50.289 |
| — |
| $ | 925,131,209 | (2) |
Period |
| (a) Total |
| (b) Average |
| (c) Total Number |
| (d) Maximum |
| ||
April 1, 2018 – April 30, 2018 |
| 12,328 | (1) | $ | 58.084 |
| — |
| $ | 925,131,209 | (2) |
May 1, 2018 – May 31, 2018 |
| 12,328 | (1) | $ | 61.141 |
| — |
| $ | 925,131,209 | (2) |
June 1, 2018 – June 30, 2018 |
| 17,611 | (1) | $ | 62.824 |
| — |
| $ | 925,131,209 | (2) |
Total |
| 42,267 | (1) | $ | 60.951 |
| — |
| $ | 925,131,209 | (2) |
(1) These shares include:
(i) the shares deemed surrendered to Abbott to pay the exercise price in connection with the exercise of employee stock options — 13,7700 in July, 1,733April, 0 in August,May, and 2,5275,283 in September;June; and
(ii) the shares purchased on the open market for the benefit of participants in the Abbott Laboratories, Limited Employee Stock Purchase Plan — 012,328 in July, 14,308April, 12,328 in August,May, and 14,30812,328 in September.June.
These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units.
(2) On September 11, 2014, Abbott announced that its board of directors approved the purchase of up to $3 billion of its common shares, from time to time.
Incorporated by reference to the Exhibit Index included herewith.
EXHIBIT INDEX
Exhibit No. |
| Exhibit |
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| |
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| ||
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12 |
| Statement re: Computation of ratio of earnings to fixed charges. |
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31.1 |
| Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
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31.2 |
| Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
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Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed” under the Securities Exchange Act of 1934. | ||
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32.1 |
| |
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32.2 |
| |
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101 |
| The following financial statements and notes from the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter and |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ABBOTT LABORATORIES | |||
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| ||
By: | /s/ Brian B. Yoor |
| |
| Brian B. Yoor | ||
| Executive Vice President, Finance |
| |
|
| ||
| Date: | August 1, 2018 |