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diversified healthcare
company whose central 1 Letter to Shareholders
5 Building Abbott
purpose is to help people,
16 Medical Devices
at all stages of life, live their
20 Diagnostics
best possible lives through 24 Established Pharmaceuticals
better health. We offer a 28 Nutrition
broad portfolio of market- 32 Financial Report
leading products that align 33 Consolidated Financial Statements and Notes
with favorable long-term 57 Management Report on Internal Control
healthcare trends in both Over Financial Reporting
developed and developing 58 Report of Independent Registered
markets. Building on a Public Accounting Firm
strong foundation of almost 59 Financial Instruments and Risk Management
130 years of success, 60 Financial Review
our company is poised to 75 Summary of Selected Financial Data
deliver continuing growth, 76 Directors and Corporate Officers
77 Shareholder and Corporate Information
expanding margins, strong
cash flow, and increasing
returns to shareholders.
ON THE COVER:
L ANA AND ALI NADJI-TEHRANI
FRANKFURT, GERMANY
FREEST YLE LIBRE SYSTEM
D E A R F E L LOW S H A R E H O L D E R:
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ABBOTT 2016 ANNUAL REPORT
These mirror-image actions business partners, governments, The healthcare business is about
perfectly encapsulate our strategy: and the general public. This is excellence. A lower standard simply
we compete where we can achieve particularly critical in Established is not appropriate. The essence
the critical mass and innovation Pharmaceuticals (EPD), our of the business is creating new
needed to have significant impact branded-generics business, where technologies and solutions that
and achieve market leadership. presence is the strategy. Through are better than before and deliver
a steady, focused shaping process, increasing benefits in critical areas
B U I LT T O C O M P E T E EPD is truly becoming the business of peoples health and lives. We
Were able to achieve such positions we envisioned in its creation several pursue leadership in every aspect
because our businesses are years ago. Now focused exclusively of our operations from market
consciously built around a consistent on faster-growing emerging position to financial performance
core of competitive strengths: markets, and with strong presence to corporate citizenship. But
in all relevant regions thanks to our nowhere is it more important than
BAL ANCE acquisitions of CFR Pharmaceuticals in the innovation that is always
and Veropharm, EPD is executing its the heartbeat of our business. And
Our long-term stability is a direct
model with great success, growing our leadership in this regard is
function of the balance we work to
both sales and profits. particularly robust, as were enjoying
construct and maintain between
a very good time for Abbott science.
the various elements of our
R E L E VA N C E
business. Diversity of our strengths
This attribute goes back to that In 2016, Popular Science magazine,
and resources has been central
central question of What do the worlds largest science and
to Abbotts strategy for decades.
we want to be? Its a matter of technology publication, named two
We work continually to achieve
understanding and providing Abbott products our FreeStyle
the optimal mix across multiple
whats current, whats important, Libre glucose-monitoring system
dimensions of our competitive
what people need and want now and our Absorb bioresorbable stent
profile. We dont allow the company
and in the future. To be a leading to its list of the years 100 best
to become overly indexed toward any
healthcare company, we have to be inventions. And were delivering a
single business segment, geography,
where the needs are greatest. To that comparable level of innovation in our
technology, customer type, or
end, weve aligned our businesses Alinity family of diagnostic systems.
channel. Well-balanced diversity not
with the demographic trends driving This is a program of unprecedented
only mitigates risk it gives us more
the future of healthcare and of the scope and ambition that advances
ways to win.
global economy. our entire range of diagnostic
technologies to offer greater
PRESENCE
LE ADERSHIP efficiency, flexibility, and confidence
Being a leader in a global business to customers and health systems.
requires being present, visible, Our other competitive advantages
Its a bold advance that embodies
and known around the world add up to this one. We enter
our approach to what we do we
to customers, investors, businesses in order to lead them.
aim to lead.
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ABBOTT 2016 ANNUAL REPORT
$20.85B
We again raised our dividend by
approximately 7 percent marking solutions, to improve more lives
our 93rd consecutive year of around the world, and to strengthen
TOTAL 2016 SALES our competitiveness and accelerate
dividends paid and the 45th straight
year theyve increased. As a result, our growth. Thats what a leading
we maintained our position on the healthcare company does. And its
S&P 500 Dividend Aristocrats Index, what well keep doing here at Abbott.
a list of just 51 major companies that
45
have raised dividends for at least 25
consecutive years.
CONSECUTIVE
L I F E . T O T H E F U L L E S T. Miles D. White
YEARS OF
Chairman of the Board
DIVIDEND Our purpose as a company has been and Chief Executive Ocer
INCREASES constant for almost 130 years now: March 2, 2017
to help people live their fullest lives
through better health. Achieving that
goal has required continual change
$2.1B
and adaptation over those decades,
following the advance of science and
technology and often leading it
RETURNED TO
SHAREHOLDERS to new knowledge and capability.
THROUGH DIVIDENDS AND
SHARE REPURCHASES
4
Building
ABBOTT
We continually shape our business
for sustained growth
and maintain a well-balanced,
diversied approach.
ASHTON TIMMONS
Boulder, Colorado, USA LASIK
5
Advancing
OUR
LEADERSHIP
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ABBOTT 2016 ANNUAL REPORT
7
Shaping
OUR BALANCE
Maintaining diversity in our mix of businesses, in the
regions we serve, in the customers we seek is central
to our strategy for long-term success
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ABBOTT 2016 ANNUAL REPORT
42%
BUSINESSES
HELP INSULATE ABBOTT
FROM FLUCTUATIONS
EMERGING MARKETS
IN ANY SINGLE MARKET GEOGRAPHIC DIVERSITY BALANCES GROWTH AND STABILITY
ESTABLISHED
PHARMACEUTICALS NUTRITION
9
Expanding
OUR
PRESENCE
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ABBOTT 2016 ANNUAL REPORT
11
Increasing
OUR
IMPACT
RECOGNIZED EXPERTISE
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ABBOTT 2016 ANNUAL REPORT
HERNN SANTIAGO
Panam City, Panam Ensure
422 Million
ADULTS HAVE
22%
By 2050, almost one- As emerging-
DIABETES
quarter of the worlds market economies
Abbotts revolutionary population will be grow, so does
FreeStyle Libre system over 60 years of age. their investment
lets people test their in healthcare.
Abbotts Ensure
glucose levels without Advance is specifically Abbott has a strong
the need for routine formulated to help presence in the
finger sticks.1 recover and maintain worlds fastest-
muscle mass for growing economies.
long-term strength.
13
Building
A LEADING
GLOBAL
HEALTHCARE
COMPANY
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ABBOTT 2016 ANNUAL REPORT
TODO BAO
Shanghai, China Similac
15
Medical Devices
ADVANCING TECHNOLOGY,
IMPROVING LIVES
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ABBOTT 2016 ANNUAL REPORT
ABSORB STENT
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ABBOTT 2016 ANNUAL REPORT
2016 B U S I N E S S H I G H L I G H T S
ME DIC AL DE VICE S 2016
Our Absorb bioresorbable stent and FreeStyle Libre
flash glucose-monitoring system were named to
Popular Science magazines Best of Whats New list of
EXPANDING
important innovations in 2016
C A R D I OVA S C U L A R
DIABETES CARE
FreeStyle Libre system was CE marked for pediatric
use in Europe and approved for adult use in Australia,
Brazil, China, and Japan. FreeStyle Libre is now
available in 32 countries.
FreeStyle Libre Pro system, Abbotts sensing
technology for use by physicians, was approved in
the United States
Launched Libre Link and Libre Link-up mobile
smartphone apps in Europe
ABSORB
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ABBOTT 2016 ANNUAL REPORT
Changing the
Testing Paradigm
for People
with Diabetes
Abbotts FreeStyle Libre system was designed
with patients in mind. By providing an
alternative to routine nger sticks, it offers a
true breakthrough in routine glucose testing.1
This system uses a small sensor worn on
the back of the upper arm to automatically
measure and continuously store glucose
readings, day and night, for up to 14 days.
A LIG NE D TO TRE NDS
A quick scan of the sensor provides a current
GLOBAL PREVALENCE OF DIABETES glucose reading, as well as the previous 8
AMONG ADULTS ROSE FROM 4.7% hours of glucose data, including an indicator
IN 1980 TO 8.5% IN 2014. 2
telling the user whether their glucose level
has been rising or falling.
FREESTYLE LIBRE
19
INNOVATIVE SOLUTIONS TO IMPROVE
QUALITY OF CARE
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ABBOTT 2016 ANNUAL REPORT
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ABBOTT 2016 ANNUAL REPORT
2016 B U S I N E S S H I G H L I G H T S
DIAG NOS TICS 2016
iSTAT Alinity, Abbotts next-generation handheld
system, which is designed to be the worlds easiest-
to-use with-patient testing device, was approved
CREATING THE in Europe
Launched AlinIQ, a first-of-its-kind professional
FUTURE OF services and informatics solution designed to
improve laboratory productivity
DIAGNOSTIC Abbotts ZIKA molecular diagnostics test
received Emergency Use Authorization from the
TESTING U.S. Food and Drug Administration
Abbotts RealTime HIV-1 quantitative assay
received CE mark for dried-blood-spot testing
and was accepted for the World Health
Organizations list of pre-qualified diagnostics
Academic research on Abbotts ARCHITECT
STAT High Sensitive Troponin-I test found that
it helped predict risk of heart attack and death,
as well as response to statin medications
Launched new Vitamin D and syphilis assays for
ARCHITECT in the United States
ALINITY
Alignment,
Innovation,
Unity:
Alinity
Over the next few years, Abbott will
revolutionize the diagnostics industry
by bringing our customers an integrated
family of systems spanning Immunoassay
A LI N IT Y A DVA NTAG E S and Clinical Chemistry, Blood Screening,
Hematology, Point of Care, Molecular
testing and Informatics.
FLEXIBILIT Y
Our new platforms represent a major leap
UNIFORMIT Y forward over competitive systems in terms
PRODUCTIVIT Y of reliability, cost, capacity, space efficiency,
and ease of use.
CONFIDENCE
23
FOCUSED GROWTH
IN EMERGING MARKETS
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ABBOTT 2016 ANNUAL REPORT
SYNTHROID
Synthroid (levothyroxine) is
a synthetic replacement for
thyroxine, a hormone normally
produced by the thyroid gland
to help regulate the bodys
energy and metabolism.
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ABBOTT 2016 ANNUAL REPORT
2016 B U S I N E S S H I G H L I G H T S
E S TABLISHE D
PHARM ACEUTIC AL S 2016 Opened pharmaceutical development centers
in Singapore and Rio de Janeiro, Brazil
Expanded our commercial presence in
Vietnam and aquired two manufacturing
TRUSTED BRAND, facilities
Increased the number of co-located
TAILORED manufacturing and development sites
OFFERINGS KLACID
#1 macrolide antibiotic
DUPHASTON
#1 brand for progesterone deficiency
CREON
#1 pancreatic enzyme replacement therapy
SERC
#1 anti-vertigo brand
BRUFEN
#1 ibuprofen brand**
LIPANTHYL / TRICOR / LIPIDIL
#1 fibrate
>1500
PRODUCTS IN OUR PORTFOLIO
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ABBOTT 2016 ANNUAL REPORT
Unique
with outreach to both healthcare providers and the
patients who will ultimately benet from our products,
Approach
Abbott is building a uniquely powerful growth engine in
branded-generic medicines.
G E NE RI C B R A ND E D G E NE RI C R&D - BA S E D PH A RM A
27
Nutrition
SCIENCE-BASED NOURISHMENT
FOR EVERY STAGE OF LIFE
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ABBOTT 2016 ANNUAL REPORT
ENSURE ADVANCE
Ensure Advance is
scientically formulated
to support muscle health
and recovery.
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ABBOTT 2016 ANNUAL REPORT
2016 B U S I N E S S H I G H L I G H T S
NUTRITION 2016
Launched two new infant formulas in the United
States, Similac Pro-Advance and Pro-Sensitive
breakthrough, first-to-market innovations that
GLOBAL come closer to breast milk than ever before. These
formulas contain a special prebiotic, like those
IMPACT FROM found naturally in most breast milk.
Delivered new natural vitamin E brain-
A BALANCED development claims for Similac products with
OptiGRO, Abbotts unique blend of vitamin E,
PORTFOLIO lutein and DHA
Launched Ensure Enlive, a nutritional supplement
designed to help older adults rebuild lost muscle
and regain strength and energy. Ensure Enlive
is the first and only complete and balanced
nutrition drink in the United States with 20
grams of protein and the unique ingredient HMB
(B-hydroxy b-methylbutyrate), to help support
muscle health.
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ABBOTT 2016 ANNUAL REPORT
The Global
Leader in Adult
Nutrition
More than 40 years ago, Abbott launched
Ensure, and weve been the clear market
leader in this category ever since. From the
beginning, Abbott has relied on state-of-the-
art nutrition science, continually improving
our formulations for both general-use and
disease-specic products like Nepro, for
dialysis patients.
A B B OT T S G LO BA L RE ACH
#1
Abbott products account by research like the Abbott-sponsored
for a clear majority of all NOURISH study, which shed light on
sales in the global market the importance of the specialized nutrition
for Adult Nutritionals WORLDWIDE that participants in the study took while
recovering from heart or lung disease.
31
2016
FINANCIAL
REPORT
TA B L E O F C O N T E N T S
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T O F E A R N I N G S
(inmillions except per share data)
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
(inmillions)
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
(inmillions)
Effect of exchange rate changes on cash and cash equivalents (483) (198) (143)
Net (Decrease) Increase in Cash and Cash Equivalents 13,619 938 588
Cash and Cash Equivalents, Beginning of Year 5,001 4,063 3,475
Cash and Cash Equivalents, End of Year $18,620 $5,001 $4,063
Supplemental Cash Flow Information:
Income taxes paid $620 $631 $448
Interest paid 181 166 146
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D B A L A N C E S H E E T
(dollars inmillions)
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D B A L A N C E S H E E T
(dollars inmillions)
Shareholders Investment:
Preferred shares, one dollar par value
Authorized 1,000,000 shares, none issued
Common shares, without par value
Authorized 2,400,000,000 shares
Issued at stated capital amount
Shares: 2016: 1,707,475,455; 2015: 1,702,017,390 13,027 12,734
Common shares held in treasury, at cost
Shares: 2016: 234,606,250; 2015: 229,352,338 (10,791) (10,622)
Earnings employed in the business 25,565 25,757
Accumulated other comprehensive income (loss) (7,263) (6,658)
Total Abbott Shareholders Investment 20,538 21,211
Noncontrolling Interests in Subsidiaries 179 115
Total Shareholders Investment 20,717 21,326
$52,666 $41,247
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
C O N S O L I D AT E D S TAT E M E N T O F S H A R E H O L D E R S I N V E S T M E N T
(inmillions except shares and per share data)
The accompanying notes to consolidated financial statements are an integral part of this statement.
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ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Historical data is readily available and reliable, and is used for
Nature of BusinessAbbotts principal business is the discovery, estimating the amount of the reduction in gross sales. Revenue
development, manufacture and sale of a broad line of health care from the launch of a new product, from an improved version of
products. anexisting product, or for shipments in excess of a customers
normal requirements are recorded when the conditions noted
Changes in PresentationIn September 2016, Abbott announced above are met. In those situations, management records a returns
that it had entered into an agreement to sell Abbott Medical Optics reserve for such revenue, if necessary. In certain of Abbotts busi
(AMO), its vision care business, to Johnson & Johnson. The trans nesses, primarily within diagnostics and medical optics, Abbott
action is expected to close in the first quarter of 2017 and is subject participates in selling arrangements that include multiple deliver
to customary closing conditions, including regulatory approvals. ables (e.g., instruments, reagents, procedures, and service
The operating results of AMO are reported as part of continuing agreements). Under these arrangements, Abbott recognizes reve
operations as AMO does not qualify for reporting as a discontinued nue upon delivery of the product or performance of the service
operation. The assets and liabilities of AMO are reported as held and allocates the revenue based on the relative selling price of
for disposition in Abbotts Consolidated Balance Sheet at each deliverable, which is based primarily on vendor specific
December31, 2016. objective evidence. Sales of product rights for marketable products
On February 27, 2015, Abbott completed the sale of its developed are recorded as revenue upon disposition of the rights. Revenue
markets branded generics pharmaceuticals business to Mylan Inc. from license of product rights, or for performance of research or
(Mylan) for equity ownership of a newly formed entity that com selling activities, is recorded over the periods earned.
bined Mylans existing business and Abbotts developed markets In May 2014, the Financial Accounting Standards Board (FASB)
pharmaceuticals business. On February 10, 2015, Abbott com issued Accounting Standards Update (ASU) No. 2014-09, Revenue
pleted the sale of its animal health business to Zoetis Inc. The from Contracts with Customers, which provides a single compre
historical operating results of these two businesses up to the date hensive model for accounting for revenue from contracts with
of sale are excluded from Earnings from Continuing Operations customers and will supersede most existing revenue recognition
and are presented on the Earnings from Discontinued Operations guidance. The standard becomes effective for Abbott in the first
line in Abbotts Consolidated Statement of Earnings. The cash quarter of 2018. Abbott is continuing to evaluate the effect that
flows of these businesses are included in Abbotts Consolidated thestandard will have on its consolidated financial statements
Statement of Cash Flows up to the date of disposition. See andrelated disclosures including the areas of variable consider
Note2Discontinued Operations for additional information. ation and new disclosure requirements. Abbott will continue to
Basis of ConsolidationThe consolidated financial statements monitor additional modifications, clarifications or interpretations
include the accounts of the parent company and subsidiaries, after undertaken by the FASB that may impact Abbotts current conclu
elimination of intercompany transactions. sions. Abbott is currently expecting to use the modified
retrospective method to adopt this standard.
Use of EstimatesThe consolidated financial statements have
been prepared in accordance with generally accepted accounting Income TaxesDeferred income taxes are provided for the tax
principles in the United States and necessarily include amounts effect of differences between the tax bases of assets and liabilities
based on estimates and assumptions by management. Actual and their reported amounts in the financial statements at the
results could differ from those amounts. Significant estimates enacted statutory rate to be in effect when the taxes are paid. U.S.
include amounts for sales rebates; income taxes; pension and income taxes are provided on those earnings of foreign subsidiar
other post-employment benefits, including certain asset values ies which are intended to be remitted to the parent company.
that are based on significant unobservable inputs; valuation of Deferred income taxes are not provided on undistributed earnings
intangible assets; litigation; derivative financial instruments; and reinvested indefinitely in foreign subsidiaries. Interest and penal
inventory and accounts receivable exposures. ties on income tax obligations are included in taxes on income.
Foreign Currency TranslationThe statements of earnings of foreign Earnings Per ShareUnvested restricted stock units and awards
subsidiaries whose functional currencies are other than the U.S. that contain non-forfeitable rights to dividends are treated as
dollar are translated into U.S. dollars using average exchange rates participating securities and are included in the computation of
for the period. The net assets of foreign subsidiaries whose func earnings per share under the two-class method. Under the two-
tional currencies are other than the U.S. dollar are translated into class method, net earnings are allocated between common shares
U.S. dollars using exchange rates as of the balance sheet date. The and participating securities. Earnings from Continuing Operations
U.S. dollar effects that arise from translating the net assets of these allocated to common shares in 2016, 2015 and 2014 were
subsidiaries at changing rates are recorded in the foreign currency $1.057 billion, $2.595 billion and $1.713 billion, respectively. Net
translation adjustment account, which is included in equity as a earnings allocated to common shares in 2016, 2015 and 2014 were
component of Accumulated other comprehensive income (loss). $1.393 billion, $4.403 billion and $2.273 billion, respectively.
Transaction gains and losses are recorded on the Net foreign Pension and Post-Employment BenefitsAbbott accrues for the
exchange (gain) loss line of the Consolidated Statement of Earnings. actuarially determined cost of pension and post-employment
Revenue RecognitionRevenue from product sales is recognized benefits over the service attribution periods of the employees.
upon passage of title and risk of loss to customers. Provisions for Abbott must develop long-term assumptions, the most significant
discounts, rebates and sales incentives to customers, and returns of which are the health care cost trend rates, discount rates and
and other adjustments are provided for in the period the related the expected return on plan assets. Differences between the
sales are recorded. Sales incentives to customers are not material. expected long-term return on plan assets and the actual return are
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ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
amortized over a five-year period. Actuarial losses and gains are Trade Receivable ValuationsAccounts receivable are stated at
amortized over the remaining service attribution periods of the their net realizable value. The allowance against gross trade
employees under the corridor method. receivables reflects the best estimate of probable losses inherent in
Fair Value MeasurementsFor assets and liabilities that are mea the receivables portfolio determined on the basis of historical
sured using quoted prices in active markets, total fair value is the experience, specific allowances for known troubled accounts and
published market price per unit multiplied by the number of units other currently available information. Accounts receivable are
held without consideration of transaction costs. Assets and liabili charged off after all reasonable means to collect the full amount
ties that are measured using significant other observable inputs (including litigation, where appropriate) have been exhausted.
are valued by reference to similar assets or liabilities, adjusted for InventoriesInventories are stated at the lower of cost (first-in,
contract restrictions and other terms specific to that asset or liabil first-out basis) or market. Cost includes material and conver
ity. For these items, a significant portion of fair value is derived by sion costs.
reference to quoted prices of similar assets or liabilities in active
Property and EquipmentDepreciation and amortization are
markets. For all remaining assets and liabilities, fair value is derived
provided on a straight-line basis over the estimated useful lives
using a fair value model, such as a discounted cash flow model or
ofthe assets. The following table shows estimated useful lives
BlackScholes model. Purchased intangible assets are recorded at
ofproperty and equipment:
fair value. The fair value of significant purchased intangible assets
is based on independent appraisals. Abbott uses a discounted cash Classification Estimated Useful Lives
flow model to value intangible assets. The discounted cash flow Buildings 10 to 50 years (average 27 years)
model requires assumptions about the timing and amount of Equipment 3 to 20 years (average 11 years)
future net cash flows, risk, the cost of capital, terminal values and
market participants. Intangible assets are reviewed for impairment Product LiabilityAbbott accrues for product liability claims
on a quarterly basis. Goodwill and indefinitelived intangible whenit is probable that a liability has been incurred and the
assets are tested for impairment at least annually. amount of the liability can be reasonably estimated based on
existing information. The liabilities are adjusted quarterly as
ShareBased CompensationThe fair value of stock options and
additional information becomes available. Receivables for insur
restricted stock awards and units are amortized over their requi
ance recoveries for product liability claims are recorded as assets,
site service period, which could be shorter than the vesting period
on an undiscounted basis, when it is probable that a recovery
if an employee is retirement eligible, with a charge to compensa
willbe realized. Product liability losses are self-insured.
tion expense.
Research and Development CostsInternal research and develop
LitigationAbbott accounts for litigation losses in accordance
ment costs are expensed as incurred. Clinical trial costs incurred
with FASB ASC No. 450, Contingencies. Under ASC No. 450,
by third parties are expensed as the contracted work is performed.
losscontingency provisions are recorded for probable losses at
Where contingent milestone payments are due to third parties
managements best estimate of a loss, or when a best estimate
under research and development arrangements, the milestone
cannot be made, a minimum loss contingency amount is recorded.
payment obligations are expensed when the milestone results
Legal fees are recorded as incurred.
are achieved.
Cash, Cash Equivalents and InvestmentsCash equivalents consist
Acquired In-Process and Collaborations Research and Development
of bank time deposits, U.S. government securities money market
(IPR&D)The initial costs of rights to IPR&D projects obtained
funds and U.S. treasury bills with original maturities of three
inan asset acquisition are expensed as IPR&D unless the project
months or less. An investment in a publicly traded company, with a
has an alternative future use. These costs include initial payments
carrying value of approximately $58 million, is accounted for under
incurred prior to regulatory approval in connection with research
the equity method of accounting. All other investments in market
and development collaboration agreements that provide rights to
able equity securities are classified as available-for-sale and are
develop, manufacture, market and/or sell pharmaceutical prod
recorded at fair value with any unrealized holding gains or losses,
ucts. The fair value of IPR&D projects acquired in a business
net of tax, included in Accumulated other comprehensive income
combination are capitalized and accounted for as indefinitelived
(loss). Investments in equity securities that are not traded on public
intangible assets until completed and are then amortized over
stock exchanges are recorded at cost. Investments in debt securi
theremaining useful life. Collaborations are not significant.
ties are classified as held-to-maturity, as management has both the
intent and ability to hold these securities to maturity, and are Concentration of Risk and GuaranteesDue to the nature of its
reported at cost, net of any unamortized premium or discount. operations, Abbott is not subject to significant concentration
Income relating to these securities is reported as interest income. risksrelating to customers, products or geographic locations.
Governmental accounts in Italy, Spain, Greece and Portugal
Abbott reviews the carrying value of investments each quarter to
accounted for 6 percent and 7 percent of total net trade receiv
determine whether an other than temporary decline in fair value
ablesas of December31, 2016 and 2015, respectively. Product
exists. Abbott considers factors affecting the investee, factors
warranties are not significant.
affecting the industry the investee operates in and general equity
market trends. Abbott considers the length of time an investments Abbott has no material exposures to off-balance sheet arrange
fair value has been below carrying value and the near-term pros ments; no special purpose entities; nor activities that include
pects for recovery to carrying value. When Abbott determines that non-exchangetraded contracts accounted for at fair value. Abbott
an other than temporary decline has occurred, the investment is has periodically entered into agreements in the ordinary course of
written down with a charge to Other (income) expense, net. business, such as assignment of product rights, with other
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ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
companies, which has resulted in Abbott becoming secondarily holdback agreement associated with the sale of this business and
liable for obligations that Abbott was previously primarily liable. reported an after-tax gain of $16 million.
Since Abbott no longer maintains a business relationship with the As a result of the disposition of the above businesses, the operating
other parties, Abbott is unable to develop an estimate of the maxi results of these businesses up to the date of sale are reported as
mum potential amount of future payments, if any, under these part of discontinued operations on the Earnings from Discontinued
obligations. Based upon past experience, the likelihood of pay Operations, net of taxes line in the Consolidated Statement of
ments under these agreements is remote. Abbott periodically Earnings. Discontinued operations include an allocation of inter
acquires a business or product rights in which Abbott agrees to est expense assuming a uniform ratio of consolidated debt to
pay contingent consideration based on attaining certain thresholds equity for all of Abbotts historical operations.
or based on the occurrence of certain events.
On January 1, 2013, Abbott completed the separation of AbbVie
NOTE 2DISCONTINUED OPERATIONS Inc. (AbbVie), which was formed to hold Abbotts research-
On February 27, 2015, Abbott completed the sale of its developed basedproprietary pharmaceuticals business. For a small portion
markets branded generics pharmaceuticals business to Mylan Inc. ofAbbVies operations, the legal transfer of AbbVies assets
(Mylan) for 110 million shares (or approximately 22%) of a newly (net of liabilities) did not occur with the separation of AbbVie on
formed entity (Mylan N.V.) that combined Mylans existing business January1, 2013 due to the time required to transfer marketing
and Abbotts developed markets branded generics pharmaceuti authorizations and other regulatory requirements in each of these
cals business. Mylan N.V. is publicly traded. Historically, this countries. Under the terms of the separation agreement with
business was included in Abbotts Established Pharmaceutical Abbott, AbbVie is subject to the risks and entitled to the benefits
Products segment. Abbott retained its branded generics pharma generated by these operations and assets. The majority of these
ceuticals business in emerging markets. At the date of closing, the operations were transferred to AbbVie in 2013 and 2014. These
110 million Mylan N.V. shares that Abbott received were valued at assets and liabilities were presented as held for disposition in
$5.77 billion and Abbott recorded an after-tax gain on the sale of theConsolidated Balance Sheet as of December31, 2015.
the business of approximately $1.6 billion. The shareholder agree Abbott has retained all liabilities for all U.S. federal and foreign
ment with Mylan N.V. includes voting and other restrictions that income taxes on income prior to the separation, as well as certain
prevent Abbott from exercising significant influence over the non-income taxes attributable to AbbVies business. AbbVie gener
operating and financial policies of Mylan N.V. ally will be liable for all other taxes attributable to its business.
At the close of this transaction Abbott and Mylan entered into a The operating results of Abbotts developed markets branded gener
transition services agreement pursuant to which Abbott and ics pharmaceuticals and animal health businesses as well as the
Mylan are providing various back office support services to each income tax benefit related to the businesses transferred to AbbVie,
other on an interim transitional basis. Transition services may be which are being reported as discontinued operations are as follows:
provided for up to 2 years with certain services having been
extended for an additional five to ten months. Charges by Abbott (inmillions)
under this transition services agreement are recorded as a reduc Year Ended December31 2016 2015 2014
tion of the costs to provide the respective service in the applicable Net Sales
expense category in the Consolidated Statement of Earnings. This Developed markets generics
transition support does not constitute significant continuing pharmaceuticals and animal
involvement in Mylans operations. Abbott also entered into man healthbusinesses $ $256 $2,076
ufacturing supply agreements with Mylan related to certain AbbVie
products, with the supply term ranging from 3 to 10 years and Total $ $256 $2,076
requiring a 2 year notice prior to termination. The cash flows Earnings (Loss) Before Tax
associated with these transition services and manufacturing sup Developed markets generics
ply agreements are not expected to be significant, and therefore, pharmaceuticals and animal
these cash flows are not direct cash flows of the disposed compo healthbusinesses $(4) $13 $505
nent under Accounting Standards Codification 205. AbbVie
Total $(4) $13 $505
In April 2015, Abbott sold 40.25 million of the 110 million ordinary
shares of Mylan N.V. received in the sale of the developed markets Net Earnings
branded generics pharmaceuticals business to Mylan. Abbott Developed markets generics
recorded a pretax gain of $207 million on $2.29 billion in net pharmaceuticals and animal
proceeds from the sale of these shares. The gain is recognized in healthbusinesses $3 $62 $397
the Other (income) expense line of the 2015 Consolidated AbbVie 318 3 166
Statement of Earnings. As a result of this sale, Abbotts ownership Total $321 $65 $563
interest in Mylan N.V. decreased to approximately 14%.
The net earnings of discontinued operations include income
On February 10, 2015, Abbott completed the sale of its animal taxbenefits of $325 million in 2016, $52 million in 2015 and
health business to Zoetis Inc. Abbott received cash proceeds of $58 million in 2014. 2016 includes $318 million of tax benefits as a
$230 million and reported an after tax gain on the sale of approxi result of the resolution of various tax positions related to AbbVies
mately $130 million. In the first quarter of 2016, Abbott received operations for years prior to the separation. 2015 includes
an additional $25 million of proceeds due to the expiration of a $48 million of tax benefits related to the resolution of various tax
positions related to prior years. 2014 includes $166 million of tax
41
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
benefits as a result of the resolution of various tax positions related NOTE 4SUPPLEMENTAL FINANCIAL INFORMATION
to AbbVies operations for years prior to the separation. Other (income) expense, net, for 2016 includes expense of
The sale of the developed markets branded generics pharmaceuti $947 million to adjust Abbotts holding of Mylan N.V. ordinary
cals and animal health business in 2015 resulted in the recognition shares due to a decline in the fair value of the securities which is
of a pretax gain of $2.840 billion, tax expense of $1.088 billion and considered by Abbott to be other than temporary. Other (income)
an after tax gain of $1.752 billion. The 2015 tax provision included expense, net, for 2015 primarily relates to a $207 million gain on
$667 million of tax expense on certain prior year funds earned the sale of a portion of Abbotts position in Mylan N.V. stock and
outside the U.S. related to the developed markets branded generics $79 million of income resulting from a decrease in the fair value
pharmaceuticals businesses that were not designated as perma ofcontingent consideration related to a business acquisition. In
nently reinvested overseas. April 2015, Abbott sold 40.25 million of the 110 million ordinary
shares of Mylan N.V. received in the sale of the developed markets
NOTE 3ASSETS AND LIABILITIES HELD FOR DISPOSITION branded generics pharmaceuticals business to Mylan. Abbott
In September 2016, Abbott announced that it entered into a defini received $2.29 billion in net proceeds from the sale of these shares.
tive agreement to sell AMO, its vision care business, to Johnson & As a result of this sale, Abbotts ownership interest in Mylan N.V.
Johnson for $4.325 billion in cash, subject to customary purchase decreased from approximately 22% to approximately 14%. Other
price adjustments for cash, debt and working capital. The decision (income) expense, net, for 2014 primarily relates to impairment
to sell AMO reflects Abbotts proactive shaping of its portfolio in charges related to non-publically traded equity securities partially
line with its strategic priorities. The transaction is expected to offset by gains from the sales of equity securities. The loss on the
close in the first quarter of 2017 and is subject to customary clos extinguishment of debt of $18 million in 2014 relates to the early
ing conditions, including regulatory approvals. The operating redemption of approximately $500 million of long-term notes.
results of AMO are included in continuing operations as they do The detail of various balance sheet components is as follows:
not qualify for reporting as discontinued operations. For the year
ended December31, 2016 and 2015, AMOs earnings before taxes (inmillions) 2016 2015
were $30 million and $64 million, respectively. As a result of the Long-term Investments:
pending sale of AMO, the assets and liabilities of this business Equity securities $2,906 $4,014
meet the criteria to qualify as being held for disposition at Other 41 27
December31, 2016.
Total $2,947 $4,041
The assets and liabilities held for disposition as of December31,
2016 relate to AMO and the assets and liabilities held for disposi The long-term investments in equity securities as of December31,
tion as of December31, 2015 relate to the AbbVie business. The 2016 and 2015 include 69.7 million of ordinary shares of Mylan N.V.
following is a summary of the assets and liabilities held for with a carrying value of $2.661 billion and $3.771 billion, respectively.
disposition: (inmillions) 2016 2015
(inmillions) Other Accrued Liabilities:
December31 2016 2015 Accrued rebates payable to government agencies $110 $140
Trade receivables, net $222 $17 Accrued other rebates (a) 296 301
Total inventories 240 43 All other 2,175 2,602
Prepaid expenses and other current assets 51 45 Total $2,581 $3,043
Current assets held for disposition 513 105
(a) Accrued wholesaler chargeback rebates of $214 million and $170 million at December31, 2016
Net property and equipment 247 1 and 2015, respectively, are netted in trade receivables because Abbotts customers are invoiced
Intangible assets, net of amortization 529 at a higher catalog price but only remit to Abbott their contract price for the products.
Goodwill 1,966
(inmillions) 2016 2015
Deferred income taxes and other assets 11 1
Non-current assets held for disposition 2,753 2 Post-employment Obligations and Other Long-term
Liabilities:
Total assets held for disposition $3,266 $107
Defined benefit pension plans and post-employment
Trade accounts payable $71 $359 medical and dental plans for significant plans $2,154 $2,241
Salaries, wages, commissions and other accrued Deferred income taxes 356 808
liabilities 174 14 All other (b) 2,039 1,815
Current liabilities held for disposition 245 373 Total $4,549 $4,864
Post-employment obligations, deferred income (b) 2016 includes approximately $560 million of net unrecognized tax benefits, as well as
taxes and other long-term liabilities 59 approximately $130 million of acquisition consideration payable. 2015 includes approxi
Total liabilities held for disposition $304 $373 mately $600 million of net unrecognized tax benefits as well as approximately
$148 million of acquisition consideration payable.
42
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Since January 2010, Venezuela has been designated as a highly 6.3 to 10 bolivars per U.S. dollar. The DICOM rate is a floating mar
inflationary economy under U.S. GAAP. In 2014 and 2015, the ket rate published daily by the Venezuelan central bank, whichat
government of Venezuela operated multiple mechanisms to the end of the first quarter of 2016 was approximately 263 bolivars
exchange bolivars into U.S. dollars. These mechanisms included per U.S. dollar. As a result of decreasing government approvals to
the CENCOEX, SICAD, and SIMADI rates, which stood at 6.3, convert bolivars to U.S. dollars to pay for intercompany accounts,
13.5, and approximately 200, respectively, at December31, 2015. as well as the accelerating deterioration of economic conditions in
In2015, Abbott continued to use the CENCOEX rate of 6.3 the country, Abbott concluded that it was appropriate to move to
Venezuelan bolivars to the U.S. dollar to report the results, finan the DICOM rate at the end of the first quarter of 2016. As a result,
cial position, and cash flows related to its operations in Venezuela Abbott recorded a foreign currency exchange loss of $480 million
since Abbott continued to qualify for this exchange rate to pay for in 2016 to revalue its net monetary assets in Venezuela. Abbott is
the import of various products into Venezuela. continuing to use the DICOM rate to report the results of opera
On February 17, 2016, the Venezuelan government announced that tions and to remeasure net monetary assets for Venezuela at the
the three-tier exchange rate system would be reduced to two rates end of each quarter. As of December31, 2016, Abbotts Venezuelan
renamed the DIPRO and DICOM rates. The DIPRO rate is the operations represented approximately 0.1% of Abbotts consoli
official rate for food and medicine imports and was adjusted from dated assets and any additional foreign currency losses related to
Venezuela are not expected to be material.
NOTE 6BUSINESS ACQUISITIONS nutritionals and branded generic pharmaceuticals. The combined
On January 4, 2017, Abbott completed the acquisition of St. Jude company will compete in nearly every area of the cardiovascular
Medical, Inc. (St. Jude Medical), a global medical device manufac market, as well as in the neuromodulation market. As the acquisi
turer, for approximately $23.6 billion, including approximately tion of St. Jude Medical was completed after December31, 2016,
$13.6 billion in cash and approximately $10 billion in Abbott com Abbotts consolidated financial statements donot include the
mon shares, which represented approximately 254 million shares financial condition or the operating results of St.Jude Medical in
of Abbott common stock, based on Abbotts closing stock price on any of the periods presented herein.
the acquisition date. As part of the acquisition, approximately Under the terms of the agreement, for each St. Jude Medical
$5.8 billion of St. Jude Medicals debt was assumed or refinanced common share, St. Jude Medical shareholders received $46.75 in
by Abbott. The transaction provides expanded opportunities for cash and 0.8708 of an Abbott common share. At an Abbott stock
future growth and is an important part of the companys ongoing price of $39.36, which reflects the closing price on January 4, 2017,
effort to develop a strong, diverse portfolio of devices, diagnostics, this represented a value of approximately $81 per St. Jude Medical
43
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
common share and total purchase consideration of $23.6 billion. acquisition resulted in non-deductible acquired in-process
The cash portion of the acquisition was funded through a combi research and development of approximately $220 million,
nation of medium and long-term debt issued in November of 2016 whichisaccounted for as an indefinite-lived intangible asset
and a $2.0 billion 120-day senior unsecured bridge term loan untilregulatory approval or discontinuation, non-deductible
facility. See Note10Debt and Lines of Credit for further details goodwill of approximately $142 million, deferred tax assets and
regarding these financing arrangements. other net assets of approximately $18 million, deferred tax liabili
The preliminary allocation of the fair value of the St. Jude Medical ties of approximately $85 million, and contingent consideration
acquisition is shown in the table below. The allocation of the fair ofapproximately $70 million. The goodwill is identifiable to the
value of the acquisition will be finalized when the valuation is Vascular Products segment.
completed and differences between the preliminary and final In September 2014, Abbott completed the acquisition of the
allocation could be material. controlling interest in CFR Pharmaceuticals S.A. (CFR) for
approximately $2.9 billion in cash ($2.8 billion net of CFR cash
(inbillions) onhand at closing). Including the assumption of approximately
Acquired intangible assets, non-deductible $16.0 $570 million of debt, the total cost of the acquisition was
Goodwill, non-deductible 14.8 $3.4 billion. The acquisition of CFR more than doubles Abbotts
Acquired net tangible assets 3.0 branded generics pharmaceutical presence in Latin America and
Deferred income taxes recorded at acquisition (5.0) further expands its presence in emerging markets. CFRs financial
Net debt (5.2) results are included in Abbotts financial statements beginning on
Total preliminary allocation of fair value $23.6 September 26, 2014, the date that Abbott acquired control of this
business. Abbott currently owns 100% of CFR. The fair value of
If the acquisition of St. Jude Medical had occurred at the begin the non-controlling interest at the acquisition date was approxi
ning of 2016, unaudited pro forma consolidated net sales would mately $3 million. The acquisition was funded with cash and cash
have been approximately $26.8 billion and unaudited pro forma equivalents and short-term investments. The final allocation of
consolidated net earnings would have been $157 million, which the fair value of the acquisition is shown in the table below.
includes the amortization of approximately $700 million of
inventory step-up. The unaudited pro forma information is not (inbillions)
necessarily indicative of the consolidated results of operations Acquired intangible assets, non-deductible $1.87
thatwould have been realized had the St. Jude Medical acquisition Goodwill, non-deductible 1.42
been completed as of the beginning of 2016, nor is it meant to be Acquired net tangible assets 0.03
indicative of future results of operations that the combined entity Deferred income taxes recorded at acquisition (0.40)
will experience. Total final allocation of fair value $2.92
In 2016, Abbott and St. Jude Medical agreed to sell certain products
Acquired intangible assets consist primarily of product rights for
to Terumo Corporation for approximately $1.12 billion. The sale
currently marketed products and are amortized over 12 to 16 years
includes the St. Jude Medical Angio-Seal and Femoseal vascu
(weighted average of 15 years). The goodwill is primarily attribut
lar closure products and Abbotts Vado Steerable Sheath. The sale
able to intangible assets that do not qualify for separate recognition.
closed on January 20, 2017.
The goodwill is identifiable to the Established Pharmaceutical
On January 30, 2016, Abbott entered into a definitive agreement Products segment. The acquired tangible assets consist primarily
toacquire Alere Inc., a diagnostic device and service provider, for of cash and cash equivalents of approximately $94 million, trade
$56.00 per common share in cash. The acquisition is subject to accounts receivable of approximately $180 million, inventory of
satisfaction of customary closing conditions, including the accu approximately $169 million, other current assets of approximately
racy of Aleres representations and warranties (subject to certain $51 million, property and equipment of approximately $210 million,
materiality qualifications), compliance in all material respects and other long-term assets of approximately $145 million. Assumed
with Aleres covenants and receipt of applicable regulatory liabilities consist of borrowings of approximately $570 million, trade
approvals. Due to a number of adverse developments that have accounts payable and other current liabilities of approximately
occurred with respect to Alere since the date of the agreement, $240 million and other non-current liabilities of approximately
Abbott has filed a complaint in the Delaware Court of Chancery $14 million. Net sales for CFR Pharmaceuticals totaled approxi
seeking to terminate the acquisition agreement on the basis that mately $750 million in 2015.
Alere has experienced a material adverse effect under the acqui
In December 2014, Abbott acquired control of Veropharm,
sition agreement and has materially breached certain of its
a leading Russian pharmaceutical company for approximately
covenants.
$315 million excluding assumed debt, plus a subsequent $5 million
In August 2015, Abbott completed the acquisition of the equity of payment related to a working capital adjustment. Through this
Tendyne Holdings, Inc. (Tendyne) that Abbott did not already own acquisition, Abbott establishes a manufacturing footprint in Russia
for approximately $225 million in cash plus additional payments and obtains a portfolio of medicines that is well aligned with
up to $150 million to be made upon completion of certain regula Abbotts current pharmaceutical therapeutic areas of focus. Abbott
tory milestones. The acquisition of Tendyne, which is focused acquired control of Veropharm through its purchase of Limited
ondeveloping minimally invasive mitral valve replacement thera Liability Company Garden Hills, the holding company that owns
pies, allows Abbott to broaden its foundation in the treatment of approximately 98 percent of Veropharm. Including the assumption
mitral valve disease. The final allocation of the fair value of the of approximately $90 million of debt and a non-controlling interest
44
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
with a fair value of $5 million, the total value of the acquired busi The gross amount of amortizable intangible assets, primarily
ness was approximately $415 million. The final allocation of the fair product rights and technology was $10.4 billion and $10.8 billion
value of the acquisition resulted in definite-lived non-deductible as of December31, 2016 and 2015, respectively, and accumulated
intangible assets of approximately $100 million, non-deductible amortization was $6.2 billion and $5.7 billion as of December31,
goodwill of approximately $140 million, and net deferred tax liabil 2016 and 2015, respectively. The December31, 2016 amounts
ities of approximately $25 million. Non-deductible goodwill is exclude approximately $529 million of net intangible assets
identifiable with the Established Pharmaceutical Products segment. related to AMO which are included in Non-current assets held
Additionally, Abbott acquired property, plant, and equipment of fordisposition due to the pending sale of AMO. In 2016, intangi
approximately $150 million, accounts receivable of approximately bleassets increased by approximately $104 million related to
$45 million, inventory of approximately $25 million, and net recent business acquisitions. In 2015, the acquisition of Tendyne
otherliabilities of approximately $20 million. Acquired intangible increased intangible assets by approximately $220 million.
assets consist of developed technology and are being amortized Indefinitelived intangible assets, which relate to in-process
over 16years. In 2015, Abbott acquired the remaining shares of research and development acquired in a business combination,
Veropharm, increasing its ownership to 100 percent. were approximately $349 million and $419 million at December31,
In December 2014, Abbott completed the acquisition of Topera, 2016 and 2015, respectively. In 2016, Abbott recorded an impair
Inc. for approximately $250 million in cash, plus additional pay ment of a $59 million in-process research and development
ments up to $300 million to be made upon completion of certain project related to a non-reportable segment. Foreign currency
regulatory and sales milestones. The acquisition of Topera pro translation increased intangible assets by $6 million in 2016 and
vides Abbott a foundational entry in the electrophysiology market. decreased intangible assets by $251 million in 2015.
The final allocation of the fair value of the acquisition resulted in The estimated annual amortization expense for intangible assets
non-deductible acquired in-process research and development recorded at December31, 2016 is approximately $490 million in
ofapproximately $60 million, which is accounted for as an 2017, $440 million in 2018, $410 million in 2019, $410 million in
indefinite-lived intangible asset until regulatory approval or dis 2020 and $360 million in 2021. Amortizable intangible assets are
continuation, non-deductible definite-lived intangible assets of amortized over 2 to 20 years (average 10 years). These amounts do
approximately $215 million, non-deductible goodwill of approxi not include amortization expense associated with the intangible
mately $145 million, net deferred tax liabilities of approximately assets acquired as part of the St. Jude Medical acquisition which
$80 million, and contingent consideration of approximately closed on January 4, 2017.
$90 million. The fair value of the contingent consideration was
NOTE 8RESTRUCTURING PL ANS
determined based on an independent appraisal. Acquired intangi
ble assets consist of developed technology and trademarks, and In 2016, 2015 and 2014, Abbott management approved plans to
arebeing amortized over 17 years. streamline operations in order to reduce costs and improve effi
Except for the St. Jude Medical acquisition, had the aggregate in ciencies in various Abbott businesses including the nutritional,
each year of the above acquisitions taken place as of the beginning established pharmaceuticals and vascular businesses. Abbott
of the comparable prior annual reporting period, consolidated net recorded employee related severance and other charges of approx
sales and earnings would not have been significantly different imately $33 million in 2016, $95 million in 2015 and $164 million
from reported amounts. in 2014. Approximately $9 million in 2016, $18 million in 2015 and
$20 million in 2014 are recorded in Cost of products sold, approxi
NOTE 7GOODWILL AND INTANGIBLE ASSETS mately $5 million in 2016, $34 million in 2015 and $53 million in
The total amount of goodwill reported was $7.683 billion at 2014 are recorded in Research and development and approxi
December31, 2016 and $9.638 billion at December31, 2015. The mately $19 million in 2016, $43 million in 2015 and $91 million in
amount reported at December31, 2016 excludes goodwill reported 2014 are recorded in Selling, general and administrative expense.
in non-current assets held for disposition. In 2016, approximately Additional charges of approximately $2 million in 2016, $45 million
$2.0 billion of goodwill was reclassified to Non-current assets held in 2015 and $39 million in 2014 were recorded primarily for accel
for disposition due to the pending sale of AMO. Recent business erated depreciation. The following summarizes the activity for
acquisitions increased goodwill by approximately $79 million these restructurings:
during 2016. Foreign currency translation decreased goodwill by (inmillions)
$66 million in 2016 and decreased goodwill by $454 million in Restructuring charges recorded in 2014 $164
2015. In 2015, Abbott recorded goodwill of approximately
Payments and other adjustments (46)
$142 million related to the Tendyne acquisition, and purchase
Accrued balance at December31, 2014 118
price allocation adjustments associated with recent acquisitions
Restructuring charges 95
decreased goodwill by approximately $117 million. The amount of
Payments and other adjustments (113)
goodwill related to reportable segments at December31, 2016 was
$3.0 billion for the Established Pharmaceutical Products segment, Accrued balance at December31, 2015 100
$286 million for the Nutritional Products segment, $452 million Restructuring charges 33
for the Diagnostic Products segment, and $3.0 billion for the Payments and other adjustments (67)
Vascular Products segment. In 2016, there was no reduction of Accrued balance at December31, 2016 $66
goodwill relating to impairments.
45
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
From 2013 to 2015, Abbott management approved various plans stock units, performance awards, foreign benefits and other
toreduce costs and improve efficiencies across various functional sharebased awards. Stock options and restricted stock awards
areas. In 2013, Abbott management also approved plans to stream and units comprise the majority of benefits that have been
line certain manufacturing operations in order to reduce costs granted and are currently outstanding under this program and
andimprove efficiencies in Abbotts established pharmaceuticals aprior program. In 2016, Abbott granted 7,782,634 stock options,
business. In 2012, Abbott management approved plans to streamline 776,510 restricted stock awards and 7,593,701 restricted stock
various commercial operations in order to reduce costs and improve unitsunder this program.
efficiencies in Abbotts core diagnostics, established pharmaceuti The purchase price of shares under option must be at least equal
cals and nutritionals businesses. Abbott recorded employee related to the fair market value of the common stock on the date of grant,
severance charges of approximately $18 million in 2016, $66 million and the maximum term of an option is 10 years. Options generally
in 2015 and $125 million in 2014. Approximately $4 million in 2016, vest equally over three years. Restricted stock awards generally
$9 million in 2015 and $7 million in 2014 are recorded in Cost of vest between 3 and 5 years and for restricted stock awards that
products sold, approximately $2 million in 2015 and $6 million in vest over 5years, no more than one-third of the award vests in any
2014 are recorded in Research and development, and approximately one year upon Abbott reaching a minimum return on equity target.
$14 million in 2016, $55 million in 2015 and $112 million in 2014 are Restricted stock units vest over three years and upon vesting, the
recorded in Selling, general and administrative expense. The follow recipient receives one share of Abbott stock for each vested
ing summarizes the activity related to these restructurings: restricted stock unit. The aggregate fair market value of restricted
(inmillions) stock awards and units is recognized as expense over the requisite
Restructuring charges recorded in 2012 $167
service period, which may be shorter than the vesting period if an
employee is retirement eligible. Restricted stock awards and set
Restructuring charges recorded in 2013 78
tlement of vested restricted stock units are issued out of treasury
Payments and other adjustments (97)
shares. Abbott generally issues new shares for exercises of stock
Accrued balance at December31, 2013 148
options. As a policy, Abbott does not purchase its shares relating
Restructuring charges 125
toits sharebased programs.
Payments and other adjustments (138)
Accrued balance at December31, 2014 135
At December31, 2016, approximately 57 million shares were
reserved for future grants.
Restructuring charges 66
Payments and other adjustments (113) The number of restricted stock awards and units outstanding and
Accrued balance at December31, 2015 88 the weightedaverage grant-date fair value at December31, 2016
Restructuring charges 18 and December31, 2015 was 13,705,511 and $41.03 and 11,855,327
Payments and other adjustments (90) and $42.54, respectively. The number of restricted stock awards
Accrued balance at December31, 2016 $16
and units, and the weightedaverage grant-date fair value, that
were granted, vested and lapsed during 2016 were 8,370,211 and
$38.57, 5,842,478 and $40.50 and 677,549 and $41.63, respectively.
NOTE 9INCENTIVE STOCK PROGRAM The fair market value of restricted stock awards and units vested
The 2009 Incentive Stock Program authorizes the granting of in 2016, 2015 and 2014 was $225 million, $312 million and
nonqualified stock options, restricted stock awards, restricted $281million,respectively.
The aggregate intrinsic value of options outstanding and exercis Total non-cash stock compensation expense charged against
able at December31, 2016 were each $203 million. The total income from continuing operations in 2016, 2015 and 2014 for
intrinsic value of options exercised in 2016, 2015 and 2014 was sharebased plans totaled approximately $310 million,
$98 million, $167 million and $152 million, respectively. The total $291 million and $239 million, respectively, and the tax benefit
unrecognized compensation cost related to all sharebased com recognized was approximately $100 million, $98 million and
pensation plans at December31, 2016 amounted to approximately $79 million, respectively. Stock compensation cost capitalized as
$197 million, which is expected to be recognized over the next part of inventory is not significant.
three years.
46
ABBOTT 2016 ANNUAL REPORT
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The fair value of an option granted in 2016, 2015 and 2014 was In March 2015, Abbott issued $2.5 billion of long-term debt
$4.38, $6.67, and $6.39, respectively. The fair value of an option consisting of $750 million of 2.00% Senior Notes due March 15,
grant was estimated using the BlackScholes optionpricing 2020; $750 million of 2.55% Senior Notes due March 15, 2022;
modelwith the following assumptions: and $1.0 billion of 2.95% Senior Notes due March 15, 2025.
Proceeds from this debt were used to pay down short-term
2016 2015 2014 borrowings. Abbott also entered into interest rate swap contracts
Risk-free interest rate 1.4% 1.8% 1.9% totaling $2.5 billion. These contracts have the effect of changing
Average life of options (years) 6.0 6.0 6.0 Abbotts obligation from a fixed interest rate to a variable interest
Volatility 17.0% 17.0% 20.0% rate obligation.
Dividend yield 2.7% 2.0% 2.2%
In 2014, Abbott extinguished approximately $500 million of long-
The risk-free interest rate is based on the rates available at the term debt assumed as part of the CFR Pharmaceuticals acquisition
time of the grant for zero-coupon U.S. government issues with a and incurred a cost of $18.3 million to extinguish this debt.
remaining term equal to the options expected life. The average life Principal payments required on long-term debt outstanding at
of an option is based on both historical and projected exercise and December31, 2016 are $3 million in 2017, $2 million in 2018,
lapsing data. Expected volatility is based on implied volatilities $3.8 billion in 2019, $1.3 billion in 2020, $2.9 billion in 2021 and
from traded options on Abbotts stock and historical volatility of $12.9 billion in 2022 and thereafter.
Abbotts stock over the expected life of the option. Dividend yield
At December31, 2016, Abbotts long-term debt rating was A+
is based on the options exercise price and annual dividend rate at
byStandard & Poors Corporation and A2 by Moodys Investors
the time of grant.
Service. In conjunction with the completion of the St. Jude
NOTE 10DEBT AND LINES OF CREDIT Medical acquisition on January 4, 2017, the ratings were adjusted
to BBB by Standard & Poors Corporation and Baa3 by Moodys
The following is a summary of long-term debt at December31:
Investors Service. Abbott has readily available financial resources,
(inmillions) 2016 2015 including unused lines of credit of $5.0 billion which expire in
5.125% Notes, due 2019 $947 $947 2019 and that support commercial paper borrowing arrangements.
2.35% Notes, due 2019 2,850 Abbotts weightedaverage interest rate on short-term borrowings
4.125% Notes, due 2020 597 597 was 0.6% at December31, 2016 and 0.2% at December31, 2015
2.00% Notes, due 2020 750 750
and 2014.
2.90% Notes, due 2021 2,850 In April 2016, Abbott obtained a commitment for a 364-day senior
2.55% Notes, due 2022 750 750 unsecured bridge term loan facility for an amount not to exceed
3.40% Notes, due 2023 1,500 $17.2 billion, comprised of $15.2 billion for a 364-day bridge loan
2.95% Notes, due 2025 1,000 1,000 and $2.0 billion for a 120-day bridge loan to provide financing for
3.75% Notes, due 2026 3,000 the acquisition of St. Jude Medical. The $15.2 billion component
ofthe commitment terminated in November 2016 when Abbott
4.75% Notes, due 2036 1,650
issued the $15.1 billion of long-term debt. In December 2016,
6.15% Notes, due 2037 547 547
Abbott formalized the $2.0 billion component and entered into a
6.0% Notes, due 2039 515 515
120-day bridge term loan facility that provided Abbott the ability
5.3% Notes, due 2040 694 694
to borrow up to $2.0 billion on an unsecured basis to partially
4.90% Notes, due 2046 3,250 fundthe St. Jude Medical acquisition. On January 4, 2017, Abbott
Unamortized debt issuance costs (117) (21) borrowed $2.0 billion under this facility, of which $1.2 billion had
Other, including fair value adjustments relating been repaid as of January 31, 2017.
to interest rate hedge contracts designated as fair
value hedges (102) 92 In February 2016, Abbott obtained a commitment for a 364-day
Total, net of current maturities 20,681 5,871 senior unsecured bridge term loan facility for an amount not to
Current maturities of long-term debt 3 3 exceed $9 billion in conjunction with its pending acquisition of
Total carrying amount $20,684 $5,874 Alere. This commitment was automatically extended for up to
90days on January 29, 2017. The fees associated with the bridge
In November 2016, Abbott issued $15.1 billion of medium and facilities were recognized in interest expense.
long-term debt to primarily fund the cash portion of the acquisi
NOTE 11FINANCIAL INSTRUMENTS, DERIVATIVES AND
tion of St. Jude Medical. Abbott issued $2.85 billion of 2.35%
Senior Notes due November 22, 2019; $2.85 billion of 2.90% Senior FAIRVALUE MEASURES
Notes due November 30, 2021; $1.50 billion of 3.40% Senior Notes Certain Abbott foreign subsidiaries enter into foreign currency
due November 30, 2023; $3.00 billion of 3.75% Senior Notes due forward exchange contracts to manage exposures to changes in
November 30, 2026; $1.65 billion of 4.75% Senior Notes due foreign exchange rates for anticipated intercompany purchases
November 30, 2036; and $3.25 billion of 4.90% Senior Notes due bythose subsidiaries whose functional currencies are not the U.S.
November 30, 2046. In November 2016, Abbott also entered into dollar. These contracts, with notional amounts totaling $2.6 billion
interest rate swap contracts totaling $3.0 billion related to the new at December31, 2016, and $2.4 billion at December31, 2015, are
debt, which have the effect of changing Abbotts obligation from a designated as cash flow hedges of the variability of the cash flows
fixed interest rate to a variable interest rate obligation on the due to changes in foreign exchange rates and are recorded at fair
related debt instruments. value. At December31, 2016, $107 million of the notional amount
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relates to AMO, a business that is expected to be divested in the first December31, 2016, 2015 and 2014, respectively. Accordingly,
quarter of 2017. Accumulated gains and losses as of December31, changes in the fair value of this debt due to changes in exchange
2016 will be included in Cost of products sold at the time the rates are recorded in Accumulated other comprehensive income
products are sold, generally through the next twelve to eighteen (loss), net of tax.
months. The amount of hedge ineffectiveness was not significant Abbott is a party to interest rate hedge contracts totaling
in 2016, 2015 and 2014. notional amounts of $5.5 billion at December31, 2016, $4.0 billion
Abbott enters into foreign currency forward exchange contracts at December31, 2015 and $1.5 billion at December31, 2014, to
tomanage currency exposures for foreign currency denominated manage its exposure to changes in the fair value of fixed-rate
thirdparty trade payables and receivables, and for intercompany debt. These contracts are designated as fair value hedges of the
loans and trade accounts payable where the receivable or payable variability of the fair value of fixed-rate debt due to changes in
is denominated in a currency other than the functional currency the long-term benchmark interest rates. The effect of the hedge
ofthe entity. For intercompany loans, the contracts require Abbott is to change a fixed-rate interest obligation to a variable rate for
to sell or buy foreign currencies, primarily European currencies that portion of the debt. Abbott records the contracts at fair
and Japanese yen, in exchange for primarily U.S. dollars and other value and adjusts the carrying amount of the fixed-rate debt by
European currencies. For intercompany and trade payables and an offsetting amount. No hedge ineffectiveness was recorded in
receivables, the currency exposures are primarily the U.S. dollar, income in 2016, 2015 and 2014 for these hedges.
European currencies and Japanese yen. At December31, 2016, In December 2016, Abbott unwound approximately $1.5 billion
2015 and 2014, Abbott held notional amounts of $14.9 billion, ininterest rate swaps relating to the 4.125% Note due in 2020
$14.0 billion and $14.1 billion, respectively, of such foreign cur andthe 5.125% Note due in 2019. As part of the unwinding, Abbott
rency forward exchange contracts. At December31, 2016, received approximately $55 million in cash, which is included
$1.2 billion of the contracts relate to AMO, a business that is inthe Cash Flow From Financing Activities section of the
expected to be divested in the first quarter of 2017. Consolidated Statement of Cash Flows.
Abbott has designated foreign denominated short-term debt as Gross unrealized holding gains (losses) on available-for-sale
ahedge of the net investment in a foreign subsidiary of approxi equitysecurities totaled $10 million, $171 million and $3 million
mately $454 million, $439 million and $445 million as of atDecember31, 2016, 2015 and 2014, respectively.
The following table summarizes the amounts and location of certain derivative financial instruments as of December31:
The following table summarizes the activity for foreign currency amounts and location of income (expense) and gain (loss) reclassi
forward exchange contracts designated as cash flow hedges, debt fied into income. The amount of hedge ineffectiveness was not
designated as a hedge of net investment in a foreign subsidiary and significant in 2016, 2015 and 2014 for these hedges.
certain other derivative financial instruments, as well as the
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Gains of $8 million and losses of $77 million and $122 million were marked to market, offsetting the effect of marking the interest
recognized in 2016, 2015 and 2014, respectively, related to foreign rate swaps to market.
currency forward exchange contracts not designated as hedges. The carrying values and fair values of certain financial instruments
These amounts are reported in the Consolidated Statement of as of December31 are shown in the table below. The carrying values
Earnings on the Net foreign exchange (gain) loss line. of all other financial instruments approximate their estimated fair
The interest rate swaps are designated as fair value hedges of values. The counterparties to financial instruments consist of select
thevariability of the fair value of fixed-rate debt due to changes major international financial institutions. Abbott does not expect
in the long-term benchmark interest rates. The hedged debt is any losses from nonperformance by these counterparties.
2016 2015
(inmillions) Carrying Value Fair Value Carrying Value Fair Value
Long-term Investment Securities:
Equity securities $2,906 $2,906 $4,014 $4,014
Other 41 42 27 30
Total Long-term Debt (20,684) (21,147) (5,874) (6,337)
Foreign Currency Forward Exchange Contracts:
Receivable position 276 276 179 179
(Payable) position (82) (82) (102) (102)
Interest Rate Hedge Contracts:
Receivable position 8 8 116 116
(Payable) position (74) (74)
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:
Equity securities are principally comprised of Mylan N.V. ordi values for comparable derivative instruments. The fair value
naryshares. The fair value of the Mylan N.V. equity securities was ofthedebt was determined based on the face value of the debt
determined based on the value of the publicly-traded ordinary adjusted for the fair value of the interest rate swaps, which is
shares. The fair value of foreign currency forward exchange con based on a discounted cash flow analysis using significant other
tracts is determined using a market approach, which utilizes observable inputs.
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The fair value of the contingent consideration was determined Abbott is involved in various claims and legal proceedings, and
based on independent appraisals adjusted for the time value of Abbott estimates the range of possible loss for its legal proceedings
money and other changes in fair value primarily resulting from and environmental exposures to be from approximately $35 million
changes in regulatory timelines. Contingent consideration results to $45 million. The recorded accrual balance at December31, 2016
from three acquisitions and the maximum amount estimated to for these proceedings and exposures was approximately
bedue is approximately $450 million, which is dependent upon $40 million. This accrual represents managements best estimate
attaining certain sales thresholds or based on the occurrence of ofprobable loss, as defined by FASB ASC No. 450, Contingencies.
certain events, such as regulatory approvals. 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
NOTE 12LITIGATION AND ENVIRONMENTAL MATTERS
feasible to predict the outcome of all such proceedings and expo
Abbott has been identified as a potentially responsible party for sures with certainty, management believes that their ultimate
investigation and cleanup costs at a number of locations in the disposition should not have a material adverse effect on Abbotts
United States and Puerto Rico under federal and state remediation financial position, cash flows, or results of operations.
laws and is investigating potential contamination at a number of
NOTE 13POST-EMPLOYMENT BENEFITS
companyowned locations. Abbott has recorded an estimated
cleanup cost for each site for which management believes Abbott Retirement plans consist of defined benefit, defined contribution
has a probable loss exposure. No individual site cleanup exposure and medical and dental plans. Information for Abbotts major
is expected to exceed $4 million, and the aggregate cleanup expo defined benefit plans and post-employment medical and dental
sure is not expected to exceed $10 million. benefit plans is as follows:
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The projected benefit obligations for non-U.S. defined benefit accumulated benefit obligations, the projected benefit obligations
plans was $2.5 billion and $2.1 billion at December31, 2016 and and the aggregate plan assets were as follows:
2015, respectively. The accumulated benefit obligations for all
defined benefit plans were $7.4 billion and $6.9 billion at (inmillions) 2016 2015
December31, 2016 and 2015, respectively. Accumulated benefit obligation $1,485 $3,651
Projected benefit obligation 1,697 4,226
For plans where the accumulated benefit obligations exceeded
Fair value of plan assets 653 2,862
plan assets at December31, 2016 and 2015, the aggregate
Other comprehensive income (loss) for each respective year The assumed health care cost trend rates for medical and dental
includes the amortization of actuarial losses and prior service plans at December31 were as follows:
costs (credits) as noted in the previous table. Other comprehensive
income (loss) for each respective year also includes: net actuarial 2016 2015 2014
losses of $571 million for defined benefit plans and $20 million for Health care cost trend rate assumed
for the next year 8% 8% 8%
medical and dental plans in 2016; net actuarial gains of $37 million
for defined benefit plans and $116 million for medical and dental Rate that the cost trend rate
gradually declines to 5% 5% 5%
plans in 2015; and net actuarial losses net of prior service credits
Year that rate reaches the assumed
of $1.6 billion for defined benefit plans and $57 million for medical
ultimate rate 2027 2028 2025
and dental plans in 2014.
The pretax amount of actuarial losses and prior service cost The discount rates used to measure liabilities were determined
(credits) included in Accumulated other comprehensive income based on high-quality fixed income securities that match the
(loss) at December31, 2016 that is expected to be recognized in duration of the expected retiree benefits. The health care cost
the net periodic benefit cost in 2017 is $167 million and $1 million trend rates represent Abbotts expected annual rates of change in
of expense, respectively, for defined benefit pension plans and the cost of health care benefits and are forward projections of
$24 million of expense and $45 million of income, respectively, health care costs as of the measurement date. A one-percentage
formedical and dental plans. point increase/(decrease) in the assumed health care cost trend
rate would increase/(decrease) the accumulated post-employment
The weighted average assumptions used to determine benefit benefit obligations as of December31, 2016, by $156 million/
obligations for defined benefit plans and medical and dental $(137)million, and the total of the service and interest cost
plansare as follows: components of net post-employment health care cost for the
2016 2015 2014
yearthen ended by approximately $12 million/$(10) million.
Discount rate 3.8% 4.3% 3.9% In 2016, Abbott adopted ASU 2015-07, Fair Value Measurement
Expected aggregate average long- (Topic 820): Disclosures for Investments in Certain Entities That
term change in compensation 4.3% 4.4% 4.3% Calculate Net Asset Value per Share (or its Equivalent). The new
standard removes the requirement to categorize all investments
The weighted average assumptions used to determine the net cost measured at net asset value (NAV) per share using the practical
for defined benefit plans and medical and dental plans are as follows: expedient allowed under ASC 820 in the fair value hierarchy.
2016 2015 2014 Abbott applied the standard on a retrospective basis and revised
Discount rate 4.3% 3.9% 4.9%
the form and content of the fair value measurement disclosures
related to the assets associated with the defined benefit and
Expected return on plan assets 7.6% 7.4% 7.5%
medical and dental plans.
Expected aggregate average long-
term change in compensation 4.3% 4.3% 4.9%
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The following table summarizes the basis used to measure the defined benefit and medical and dental plan assets at fair value:
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ABBOTT 2016 ANNUAL REPORT
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Equities that are valued using quoted prices are valued at the Abbott funds its domestic pension plans according to IRS funding
published market prices. Equities in a common collective trust or limitations. International pension plans are funded according to
a registered investment company that are valued using significant similar regulations. Abbott funded $582 million in 2016 and
other observable inputs are valued at the NAV provided by the $579 million in 2015 to defined pension plans. Abbott expects to
fund administrator. The NAV is based on the value of the underly contribute approximately $364 million to its pension plans in 2017,
ing assets owned by the fund minus its liabilities. For the majority of which approximately $270 million relates to its main domestic
of these funds, investments may be redeemed once per month, pension plan.
with a required 2 to 30 day notice period. For the remaining funds, Total benefit payments expected to be paid to participants, which
daily redemption of an investment is allowed. Fixed income secu includes payments funded from company assets, as well as paid
rities that are valued using significant other observable inputs are from the plans, are as follows:
valued at prices obtained from independent financial service
industryrecognized vendors. Abbott did not have any unfunded Defined Medical and
commitments related to fixed income funds at December31, 2016 (inmillions) Benefit Plans Dental Plans
and 2015. For the majority of these funds, investments may be 2017 $247 $67
redeemed monthly, with a required 2 to 14 day notice period. 2018 258 68
Forthe remaining funds, investments may be generally 2019 275 70
redeemed daily. 2020 293 72
Absolute return funds and commodities are valued at the NAV 2021 312 75
provided by the fund administrator. All private funds are valued 2022 to 2026 1,857 409
atthe NAV provided by the fund on a one-quarter lag adjusted for
The Abbott Stock Retirement Plan is the principal defined contri
known cash flows and significant events through the reporting
bution plan. Abbotts contributions to this plan were $83 million in
date. Abbott did not have any unfunded commitments related to
2016, $81 million in 2015 and $85 million in 2014.
absolute return funds at December31, 2016 and 2015. Investments
in these funds may be generally redeemed monthly or quarterly NOTE 14TAXES ON EARNINGS FROM CONTINUING
with required notice periods ranging from 5 to 45 days. For OPERATIONS
approximately $100 million of the absolute return funds, redemp
tions are subject to a 25% gate. For commodities, investments in Taxes on earnings from continuing operations reflect the annual
the private energy funds cannot be redeemed but the funds will effective rates, including charges for interest and penalties.
make distributions through liquidation. The estimate of the liqui Deferred income taxes reflect the tax consequences on future
dation period for each fund ranges from 2017 to 2022. Abbotts years of differences between the tax bases of assets and liabilities
unfunded commitments in these funds as of December31, 2016 and their financial reporting amounts.
and 2015 were not significant. Investments in the private funds In 2016, taxes on earnings from continuing operations include the
(excluding private energy funds) cannot be redeemed but the impact of a net tax benefit of approximately $225 million, primar
funds will make distributions through liquidation. The estimate ily as a result of the resolution of various tax positions from prior
ofthe liquidation period for each fund ranges from 2017 to 2026. years, partially offset by the unfavorable impact of non-deductible
Abbotts unfunded commitment in these funds was $337 million foreign exchange losses related to Venezuela and the adjustment
and $198 million as of December31, 2016 and 2015, respectively. of the Mylan N.V. equity investment as well as the recognition of
The investment mix of equity securities, fixed income and other deferred taxes associated with the pending sale of AMO. In 2015,
asset allocation strategies is based upon achieving a desired return taxes on earnings from continuing operations include a tax cost
as well as balancing higher return, more volatile equity securities of$71 million related to the disposal of shares of Mylan N.V. stock.
with lower return, less volatile fixed income securities. Investment In2014, taxes on earnings from continuing operations reflect the
allocations are made across a range of markets, industry sectors, recognition of $440 million of tax expense associated with a one-
capitalization sizes, and in the case of fixed income securities, time repatriation of 2014 non-U.S. earnings, partially offset by the
maturities and credit quality. The plans do not directly hold any favorable resolution of various tax positions and adjustments of
securities of Abbott. There are no known significant concentra tax uncertainties pertaining to prior years.
tions of risk in the plans assets. Abbotts medical and dental plans U.S. income taxes are provided on those earnings of foreign
assets are invested in a similar mix as the pension plan assets. The subsidiaries which are intended to be remitted to the parent
actual asset allocation percentages at year end are consistent with company. Abbott does not record deferred income taxes on earn
the companys targeted asset allocation percentages. ings reinvested indefinitely in foreign subsidiaries. Undistributed
The plans expected return on assets, as shown above is based on earnings reinvested indefinitely in foreign subsidiaries aggregated
managements expectations of long-term average rates of return to $24 billion at December31, 2016. It is not practicable to deter
be achieved by the underlying investment portfolios. In establishing mine the amount of deferred income taxes not provided on these
this assumption, management considers historical and expected earnings. In the U.S., Abbotts federal income tax returns through
returns for the asset classes in which the plans are invested, as well 2013 are settled. There are numerous other income tax jurisdic
as current economic and capital market conditions. tions for which tax returns are not yet settled, none of which are
individually significant. Reserves for interest and penalties are
not significant.
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Earnings from continuing operations before taxes, and the The tax effect of the differences that give rise to deferred tax
relatedprovisions for taxes on earnings from continuing opera assets and liabilities were as follows:
tions, were as follows:
(in millions) 2016 2015
(in millions) 2016 2015 2014 Deferred tax assets:
Earnings From Continuing Compensation and employee benefits $1,061 $992
Operations Before Taxes: Other, primarily reserves not currently
Domestic $306 $789 $392 deductible, and NOLs and credit carryforwards 2,384 2,657
Foreign 1,107 2,394 2,126 Trade receivable reserves 207 197
Total $1,413 $3,183 $2,518 Inventory reserves 157 141
Deferred intercompany profit 231 276
(in millions) 2016 2015 2014 State income taxes 164 206
Taxes on Earnings From Total deferred tax assets before
Continuing Operations: valuationallowance 4,204 4,469
Current: Valuation allowance (189) (86)
Domestic $71 $64 $27 Total deferred tax assets 4,015 4,383
Foreign 406 220 468 Deferred tax liabilities:
Total current 477 284 495 Depreciation (152) (118)
Deferred: Unremitted earnings of foreign subsidiaries (175) (694)
Domestic (147) 313 298 Other, primarily the excess of book basis over
tax basis of intangible assets (2,018) (1,942)
Foreign 20 (20) 4
Total deferred tax liabilities (2,345) (2,754)
Total deferred (127) 293 302
Total net deferred tax assets $1,670 $1,629
Total $350 $577 $797
Abbott has incurred losses in a foreign jurisdiction where realiza
Differences between the effective income tax rate and the U.S.
tion of the future economic benefit is so remote that the benefit is
statutory tax rate were as follows:
not reflected as a deferred tax asset.
2016 2015 2014 The following table summarizes the gross amounts of unrecog
Statutory tax rate on earnings from nized tax benefits without regard to reduction in tax liabilities or
continuing operations 35.0% 35.0% 35.0% additions to deferred tax assets and liabilities if such unrecognized
Impact of foreign operations (17.8) (18.2) 0.7 tax benefits were settled:
Resolution of certain tax positions
pertaining to prior years (16.1) (4.2) (in millions) 2016 2015
Mylan share adjustment 25.5 January 1 $1,438 $1,403
State taxes, net of federal benefit (1.3) 0.3 (0.5) Increase due to current year tax positions 145 234
Federal tax cost on sale of Mylan Increase due to prior year tax positions 101 95
N.V. shares 2.2 Decrease due to prior year tax positions (703) (169)
All other, net (0.5) (1.2) 0.6 Settlements (9) (125)
Effective tax rate on earnings from December31 $972 $1,438
continuing operations 24.8% 18.1% 31.6%
The total amount of unrecognized tax benefits that, if recognized,
Impact of foreign operations is primarily derived from operations in would impact the effective tax rate is approximately $925 million.
Puerto Rico, Switzerland, Ireland, Singapore, and the Netherlands. Abbott believes that it is reasonably possible that the recorded
In 2014, this benefit was more than offset by the tax expense amount of gross unrecognized tax benefits may decrease within a
accrued as a result of Abbotts one-time repatriation of its current range of $100 million to $250 million, including cash adjustments,
year foreign earnings. The 2015 effective tax rate includes the within the next twelve months as a result of concluding various
impact of the R&D tax credit that was made permanent in the U.S. domestic and international tax matters.
by the Protecting Americans from Tax Hikes Act of 2015.
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NOTE 15SEGMENT AND GEOGRAPHIC AREA INFORMATION been prepared in accordance with the internal accounting policies
Abbotts principal business is the discovery, development, manu of Abbott, as described above, and are not presented in accordance
facture and sale of a broad line of health care products. Abbotts with generally accepted accounting principles applied to the
products are generally sold directly to retailers, wholesalers, consolidated financial statements.
hospitals, health care facilities, laboratories, physicians offices and
Net Sales to External
government agencies throughout the world. Abbotts reportable Customers (a) Operating Earnings (a)
segments are as follows: (inmillions) 2016 2015 2014 2016 2015 2014
Established Pharmaceutical ProductsInternational sales of a Established
broad line of branded generic pharmaceutical products. Pharmaceuticals $3,859 $3,720 $3,118 $723 $658 $624
Nutritionals 6,899 6,975 6,953 1,660 1,741 1,459
Nutritional ProductsWorldwide sales of a broad line of adult
Diagnostics 4,813 4,646 4,721 1,194 1,171 1,079
andpediatric nutritional products.
Vascular 2,896 2,792 2,986 1,037 1,061 1,091
Diagnostic ProductsWorldwide sales of diagnostic systems and Total Reportable
tests for blood banks, hospitals, commercial laboratories and Segments 18,467 18,133 17,778 $4,614 $4,631 $4,253
alternate-care testing sites. For segment reporting purposes, the Other 2,386 2,272 2,469
Core Laboratories Diagnostics, Molecular Diagnostics, Point of
Total $20,853 $20,405 $20,247
Care and Ibis diagnostic divisions are aggregated and reported
asthe Diagnostic Products segment. (a) Net sales and operating earnings were unfavorably affected by the relatively stronger U.S.
dollar in 2016, 2015 and 2014.
Vascular ProductsWorldwide sales of coronary, endovascular,
structural heart, vessel closure and other medical device products. (in millions) 2016 2015 2014
For segment reporting purposes, the Vascular and Electrophysiology Total Reportable Segment
Products divisions are aggregated and reported as the Vascular Operating Earnings $4,614 $4,631 $4,253
Products segment. Corporate functions and benefit
plans costs (411) (416) (342)
Non-reportable segments include the Diabetes Care and Medical Non-reportable segments 304 268 439
Optics segments. Net interest expense (332) (58) (73)
Abbotts underlying accounting records are maintained on a legal Net loss on extinguishment of debt (18)
entity basis for government and public reporting requirements. Sharebased compensation (310) (291) (239)
Segment disclosures are on a performance basis consistent with Amortization of intangible assets (550) (601) (555)
internal management reporting. The cost of some corporate func Other, net (b) (1,902) (350) (947)
tions and the cost of certain employee benefits are charged to Earnings from Continuing
segments at predetermined rates that approximate cost. Remaining Operations before Taxes $1,413 $3,183 $2,518
costs, if any, are not allocated to segments. In addition, intangible
(b) Other, net includes: the $947 million adjustment of the Mylan equity investment and
asset amortization is not allocated to operating segments, and $480 million of foreign currency exchange loss related to operations in Venezuela in 2016
intangible assets and goodwill are not included in the measure of and charges for restructuring actions and other cost reduction initiatives of approxi
mately $155 million in 2016, $310 million in 2015 and $435 million in 2014. 2015 includes a
each segments assets. The following segment information has $207 million pre-tax gain on the sale of a portion of the Mylan N.V. shares.
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The Board of Directors and Shareholders of Abbott Laboratories: We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
We have audited the accompanying consolidated balance sheets of
Those standards require that we plan and perform the audit to
Abbott Laboratories and subsidiaries as of December31, 2016 and
obtain reasonable assurance about whether effective internal
2015, and the related consolidated statements of earnings, compre
control over financial reporting was maintained in all material
hensive income, shareholders investment and cash flows for each
respects. Our audit included obtaining an understanding of inter
of the three years in the period ended December31, 2016. These
nal control over financial reporting, assessing the risk that a
financial statements are the responsibility of the Companys man
material weakness exists, testing and evaluating the design and
agement. Our responsibility is to express an opinion on these
operating effectiveness of internal control based on the assessed
financial statements based on our audits.
risk, and performing such other procedures as we considered
We conducted our audits in accordance with the standards of the necessary in the circumstances. We believe that our audit provides
Public Company Accounting Oversight Board (United States). a reasonable basis for our opinion.
Those standards require that we plan and perform the audit to
A companys internal control over financial reporting is a process
obtain reasonable assurance about whether the financial state
designed to provide reasonable assurance regarding the reliability
ments are free of material misstatement. An audit includes
of financial reporting and the preparation of financial statements
examining, on a test basis, evidence supporting the amounts and
for external purposes in accordance with generally accepted
disclosures in the financial statements. An audit also includes
accounting principles. A companys internal control over financial
assessing the accounting principles used and significant estimates
reporting includes those policies and procedures that (1) pertain to
made by management, as well as evaluating the overall financial
the maintenance of records that, in reasonable detail, accurately
statement presentation. We believe that our audits provide a
and fairly reflect the transactions and dispositions of the assets of
reasonable basis for our opinion.
the company; (2) provide reasonable assurance that transactions
In our opinion, the financial statements referred to above present are recorded as necessary to permit preparation of financial state
fairly, in all material respects, the consolidated financial position ments in accordance with generally accepted accounting
of Abbott Laboratories and subsidiaries at December31, 2016 and principles, and that receipts and expenditures of the company
2015, and the consolidated results of their operations and their arebeing made only in accordance with authorizations of manage
cash flows for each of the three years in the period ended ment and directors of the company; and (3) provide reasonable
December31, 2016, in conformity with U.S. generally accepted assurance regarding prevention or timely detection of unautho
accounting principles. rized acquisition, use, or disposition of the companys assets that
We also have audited, in accordance with the standards of the could have a material effect on the financial statements.
Public Company Accounting Oversight Board (United States), Because of its inherent limitations, internal control over financial
Abbott Laboratories and subsidiaries internal control over reporting may not prevent or detect misstatements. Also, projec
financial reporting as of December31, 2016, based on criteria tions of any evaluation of effectiveness to future periods are
established in Internal Control-Integrated Framework issued by subject to the risk that controls may become inadequate because
the Committee of Sponsoring Organizations of the Treadway of changes in conditions, or that the degree of compliance with the
Commission (2013 framework), and our report dated February17, policies or procedures may deteriorate.
2017 expressed an unqualified opinion thereon.
In our opinion, Abbott Laboratories and subsidiaries maintained,
/s/ Ernst & Young LLP in all material respects, effective internal control over financial
Chicago, Illinois reporting as of December31, 2016, based on the COSO criteria.
February 17, 2017
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
The Board of Directors and Shareholders of Abbott Laboratories: consolidated balance sheets of Abbott Laboratories and subsidiar
ies as of December31, 2016 and 2015, and the related consolidated
We have audited Abbott Laboratories and subsidiaries internal
statements of earnings, comprehensive income, shareholders
control over financial reporting as of December31, 2016, based on
investment and cash flows for each of the three years in the period
criteria established in Internal ControlIntegrated Framework
ended December31, 2016 of Abbott Laboratories and subsidiaries
issued by the Committee of Sponsoring Organizations of the
and our report dated February 17, 2017 expressed an unqualified
Treadway Commission (2013 framework) (the COSO criteria).
opinion thereon.
Abbott Laboratories and subsidiaries management is responsible
for maintaining effective internal control over financial reporting, /s/ Ernst & Young LLP
and for its assessment of the effectiveness of internal control over Chicago, Illinois
financial reporting included in the accompanying Management February 17, 2017
Report on Internal Control Over Financial Reporting. Our respon
sibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
58
ABBOTT 2016 ANNUAL REPORT
MARKET PRICE SENSITIVE INVESTMENTS respectively. A hypothetical 100-basis point change in the interest
The fair value of the available-for-sale equity securities held by rates would not have a material effect on cash flows, income or fair
Abbott was approximately $2.7 billion and $3.8 billion as of values. (A 100-basis point change is believed to be a reasonably
December31, 2016 and 2015, respectively. The year-over-year possible near-term change in rates.)
decrease is primarily due to a decline in the share price of the FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS
ordinary shares of Mylan N.V. that Abbott received in the sale of
itsdeveloped markets branded generics pharmaceuticals business Certain Abbott foreign subsidiaries enter into foreign currency
and that it continued to hold at December31, 2016. All available- forward exchange contracts to manage exposures to changes in
for-sale equity securities are subject to potential changes in fair foreign exchange rates for anticipated intercompany purchases
value. A hypothetical 20 percent decrease in the share prices of bythose subsidiaries whose functional currencies are not the U.S.
these investments would decrease their fair value at December31, dollar. These contracts are designated as cash flow hedges of the
2016 by approximately $540 million. Abbott monitors these variability of the cash flows due to changes in foreign currency
investments for other than temporary declines in fair value, and exchange rates and are marked-to-market with the resulting gains
charges impairment losses to income when an other than tempo or losses reflected in Accumulated other comprehensive income
rary decline in fair value occurs. (loss). Gains or losses will be included in Cost of products sold at
the time the products are sold, generally within the next twelve
NON-PUBLICLY TRADED EQUIT Y SECURITIES toeighteen months. At December31, 2016 and 2015, Abbott held
Abbott holds equity securities from strategic technology acquisi $2.6 billion and $2.4 billion, respectively, of such contracts.
tions that are not traded on public stock exchanges. The carrying Contracts held at December31, 2016 will mature in 2017 or 2018
value of these investments was approximately $151 million and depending upon the contract. Contracts held at December31, 2015
$120 million as of December31, 2016 and 2015, respectively. matured in 2016 or will mature in 2017 depending upon the con
Noindividual investment is recorded at a value in excess of tract. At December31, 2016, $107 million of the notional amount
$35 million. Abbott monitors these investments for other than relates to AMO, a business that is expected to be divested in the
temporary declines in market value, and charges impairment first quarter of 2017.
losses to income when an other than temporary decline in esti Abbott enters into foreign currency forward exchange contracts
mated fair value occurs. tomanage its exposure to foreign currency denominated inter
company loans and trade payables and thirdparty trade payables
INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS
and receivables. The contracts are marked-to-market, and result
At December31, 2016 and 2015, Abbott had interest rate hedge ing gains or losses are reflected in income and are generally offset
contracts totaling $5.5 billion and $4.0 billion, respectively, to by losses or gains on the foreign currency exposure being man
manage its exposure to changes in the fair value of debt. The effect aged. At December31, 2016 and 2015, Abbott held $14.9 billion
of these hedges is to change the fixed interest rate to a variable and$14.0 billion, respectively, of such contracts, which generally
rate for the portion of the debt that is hedged. Abbott does not use mature in the next twelve months. At December31, 2016,
derivative financial instruments, such as interest rate swaps, to $1.2 billion of the contracts relate to AMO, a business that is
manage its exposure to changes in interest rates for its investment expected to be divested in the first quarter of 2017.
securities. At December31, 2016, Abbott had $0.9 billion of domes
Abbott has designated foreign denominated short-term debt of
tic commercial paper outstanding with an average annual interest
approximately $454 million and approximately $439 million as of
rate of 0.91% with an average remaining life of 17 days. The fair
December31, 2016 and 2015, respectively, as a hedge of the net
value of long-term debt at December31, 2016 and 2015 amounted
investment in a foreign subsidiary. Accordingly, changes in the fair
to $21.1 billion and $6.3 billion, respectively (average interest rates
value of this debt due to changes in exchange rates are recorded in
of 3.8% and 4.1% as of December31, 2016 and 2015, respectively)
Accumulated other comprehensive income (loss), net of tax.
with maturities through 2046. At December31, 2016 and 2015,
thefair value of current and long-term investment securities The following table reflects the total foreign currency forward
amounted to approximately $3.1 billion and $5.2 billion, contracts outstanding at December31, 2016 and 2015:
2016 2015
Fair and Fair and
Weighted Carrying Weighted Carrying
Average Value Average Value
Contract Exchange Receivable/ Contract Exchange Receivable/
(dollars in millions) Amount Rate (Payable) Amount Rate (Payable)
Primarily U.S. Dollars to be exchanged
for the following currencies:
Euro $11,110 1.0570 $28 $8,999 1.0943 $67
British Pound 514 1.2817 15 1,531 1.5098 6
Japanese Yen 1,024 110.6955 44 711 121.8078 (1)
Canadian Dollar 639 1.3378 3 312 1.2917 18
All other currencies 4,166 N/A 104 4,880 N/A (13)
Total $17,453 $194 $16,433 $77
59
ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
Abbotts revenues are derived primarily from the sale of a On February 27, 2015, Abbott completed the sale of its developed
broadline of health care products under short-term receivable markets branded generics pharmaceuticals business, which was
arrangements. Patent protection and licenses, technological and previously included in the Established Pharmaceutical Products
performance features, and inclusion of Abbotts products under segment, to Mylan Inc. for 110 million shares of Mylan N.V., a
acontract most impact which products are sold; price controls, newly formed entity that combined Mylans existing business with
competition and rebates most impact the net selling prices of Abbotts developed markets branded generics pharmaceuticals
products; and foreign currency translation impacts the measure business. Abbott retained the branded generics pharmaceuticals
ment of net sales and costs. Abbotts primary products are business and products of its Established Pharmaceutical Products
nutritional products, branded generic pharmaceuticals, diagnostic segment in emerging markets. In April 2015, Abbott sold
testing products and vascular products. Sales in international 40.25 million of its Mylan N.V. ordinary shares. Abbott currently
markets comprise approximately 70 percent of consolidated owns 69.75 million Mylan N.V. ordinary shares.
net sales. Over the last three years, sales growth was driven primarily by
On January 4, 2017, Abbott completed the acquisition of St. Jude theestablished pharmaceuticals, nutritional and diagnostics
Medical, Inc. (St. Jude Medical), a global medical device manufac businesses. Sales in emerging markets, which represent nearly
turer, for approximately $23.6 billion, including approximately 50 percent of total company sales, increased 6.3 percent in 2016
$13.6 billion in cash and approximately $10 billion in Abbott com and 17.1 percent in 2015, excluding the impact of foreign exchange.
mon shares, based on Abbotts closing stock price on the acquisition (Emerging markets include all countries except the United States,
date. As part of the acquisition, approximately $5.8 billion of Western Europe, Japan, Canada, Australia and New Zealand.)
St.Jude Medicals debt was assumed or refinanced by Abbott. Over the last three years, margin improvement was driven primar
Thetransaction provides expanded opportunities for future ily by the nutritional and diagnostics businesses. Abbott expanded
growth and is an important part of the companys ongoing effort its operating margin by approximately 120 basis points per year in
todevelop a strong, diverse portfolio of devices, diagnostics, 2016 and 2015. Abbotts sales, costs, and financial position over the
nutritionals and branded generic pharmaceuticals. The combined same period were impacted by the strengthening of the U.S. dollar
company will compete in nearly every area of the $30 billion relative to international currencies and a challenging economic
cardiovascular market as well as in the neuromodulation market. and fiscal environment in several emerging economies.
As the acquisition of St. Jude Medical was completed after In Abbotts worldwide nutritional products business, sales over
December31, 2016, Abbotts consolidated financial statements the last three years were positively impacted by demographics
donot include the financial condition or the operating results of such as an aging population and an increasing rate of chronic
St.Jude Medical in any of the periods presented herein. disease in developed markets and the rise of a middle class in
In September 2016, Abbott announced that it had entered into many emerging markets, as well as by numerous new product
adefinitive agreement to sell Abbott Medical Optics (AMO), its introductions that leveraged Abbotts strong brands. In 2016,
vision care business, to Johnson & Johnson for $4.325 billion in excluding the impact of foreign exchange, strong performance in
cash, subject to customary purchase price adjustments for cash, several markets across Latin America and Southeast Asia, as well
debt and working capital. The decision to sell AMO reflects as increased U.S. sales were partially offset by challenging market
Abbotts proactive shaping of its portfolio in line with its strategic conditions in the Chinese pediatric nutritional business. With
priorities. The transaction is expected to close in the first quarter respect to the profitability of the nutritional products business,
of 2017 and is subject to customary closing conditions, including manufacturing and distribution process changes, lower commod
regulatory approvals. The operating results of AMO have contin ity costs, and other cost reductions drove margin improvements
ued to be included in Earnings from Continuing Operations as across the business over the last three years although such
they do not qualify for reporting as discontinued operations. The improvements were offset by the negative impact of foreign
assets and liabilities of this business are being reported as held exchange in 2016. Operating margins for this business increased
fordisposition in Abbotts Consolidated Balance Sheet as of from 21.0 percent in 2014 to 24.1 percent in 2016.
December31, 2016. In Abbotts worldwide diagnostics business, sales growth over
On January 30, 2016, Abbott entered into a definitive agreement thelast three years reflected continued market penetration by the
toacquire Alere Inc. (Alere), a diagnostic device and service pro Core Laboratory business in the U.S. and China, and growth in
vider, for $56.00 per common share in cash. The acquisition is other emerging markets, most notably in Latin America. In addi
subject to satisfaction of customary closing conditions, including tion, the Point of Care diagnostics business continued to expand
the accuracy of Aleres representations and warranties (subject its geographic presence in targeted developed and emerging mar
tocertain materiality qualifications), compliance in all material kets. Worldwide diagnostic sales increased 5.5 percent in 2016 and
respects with Aleres covenants and receipt of applicable regula 7.3 percent in 2015, excluding the impact of foreign exchange. In
tory approvals. Due to a number of adverse developments that 2016, Abbott initiated the launch of Alinity, an integrated family
have occurred with respect to Alere since the date of the agree of next-generation diagnostic systems and solutions which are
ment, Abbott has filed a complaint in the Delaware Court of designed to increase efficiency by running more tests in less space,
Chancery seeking to terminate the acquisition agreement on the generating test results faster and minimizing human errors while
basis that Alere has experienced a material adverse effect under continuing to provide quality results. In the fourth quarter of 2016,
the acquisition agreement and has materially breached certain of Abbott obtained CE Mark for the Alinity point of care, immuno
its covenants. assay, clinical chemistry, and blood screening systems and initiated
60
ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
the launch of these four systems in Europe. Over the next two In anticipation of the acquisition of St. Jude Medical, in
years, Abbott will work to obtain approval and launch Alinity November 2016, Abbott issued $15.1 billion of long-term debt
systems in multiple geographies for every area in which its consisting of $2.85 billion at 2.35% maturing in 2019; $2.85 billion
diagnostics business competes. at 2.90% maturing in 2021; $1.50 billion at 3.40% maturing in
Margin improvement continued to be a key focus for the diagnostics 2023; $3.00 billion at 3.75% maturing in 2026; $1.65 billion at
business in 2016 although such improvements were offset by the 4.75% maturing in 2036; and $3.25 billion at 4.90% maturing in
negative impact of foreign exchange. Operating margins increased 2046. In November 2016, Abbott also entered into interest rate
from 22.9 percent of sales in 2014 to 24.8 percent in 2016 as the swap contracts totaling $3.0 billion related to the new debt, which
business continued to execute on efficiency initiatives in the man have the effect of changing Abbotts obligation from a fixed inter
ufacturing and supply chain functions. est rate to a variable interest rate obligation on the related debt
instruments. In March 2015, Abbott issued $2.5 billion of long-
The Established Pharmaceutical Products segment focuses on term debt consisting of $750 million at 2.00% maturing in 2020;
thesale of its products in emerging markets after the sale of its $750 million at 2.55% maturing in 2022; and $1.0 billion at 2.95%
developed markets business to Mylan on February 27, 2015. The maturing in 2025. In March 2015, Abbott also entered into inter
acquisition of CFR Pharmaceuticals S.A. (CFR) in September 2014 est rate swap contracts totaling $2.5 billion related to the debt
more than doubled Abbotts branded generics pharmaceutical issuance. These contracts have the effect of changing Abbotts
presence in Latin America and further expanded its presence in obligation from a fixed interest rate to a variable interest rate
emerging markets. Through the acquisition of Veropharm, a lead obligation. In the fourth quarter of 2014, Abbott extinguished
ing Russian pharmaceutical company in December 2014, Abbott approximately $500 million of long-term debt that was assumed
established a manufacturing footprint in Russia and obtained a as part of the acquisition of CFR and incurred a charge of
portfolio of medicines that is well aligned with Abbotts current $18.3 million related to the early repayment of this debt.
pharmaceutical therapeutic areas of focus. Excluding the impact
of foreign exchange, Established Pharmaceutical sales from con Abbott declared dividends of $1.045 per share in 2016 com
tinuing operations increased 10.5 percent in 2016 and 34.1 percent paredto$0.98 per share in 2015, an increase of approximately 7%.
in 2015. The sales increase in 2016 was driven by double-digit Dividends paid were $1.539 billion in 2016 compared to
growth in the Brazil, Russia, India and China (BRIC) geographies, $1.443 billion in 2015. The year-over-year change in dividends
which comprise approximately 45 percent of the sales in the reflects the impact of the increase in the dividend rate. In
Established Pharmaceutical Products segment. Excluding the December 2016, Abbott increased the companys quarterly divi
impact of the 2014 acquisitions as well as the impact of foreign dend to $0.265 per share from $0.26 per share, effective with the
exchange, 2015 Established Pharmaceutical sales from continuing dividend paid in February 2017.
operations increased 13.4 percent. In 2017, Abbott will focus on integrating St. Jude Medical, as well
In the vascular business, excluding the unfavorable impact of as several other key initiatives. The focus of the integration will be
foreign exchange, total sales increased in the low single digits to combine the St. Jude Medical business with Abbotts existing
from2014 to 2016, driven by double-digit growth in Abbotts sales vascular business to create a best-in-class organization and to
of its MitraClip structural heart device for the treatment of mitral successfully deliver on new product launches that contribute to a
regurgitation, as well endovascular franchise sales growth. These broader, more comprehensive cardiovascular and neuromodula
increases were partially offset by pricing pressures primarily tion portfolio. In the nutritional business, Abbott will continue to
related to drug-eluting stents (DES) and lower market share for build its product portfolio with the introduction of new science
Abbotts XIENCE DES franchise in certain geographies. The based products, expand in high-growth emerging markets and
XIENCE DES franchise includes XIENCE V, Prime, nano, Pro, implement additional margin improvement initiatives.
ProX, Xpedition, and Alpine. Abbott has continued to develop its In the established pharmaceuticals business, Abbott will continue
worldwide market-leading XIENCE DES franchise over the last to focus on obtaining additional product approvals across numerous
three years. Abbott Vascular Products latest product introduction, countries and increasing its penetration of emerging markets. In
XIENCE Alpine, was launched in various markets across Europe the diagnostics business, Abbott will work to launch the full
and Asia in 2015 and 2016 and in the U.S. in late 2014. The XIENCE Alinity suite across Europe and into additional geographies,
franchise maintained its market-leading global position in 2016. including the U.S., over the next two years. The diagnostics busi
Operating margins declined from 36.5 percent in 2014 to 35.8 percent ness will also focus on expansion in emerging markets and further
in 2016 primarily due to the unfavorable effect of foreign exchange improvements in the segments operating margin. In Abbotts
and ongoing pricing pressures in the coronary business. other segments, Abbott will focus on developing differentiated
Abbotts short and long-term debt totaled $22.0 billion at technologies in higher growth markets.
December31, 2016, which included the debt issued in anticipation CRITICAL ACCOUNTING POLICIES
of the St. Jude Medical acquisition. At December31, 2016, Abbotts
long-term debt rating was A+ by Standard and Poors Corporation Sales RebatesIn 2016, approximately 43 percent of Abbotts
and A2 by Moodys Investors Service. In conjunction with the consolidated gross revenues were subject to various forms of
completion of the St. Jude Medical acquisition on January 4, 2017, rebates and allowances that Abbott recorded as reductions of
the ratings were adjusted to BBB by Standard & Poors revenues at the time of sale. Most of these rebates and allowances
Corporation and Baa3 by Moodys Investors Service. in 2016 are in the Nutritional Products and Diabetes Care seg
ments. Abbott provides rebates to state agencies that administer
61
ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
the Special Supplemental Nutrition Program for Women, Infants, Historically, adjustments to prior years rebate accruals have not
and Children (WIC), wholesalers, group purchasing organizations, been material to net income. Abbott employs various techniques
and other government agencies and private entities. Rebate toverify the accuracy of claims submitted to it, and where possi
amounts are usually based upon the volume of purchases using ble, works with the organizations submitting claims to gain insight
contractual or statutory prices for a product. Factors used in the into changes that might affect the rebate amounts. For government
rebate calculations include the identification of which products agency programs, the calculation of a rebate involves interpreta
have been sold subject to a rebate, which customer or government tions of relevant regulations, which are subject to challenge or
agency price terms apply, and the estimated lag time between sale change in interpretation.
and payment of a rebate. Using historical trends, adjusted for Income TaxesAbbott operates in numerous countries where its
current changes, Abbott estimates the amount of the rebate that income tax returns are subject to audits and adjustments. Because
will be paid, and records the liability as a reduction of gross sales Abbott operates globally, the nature of the audit items is often very
when Abbott records its sale of the product. Settlement of the rebate complex, and the objectives of the government auditors can result
generally occurs from one to six months after sale. Abbott regularly in a tax on the same income in more than one country. Abbott
analyzes the historical rebate trends and makes adjustments to employs internal and external tax professionals to minimize audit
reserves for changes in trends and terms of rebate programs. adjustment amounts where possible. In accordance with the
Rebates and chargebacks charged against gross sales in 2016, 2015 accounting rules relating to the measurement of tax contingencies,
and 2014 amounted to approximately $2.5 billion, $2.2 billion and in order to recognize an uncertain tax benefit, the taxpayer must
$2.1 billion, respectively, or 22.9 percent, 21.6 percent and be more likely than not of sustaining the position, and the mea
20.1 percent, respectively, based on gross sales of approximately surement of the benefit is calculated as the largest amount that is
$10.7 billion, $10.3 billion and $10.3 billion, respectively, subject more than 50 percent likely to be realized upon resolution of the
torebate. A one-percentage point increase in the percentage of benefit. Application of these rules requires a significant amount of
rebates to related gross sales would decrease net sales by approxi judgment. In the U.S., Abbotts federal income tax returns through
mately $107 million in 2016. Abbott considers a one-percentage 2013 are settled. Abbott does not record deferred income taxes on
point increase to be a reasonably likely increase in the percentage earnings reinvested indefinitely in foreign subsidiaries.
of rebates to related gross sales. Other allowances charged against
gross sales were approximately $160 million, $124 million and Pension and Post-Employment BenefitsAbbott offers pension
$138 million for cash discounts in 2016, 2015 and 2014, respectively, benefits and post-employment health care to many of its employ
and $242 million, $238 million and $210 million for returns in 2016, ees. Abbott engages outside actuaries to assist in the determination
2015 and 2014, respectively. Cash discounts are known within 15 to of the obligations and costs under these programs. Abbott must
30 days of sale, and therefore can be reliably estimated. Returns can develop long-term assumptions, the most significant of which are
be reliably estimated because Abbotts historical returns are low, the health care cost trend rates, discount rates and the expected
and because sales returns terms and other sales terms have return on plan assets. The discount rates used to measure liabilities
remained relatively unchanged for several periods. were determined based on high-quality fixed income securities
that match the duration of the expected retiree benefits. The health
Management analyzes the adequacy of ending rebate accrual care cost trend rates represent Abbotts expected annual rates of
balances each quarter. In the domestic nutritional business, man change in the cost of health care benefits and are a forward projec
agement uses both internal and external data available to estimate tion of health care costs as of the measurement date. A difference
the level of inventory in the distribution channel. Management has between the assumed rates and the actual rates, which will not be
access to several large customers inventory management data, and known for years, can be significant in relation to the obligations
for other customers, utilizes data from a third party that measures and the annual cost recorded for these programs. Low interest
time on the retail shelf. These sources allow management to make rates have significantly increased actuarial losses for these plans.
reliable estimates of inventory in the distribution channel. Except At December31, 2016, pretax net actuarial losses and prior service
for a transition period before or after a change in the supplier for costs and (credits) recognized in Accumulated other comprehen
the WIC business in a state, inventory in the distribution channel sive income (loss) for Abbotts defined benefit plans and medical
does not vary substantially. Management also estimates the states and dental plans were losses of $3.3 billion and $119 million,
processing lag time based on claims data. In the WIC business, the respectively. Actuarial losses and gains are amortized over the
state where the sale is made, which is the determining factor for remaining service attribution periods of the employees under the
the applicable price, is reliably determinable. Estimates are corridor method, in accordance with the rules for accounting for
required for the amount of WIC sales within each state where post-employment benefits. Differences between the expected
Abbott has the WIC business. External data sources utilized for long-term return on plan assets and the actual annual return are
that estimate are participant data from the U.S. Department of amortized over a five-year period. Note13 to the consolidated
Agriculture (USDA), which administers the WIC program, partici financial statements describes the impact of a one-percentage
pant data from some of the states, and internally administered point change in the health care cost trend rate; however, there
market research. The USDA has been making its data available canbe no certainty that a change would be limited to only one
formany years. Internal data includes historical redemption rates percentage point.
and pricing data. At December31, 2016, Abbott had WIC business
in 31 states.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
A comparison of significant product and product group sales is as of foreign exchange, sales in Established Pharmaceuticals other
follows. Percent changes are versus the prior year and are based emerging markets increased 2.0 percent in 2016 and increased
on unrounded numbers. 39.6 percent in 2015. The increase in 2015 includes the impact of
Total the acquisitions of CFR Pharmaceuticals in September 2014 and
Change Veropharm in December 2014. Excluding sales from the acquisi
Total Impact of Excl. tions and the impact of foreign exchange, revenues increased
(dollars inmillions) 2016 Change Exchange Exchange 13.4 percent in 2015.
Total Established
Excluding the unfavorable impact of foreign exchange, total
Pharmaceuticals
Nutritional Products sales increased 1.2 percent in 2016 and
Key Emerging Markets $2,912 5% (8)% 13%
5.5 percent in 2015. In Abbotts International Pediatric Nutritional
Other 947 1 (1) 2
business, the 2016 decrease in sales was driven by challenging
Nutritionals market conditions in China, including the impact of new food
International Pediatric safety regulations which will require the re-registration by 2018
Nutritionals 2,206 (7) (4) (3) ofall infant and toddler formulas, contributing to an oversupply of
U.S. Pediatric Nutritionals 1,677 5 5 product in the market. The sales decrease in China was partially
International Adult offset by continued strong performance in several markets across
Nutritionals 1,724 (4) 4 Latin America and Southeast Asia. The increase in 2016 U.S.
U.S. Adult Nutritionals 1,292 1 1 Pediatric Nutritional sales primarily reflects above-market perfor
mance in Abbotts PediaSure toddler brand as well as recent
Diagnostics
infant product launches including Similac Advance Non-GMO
Immunochemistry 3,681 4 (2) 6 and Similac Sensitive Non-GMO.
Vascular Products (1) Excluding the unfavorable impact of foreign exchange, the 2016
Coronary Devices 2,186 (1) 1 and 2015 increases in International Adult Nutritional sales are due
Endovascular 562 8 (1) 9 primarily to volume growth in emerging markets and continued
(1) Coronary Devices include DES / BVS product portfolio, structural heart, guidewires, expansion of the adult nutrition category internationally. The
balloon catheters, and other coronary products. Endovascular includes vessel closure, increase in 2016 U.S. Adult Nutritional revenues was driven by
carotid stents and other peripheral products.
thegrowth of Ensure sales and the decrease in 2015 reflected the
Total effects of increased competition and market dynamics in retail
Change andinstitutional categories.
Total Impact of Excl.
(dollars inmillions) 2015 Change Exchange Exchange Excluding the unfavorable impact of foreign exchange, total
Total Established Diagnostic Products sales increased 5.5 percent in 2016 and
Pharmaceuticals 7.3 percent in 2015. The sales increases were primarily driven by
Key Emerging Markets $2,781 17% (15)% 32% share gains in the Core Laboratory and Point of Care markets in
Other 939 28 (12) 40 the U.S. and internationally. 2016 and 2015 sales of immunochem
istry products, the largest category in this segment, reflect
Nutritionals continued execution of Abbotts strategy to deliver integrated
International Pediatric solutions to large healthcare customers.
Nutritionals 2,378 1 (7) 8
Excluding the unfavorable impact of foreign exchange, total
U.S. Pediatric Nutritionals 1,592 4 4
Vascular Products sales grew 4.5 percent in 2016 and 1.3 percent in
International Adult
Nutritionals 1,729 (2) (11) 9 2015. In 2016, double-digit growth in sales of Abbotts MitraClip
structural heart device for the treatment of mitral regurgitation was
U.S. Adult Nutritionals 1,276 (2) (2)
partially offset by lower sales of DES products. The increase in the
Diagnostics Endovascular business was driven by higher Supera and vessel
Immunochemistry 3,529 (2) (10) 8 closure sales. Vascular Products sales in 2016 were also favorably
impacted by the resolution of previously disputed third party
Vascular Products (2)
royalty revenue related to the prior year. Excluding this royalty
Coronary Devices 2,176 (7) (8) 1
impact, worldwide sales of Vascular Products would have increased
Endovascular 520 (1) (7) 6 3.4 percent in 2016. In 2015, growth of Abbotts MitraClip structural
(2) Coronary Devices include DES / BVS product portfolio, structural heart, guidewires, heart product, its Endovascular business, including the Supera
balloon catheters, and other coronary products. Endovascular includes vessel closure, peripheral stent, and the Absorb bioresorbable vascular scaffold in
carotid stents and other peripheral products.
various international markets was almost entirely offset by pricing
Excluding the unfavorable impact of foreign exchange, total pressures in DES products.
Established Pharmaceutical Products sales increased 10.5 percent Abbott has periodically sold product rights to non-strategic prod
in 2016 and 34.1 percent in 2015. The Established Pharmaceutical ucts and has recorded the related gains in net sales in accordance
Products segment is focused on several key emerging markets with Abbotts revenue recognition policies as discussed in Note1
including India, Russia, China and Brazil. Excluding the impact of to the consolidated financial statements. Related net sales were
foreign exchange, sales in these key emerging markets increased not significant in 2016, 2015 and 2014.
13.3 percent in 2016 and 32.4 percent in 2015. Excluding the impact
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
The expiration of licenses and patent protection can affect financial condition or the operating results of St. Jude Medical in
thefuture revenues and operating income of Abbott. There are any of the periods presented herein.
nosignificant patent or license expirations in the next three Under the terms of the agreement, for each St. Jude Medical
yearsthat are expected to affect Abbott. common share, St. Jude Medical shareholders received $46.75 in
OPERATING EARNINGS 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,
Gross profit margins were 54.1 percent of net sales in 2016, this represented a value of approximately $81 per St. Jude Medical
54.2 percent in 2015 and 51.7 percent in 2014. In 2016, the unfavor common share and total purchase consideration of $23.6 billion.
able effect of foreign exchange offset continued underlying margin The cash portion of the acquisition was funded through a combi
expansion, primarily in the Diagnostics and Nutritional segments. nation of medium and long-term debt issued in November of 2016
The improvement in 2015 reflects higher margins in the and a $2.0 billion 120-day senior unsecured bridge term loan
Nutritional, Diagnostics, and Vascular Products segments. facility. See Note10Debt and Lines of Credit for further details
In the U.S., states receive price rebates from manufacturers of regarding these financing arrangements.
infant formula under the federally subsidized Special The preliminary allocation of the fair value of the St. Jude Medical
Supplemental Nutrition Program for Women, Infants, and acquisition is shown in the table below. The allocation of the fair
Children. There are also rebate programs for pharmaceutical value of the acquisition will be finalized when the valuation is
products in numerous countries. These rebate programs continue completed and differences between the preliminary and final
to have a negative effect on the gross profit margins of the allocation could be material.
Nutritional and Established Pharmaceutical Products segments.
Research and development expense was $1.422 billion in 2016, (inbillions)
$1.405 billion in 2015, and $1.345 billion in 2014 and represented Acquired intangible assets, non-deductible $16.0
a1.2 percent increase in 2016, and a 4.5 percent increase in 2015. Goodwill, non-deductible 14.8
The 2016 increase in research and development expenses was Acquired net tangible assets 3.0
primarily due to higher spending on various projects and the Deferred income taxes recorded at acquisition (5.0)
impairment of an in-process research and development asset Net debt (5.2)
related to a non-reportable segment, partially offset by lower Total preliminary allocation of fair value $23.6
restructuring costs in 2016. In 2016, research and development
expenditures totaled $513 million for the Diagnostics Products If the acquisition of St. Jude Medical had occurred at the begin
segment, $259 million for the Vascular Products segment, ning of 2016, unaudited pro forma consolidated net sales would
$205 million for the Nutritional Products segment, and have been approximately $26.8 billion and unaudited pro forma
$137 million for the Established Pharmaceutical Products segment. consolidated net earnings would have been $157 million, which
includes the amortization of approximately $700 million of
Selling, general and administrative expenses decreased 1.7 percent inventory step-up. The unaudited pro forma information is not
in 2016 and increased 3.9 percent in 2015 versus the respective necessarily indicative of the consolidated results of operations
prior year. The 2016 decrease reflects the favorable impact of thatwould have been realized had the St. Jude Medical acquisition
foreign exchange, continued efforts to reduce back office costs, been completed as of the beginning of 2016, nor is it meant to be
and lower restructuring charges compared to the prior year. The indicative of future results of operations that the combined entity
2015 increase reflects the impact of the CFR and Veropharm will experience.
acquisitions, partially offset by the impact of cost improvement
initiatives and the favorable impact of foreign exchange. In 2016, Abbott and St. Jude Medical agreed to sell certain prod
ucts to Terumo Corporation for approximately $1.12 billion. The
BUSINESS ACQUISITIONS sale includes the St. Jude Medical Angio-Seal and Femoseal
On January 4, 2017, Abbott completed the acquisition of St. Jude vascular closure products and Abbotts Vado Steerable Sheath.
Medical, a global medical device manufacturer, for approximately The sale closed on January 20, 2017.
$23.6 billion, including approximately $13.6 billion in cash and On January 30, 2016, Abbott entered into a definitive agreement
approximately $10 billion in Abbott common shares, which repre toacquire Alere Inc., a diagnostic device and service provider,
sented approximately 254 million shares of Abbott common stock, for$56.00 per common share in cash. The acquisition is subject
based on Abbotts closing stock price on the acquisition date. tosatisfaction of customary closing conditions, including the
Aspart of the acquisition, approximately $5.8 billion of St. Jude accuracy of Aleres representations and warranties (subject to
Medicals debt was assumed or refinanced by Abbott. The transac certain materiality qualifications), compliance in all material
tion provides expanded opportunities for future growth and is an respects with Aleres covenants and receipt of applicable regula
important part of the companys ongoing effort to develop a tory approvals. Due to a number of adverse developments that
strong, diverse portfolio of devices, diagnostics, nutritionals and have occurred with respect to Alere since the date of the agree
branded generic pharmaceuticals. The combined company will ment, Abbott has filed a complaint in the Delaware Court of
compete in nearly every area of the $30 billion cardiovascular Chancery seeking to terminate the acquisition agreement on the
market, as well as in the neuromodulation market. As the acquisi basis that Alere has experienced a material adverse effect
tion of St. Jude Medical was completed after December31, 2016, underthe acquisition agreement and has materially breached
Abbotts consolidated financial statements do not include the certain of its covenants.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
In August 2015, Abbott completed the acquisition of the equity of In December 2014, Abbott acquired control of Veropharm,
Tendyne Holdings, Inc. (Tendyne) that Abbott did not already own a leading Russian pharmaceutical company for approximately
for approximately $225 million in cash plus additional payments $315 million excluding assumed debt, plus a subsequent $5 million
up to $150 million to be made upon completion of certain regula payment related to a working capital adjustment. Through this
tory milestones. The acquisition of Tendyne, which is focused on acquisition, Abbott establishes a manufacturing footprint in Russia
developing minimally invasive mitral valve replacement therapies, and obtains a portfolio of medicines that is well aligned with
allows Abbott to broaden its foundation in the treatment of mitral Abbotts current pharmaceutical therapeutic areas of focus. Abbott
valve disease. The final allocation of the fair value of the acquisi acquired control of Veropharm through its purchase of Limited
tion resulted in non-deductible acquired in-process research and Liability Company Garden Hills, the holding company that owns
development of approximately $220 million, which is accounted approximately 98 percent of Veropharm. Including the assump
for as an indefinite-lived intangible asset until regulatory approval tion of approximately $90 million of debt and a non-controlling
or discontinuation, non-deductible goodwill of approximately interest with a fair value of $5 million, the total value of the
$142 million, deferred tax assets and other net assets of approxi acquired business was approximately $415 million. The final
mately $18 million, deferred tax liabilities of approximately allocation of the fair value of the acquisition resulted in definite-
$85 million, and contingent consideration of approximately lived non-deductible intangible assets of approximately
$70 million. The goodwill is identifiable to the Vascular Products $100 million, non-deductible goodwill of approximately
segment. $140 million, and net deferred tax liabilities of approximately
In September 2014, Abbott completed the acquisition of the $25 million. Non-deductible goodwill is identifiable with the
controlling interest in CFR Pharmaceuticals S.A. (CFR) for Established Pharmaceutical Products segment. Additionally,
approximately $2.9 billion in cash ($2.8 billion net of CFR cash Abbott acquired property, plant, and equipment of approximately
onhand at closing). Including the assumption of approximately $150 million, accounts receivable of approximately $45 million,
$570 million of debt, the total cost of the acquisition was inventory of approximately $25 million, and net liabilities of
$3.4 billion. The acquisition of CFR more than doubles Abbotts approximately $20 million. Acquired intangible assets consist
branded generics pharmaceutical presence in Latin America and ofdeveloped technology and are being amortized over 16 years.
further expands its presence in emerging markets. CFRs financial In2015, Abbott acquired the remaining shares of Veropharm,
results are included in Abbotts financial statements beginning on increasing its ownership to 100 percent.
September 26, 2014, the date that Abbott acquired control of this In December 2014, Abbott completed the acquisition of Topera,
business. Abbott currently owns 100% of CFR. The fair value of Inc. for approximately $250 million in cash, plus additional pay
the non-controlling interest at the acquisition date was approxi ments up to $300 million to be made upon completion of certain
mately $3 million. The acquisition was funded with cash and cash regulatory and sales milestones. The acquisition of Topera pro
equivalents and short-term investments. The final allocation of the vides Abbott a foundational entry in the electrophysiology market.
fair value of the acquisition is shown in the table below. The final allocation of the fair value of the acquisition resulted
innon-deductible acquired in-process research and development
(inbillions) of approximately $60 million, which is accounted for as an
Acquired intangible assets, non-deductible $1.87 indefinite-lived intangible asset until regulatory approval or dis
Goodwill, non-deductible 1.42 continuation, non-deductible definite-lived intangible assets of
Acquired net tangible assets 0.03 approximately $215 million, non-deductible goodwill of approxi
Deferred income taxes recorded at acquisition (0.40) mately $145 million, net deferred tax liabilities of approximately
Total final allocation of fair value $2.92 $80 million, and contingent consideration of approximately
$90 million. The fair value of the contingent consideration was
Acquired intangible assets consist primarily of product rights for determined based on an independent appraisal. Acquired intangi
currently marketed products and are amortized over 12 to 16 years ble assets consist of developed technology and trademarks, and
(weighted average of 15 years). The goodwill is primarily attribut arebeing amortized over 17 years.
able to intangible assets that do not qualify for separate recognition.
The goodwill is identifiable to the Established Pharmaceutical Except for the St. Jude Medical acquisition, had the aggregate in
Products segment. The acquired tangible assets consist primarily each year of the above acquisitions taken place as of the beginning
of cash and cash equivalents of approximately $94 million, trade of the comparable prior annual reporting period, consolidated net
accounts receivable of approximately $180 million, inventory of sales and earnings would not have been significantly different
approximately $169 million, other current assets of approximately from reported amounts.
$51 million, property and equipment of approximately $210 million, RESTRUCTURINGS
and other long-term assets of approximately $145 million. Assumed
liabilities consist of borrowings of approximately $570 million, In 2016, 2015 and 2014, Abbott management approved plans
trade accounts payable and other current liabilities of approxi tostreamline operations in order to reduce costs and improve
mately $240 million and other non-current liabilities of efficiencies in various Abbott businesses including the nutritional,
approximately $14 million. Net sales for CFR Pharmaceuticals established pharmaceuticals and vascular businesses. Abbott
totaled approximately $750 million in 2015. recorded employee-related severance and other charges of
approximately $33 million in 2016, $95 million in 2015 and
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
$164 million in 2014. Approximately $9 million in 2016, $18 million TAXES ON EARNINGS
in 2015 and $20 million in 2014 are recorded in Cost of products The income tax rates on earnings from continuing operations were
sold, approximately $5 million in 2016, $34 million in 2015 and 24.8 percent in 2016, 18.1 percent in 2015 and 31.6 percent in 2014.
$53 million in 2014 are recorded in Research and development In 2016, taxes on earnings from continuing operations include the
andapproximately $19 million in 2016, $43 million in 2015 and impact of a net tax benefit of approximately $225 million, primar
$91 million in 2014 are recorded in Selling, general and adminis ily as a result of the resolution of various tax positions from prior
trative expense. Additional charges of approximately $2 million in years, partially offset by the unfavorable impact of non-deductible
2016, $45 million in 2015 and $39 million in 2014 were recorded foreign exchange losses related to Venezuela and the adjustment
primarily for accelerated depreciation. of the Mylan N.V. equity investment as well as the recognition of
From 2013 to 2015, Abbott management approved various plans deferred taxes associated with the pending sale of AMO. In 2015,
toreduce costs and improve efficiencies across various functional taxes on earnings from continuing operations include $71 million
areas. In 2013, Abbott management also approved plans to stream of tax expense related to gain on the disposal of shares of Mylan
line certain manufacturing operations in order to reduce costs and N.V. stock. The 2015 effective tax rate includes the impact of the
improve efficiencies in Abbotts established pharmaceuticals R&D tax credit that was made permanent in the U.S. by the
business. In 2012, Abbott management approved plans to stream Protecting Americans from Tax Hikes Act of 2015. In 2014, taxes
line various commercial operations in order to reduce costs and on earnings from continuing operations include $440 million of
improve efficiencies in Abbotts core diagnostics, established tax expense associated with a one-time repatriation of 2014 non-
pharmaceuticals and nutritionals businesses. Abbott recorded U.S. earnings partially offset by $125 million of tax benefits related
employee-related severance charges of approximately $18 million in to the resolution of various tax positions and the adjustment of
2016, $66 million in 2015 and $125 million in 2014. Approximately taxuncertainties from prior years.
$4 million in 2016, $9 million in 2015 and $7 million in 2014 are Exclusive of these discrete items, tax expense was favorably
recorded in Cost of products sold, approximately $2 million in impacted by lower tax rates and tax exemptions on foreign income
2015 and $6 million in 2014 are recorded in Research and develop primarily derived from operations in Puerto Rico, Switzerland,
ment, and approximately $14 million in 2016, $55 million in 2015 Ireland, the Netherlands, and Singapore. Abbott benefits from a
and $112 million in 2014 are recorded in Selling, general and combination of favorable statutory tax rules, tax rulings, grants,
administrative expense. and exemptions in these tax jurisdictions. See Note14 to the con
INTEREST EXPENSE AND INTEREST (INCOME) solidated financial statements for a full reconciliation of the
effective tax rate to the U.S. federal statutory rate.
In 2016, interest expense increased primarily due to the amortiza
tion of bridge financing fees related to the financing of the St.Jude Earnings from discontinued operations, net of tax, in 2016 reflects
Medical acquisition, which closed on January 4, 2017, and the the recognition of $325 million of net tax benefits primarily as a
pending Alere acquisition. Interest expense in 2016 also increased result of the resolution of various tax positions related to prior
due to the $15.1 billion of debt issued in November 2016. In 2015, years. 2015 tax expense related to discontinued operations
interest expense increased due to the issuance of $2.5 billion of includes $667 million of tax expense on certain current-year funds
long-term debt during the year. In 2014, interest expense increased earned outside of the U.S. that were not designated as permanently
due to a higher level of short-term borrowings during the year. reinvested overseas. Abbott accrued U.S. taxes on approximately
Interest income increased in 2015 due to a higher return earned $2.2 billion of 2014 earnings generated outside the U.S. in connec
onshort-term investments during the year. tion with a repatriation of these earnings. In addition to the
$440 million of tax expense discussed above, the repatriation
OTHER (INCOME) EXPENSE, NET resulted in $82 million of additional tax expense in Abbotts 2014
Other (income) expense, net, for 2016 includes an expense to income from discontinued operations. Abbott accelerated the
adjust Abbotts holding of Mylan N.V. ordinary shares due to a utilization of deferred tax assets and therefore cash taxes due in
decline in the fair value of the securities which is considered by the U.S. on this repatriation were not material.
Abbott to be other than temporary. 2015 includes a pretax gain on DISCONTINUED OPERATIONS
the sale of a portion of the Mylan N.V. shares received through the
sale of the developed markets branded generics pharmaceuticals On February 27, 2015, Abbott completed the sale of its developed
business and income resulting from a decrease in the fair value of markets branded generics pharmaceuticals business to Mylan Inc.
contingent consideration related to a business acquisition. 2014 (Mylan) for equity ownership of a newly formed entity (Mylan N.V.)
includes charges associated with the impairment of certain equity that combined Mylans existing business and Abbotts developed
investments partially offset by gains on sales of investments. markets pharmaceuticals business. Mylan N.V. is publicly traded.
Historically, this business was included in Abbotts Established
NET LOSS ON EXTINGUISHMENT OF DEBT Pharmaceutical Products segment. At the date of the closing, the
In 2014, Abbott extinguished approximately $500 million of long- 110 million Mylan N.V. shares that Abbott received were valued at
term debt assumed as part of the CFR Pharmaceuticals acquisition $5.77 billion and Abbott recorded an after-tax gain on the sale of
and incurred a cost of $18.3 million to extinguish this debt. the business of approximately $1.6 billion. Abbott retained its
branded generics pharmaceuticals business in emerging markets.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
At the close of this transaction, Abbott and Mylan entered into Abbott has retained all liabilities for all U.S. federal and foreign
atransition services agreement pursuant to which Abbott and income taxes on income prior to the separation, as well as certain
Mylan are providing various back office support services to each non-income taxes attributable to AbbVies business. AbbVie gener
other on an interim transitional basis. Transition services may be ally will be liable for all other taxes attributable to its business.
provided for up to 2 years with certain services having been In2016, 2015 and 2014, discontinued operations include a favor
extended for an additional five to ten months. Charges by Abbott able adjustment to tax expense of $318 million, $3 million and
under this transition services agreement are recorded as a reduc $166 million, respectively, as a result of the resolution of various
tion of the costs to provide the respective service in the applicable tax positions pertaining to AbbVies operations.
expense category in the Consolidated Statement of Earnings. This The operating results of Abbotts developed markets branded
transitional support does not constitute significant continuing generics pharmaceuticals and animal health businesses as well
involvement in Mylans operations. Abbott also entered into man asthe income tax benefit related to the businesses transferred to
ufacturing supply agreements with Mylan related to certain AbbVie, which are being reported as discontinued operations
products, with the supply term ranging from 3 to 10 years and areas follows:
requiring a 2 year notice prior to termination. The cash flows
associated with these transition services and manufacturing sup Year Ended December31
ply agreements are not expected to be significant, and therefore, (inmillions) 2016 2015 2014
these cash flows are not direct cash flows of the disposed compo Net Sales
nent under Accounting Standards Codification 205.
Developed markets generics
On February 10, 2015, Abbott completed the sale of its animal pharmaceuticals and animal health
health business to Zoetis Inc. In the first quarter of 2016, Abbott businesses $ $256 $2,076
received an additional $25 million of proceeds due to the expira AbbVie
tion of a holdback agreement associated with the sale of this Total $ $256 $2,076
business and reported an after-tax gain of $16 million. Earnings (Loss) Before Tax
As a result of the disposition of the above businesses, the prior Developed markets generics
years operating results of these businesses up to the date of pharmaceuticals and animal health
businesses $(4) $13 $505
saleare reported as part of discontinued operations on the
AbbVie
Earnings from Discontinued Operations, net of taxes line in the
Consolidated Statement of Earnings. Discontinued operations Total $(4) $13 $505
include an allocation of interest expense assuming a uniform Net Earnings
ratioof consolidated debt to equity for all of Abbotts historical Developed markets generics
operations. pharmaceuticals and animal health
businesses $3 $62 $397
On January 1, 2013, Abbott completed the separation of AbbVie
AbbVie 318 3 166
Inc. (AbbVie), which was formed to hold Abbotts research-based
Total $321 $65 $563
proprietary pharmaceuticals business. Abbott has received a
ruling from the Internal Revenue Service that the separation
ASSETS AND LIABILITIES HELD FOR DISPOSITION
qualifies as a tax-free distribution to Abbott and its U.S. share
holders for U.S. federal income tax purposes. In September 2016, Abbott announced that it entered into a defini
tive agreement to sell AMO, its vision care business, to Johnson &
For a small portion of AbbVies operations, the legal transfer of
Johnson for $4.325 billion in cash, subject to customary purchase
AbbVies assets (net of liabilities) did not occur with the separa
price adjustments for cash, debt and working capital. The decision
tion of AbbVie on January 1, 2013 due to the time required to
to sell AMO reflects Abbotts proactive shaping of its portfolio in
transfer marketing authorizations and other regulatory require
line with its strategic priorities. The transaction is expected to
ments in each of these countries. Under the terms of the
close in the first quarter of 2017 and is subject to customary clos
separation agreement with Abbott, AbbVie is subject to the risks
ing conditions, including regulatory approvals. The operating
and entitled to the benefits generated by these operations and
results of AMO are included in continuing operations as they do
assets. The majority of these operations were transferred to
not qualify for reporting as discontinued operations. For the year
AbbVie in 2013 and 2014. These assets and liabilities were pre
ended December31, 2016 and 2015, AMOs earnings before taxes
sented as held for disposition in the Consolidated Balance Sheet
were $30 million and $64 million, respectively. As a result of the
asof December31, 2015.
pending sale of AMO, the assets and liabilities of this business
meet the criteria to qualify as being held for disposition at
December31, 2016.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
The assets and liabilities held for disposition as of December31, The specific requirements (e.g., scope of clinical trials) for
2016 relate to AMO and the assets and liabilities held for disposition obtaining regulatory approval vary across different countries
as of December31, 2015 relate to the AbbVie business. The follow and geographic regions. The process may range from one year for
ing is a summary of the assets and liabilities held for disposition: a bioequivalence study project to 6 or more years for complex
formulations, new indications, or geographic expansion in specific
(inmillions) countries, such as China.
December31 2016 2015
Trade receivables, net $222 $17 In the Diagnostics segment, the phases of the research and
Total inventories 240 43 development process include:
Prepaid expenses and other current assets 51 45 Discovery which focuses on identification of a product that
Current assets held for disposition 513 105 willaddress a specific therapeutic area, platform, or unmet
Net property and equipment 247 1 clinical need.
Intangible assets, net of amortization 529 Concept/Feasibility during which the materials and manufac
Goodwill 1,966 turing processes are evaluated, testing may include product
Deferred income taxes and other assets 11 1 characterization and analysis is performed to confirm
Non-current assets held for disposition 2,753 2 clinicalutility.
Total assets held for disposition $3,266 $107 Development during which extensive testing is performed to
Trade accounts payable $71 $359 demonstrate that the product meets specified design require
Salaries, wages, commissions and other accrued
ments and that the design specifications conform to user needs
liabilities 174 14 and intended uses.
Current liabilities held for disposition 245 373
The regulatory requirements for diagnostic products vary across
Post-employment obligations, deferred income
different countries and geographic regions. In the U.S., the FDA
taxes and other long-term liabilities 59
classifies diagnostic products into classes (I, II, or III) and the
Total liabilities held for disposition $304 $373
classification determines the regulatory process for approval.
While the Diagnostics segment has products in all three classes,
RESEARCH AND DEVELOPMENT PROGRAMS
the vast majority of its products are categorized as Class I or
Abbott currently has numerous pharmaceutical, medical devices, ClassII. Submission of a separate regulatory filing is not required
diagnostic and nutritional products in development. for Class I products. Class II devices typically require pre-market
notification to the FDA through a regulatory filing known as a
RESEARCH AND DEVELOPMENT PROCESS
510(k) submission. Most Class III products are subject to the FDAs
In the Established Pharmaceuticals segment, the development Pre-Marketing Approval (PMA) requirements. Other Class III
process focuses on the geographic expansion and continuous products, such as those used to screen blood, require the submis
improvement of the segments existing products to provide bene sion and approval of a Biological License Application (BLA).
fits to patients and customers. As Established Pharmaceuticals
In the EU, diagnostic products are also categorized into different
does not actively pursue primary research, development usually
categories and the regulatory process, which is governed by the
begins with work on existing products or after the acquisition
European InVitro Diagnostic Medical Device Directive, depends
ofan advanced stage licensing opportunity.
upon the category. Certain product categories require review and
Depending upon the product, the phases of development approval by an independent company, known as a Notified Body,
may include: before the manufacturer can affix a CE mark to the product to
Drug product development. show compliance with the Directive. Other products only require
a self-certification process.
Phase I bioequivalence studies to compare a future Established
Pharmaceuticals brand with an already marketed compound In the Vascular segment, the research and development process
with the same active pharmaceutical ingredient (API). begins with research on a specific technology that is evaluated for
feasibility and commercial viability. If the research program passes
Phase II studies to test the efficacy of benefits in a small group that hurdle, it moves forward into development. The development
of patients. process includes evaluation and selection of a product design,
Phase III studies to broaden the testing to a wider population completion of clinical trials to test the products safety and effi
that reflects the actual medical use. cacy, and validation of the manufacturing process to demonstrate
its repeatability and ability to consistently meet pre-determined
Phase IV and other post-marketing studies to obtain new clini
specifications.
cal use data on existing products within approved indications.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
Similar to the diagnostic products discussed above, in the U.S., product, the activities focus on development of new data, markets,
vascular products are classified as Class I, II, or III. Most of formulations, delivery systems, or indications.
Abbotts vascular products are classified as Class II devices that VascularOngoing projects in the pipeline include:
follow the 510(k) regulatory process or Class III devices that are
subject to the PMA process. MitraClip device for the treatment of mitral regurgitation.
Consistent with Abbotts near-term vision to grow its mitral
In the EU, vascular products are also categorized into different andtricuspid valve programs, Abbott continues to work on
classes and the regulatory process, which is governed by the expanding the use of its MitraClip device. Clinical trials for
European Medical Device Directive, varies by class. Each product MitraClip are underway with the objective of broadening
must bear a CE mark to show compliance with the Directive. Some MitraClips footprint into new key markets, and enrollment of
products require submission of a design dossier to the appropriate the COAPT Trial (a study of safety and effectiveness of the
regulatory authority for review and approval prior to CE marking MitraClip device in heart failure patients with functional mitral
of the device. For other products, the company is required to regurgitation) is projected to be completed in 2017. Leveraging
prepare a technical file which includes testing results and clinical expertise in percutaneous leaflet coaptation, Abbott is working
evaluations but can self-certify its ability to apply the CE mark to to expand its clip-based technology to address unmet needs in
the product. Outside the U.S. and the EU, the regulatory require tricuspid regurgitation.
ments vary across different countries and regions.
Portico Re-sheathable Transcatheter Aortic Valve System
After approval and commercial launch of some vascular products, U.S.Clinical Trial. The objective of this clinical trial is to evalu
post-market trials may be conducted either due to a conditional ate the safety and effectiveness of the Portico transcatheter
requirement of the regulatory market approval or with the objec heart valve and delivery systems via transfemoral and alterna
tive of proving product superiority. tive delivery methods.
In the Nutritional segment, the research and development pro Thoratec MOMENTUM 3, Multi-center Study of MagLev
cessgenerally focuses on identifying and developing ingredients Technology with HeartMate 3 (HM3) Clinical Study Protocol.
and products that address the nutritional needs of particular The objective of this clinical study is to evaluate the safety and
populations (e.g., infants and adults) or patients (e.g., people with effectiveness of the HM3 Left Ventricular Assist System (LVAS)
diabetes). Depending upon the country and/or region, if claims when used for the treatment of advanced, refractory, left
regarding a products efficacy will be made, clinical studies typi ventricular heart failure. The short term arm of the study is
cally must be conducted. complete and results were presented at the American Heart
In the U.S., the FDA requires that it be notified of proposed new Association in November 2016. The long term arm requires
formulations and formulation or packaging changes related to two-year patient follow-up. The HM3 is intended for use inside
infant formula products. Prior to the launch of an infant formula or outside the hospital.
or product packaging change, the company is required to obtain AMPLATZER Amulet LAA Occluder Trial. The objective
the FDAs confirmation that it has no objections to the proposed ofthis clinical trial is to evaluate the safety and efficacy of this
product or packaging. For other nutritional products, notification device in patients with non-valvular atrial fibrillation. Patients
orpre-approval from the FDA is not required unless the product who are eligible for the trial will be randomized to receive
includes a new food additive. In some countries, regulatory either the Amulet device or the commercially available
approval may be required for certain nutritional products, WATCHMAN device and will be followed for 5 years after
including infant formula and medical nutritional products. device implant.
AREAS OF FOCUS Tendyne transcatheter mitral valve replacement device. This
In 2017 and beyond, Abbotts significant areas of therapeutic device is a self-expanding, fully retrievable and repositionable
focuswill include the following: bioprosthesis with a simple and controlled deployment proce
dure. The trial to support CE Mark began in 2016 and is
Established PharmaceuticalsAbbott focuses on building country projected to be completed in 2017.
specific portfolios made up of global and local pharmaceutical
brands that best meet the needs of patients in emerging markets. Supera self-expanding nitinol stent system which was acquired
More than 400 development projects are active for one or several as part of the acquisition of IDEV Technologies in August 2013.
emerging markets. Over the next several years, Established With its proprietary interwoven wire technology, Supera is
Pharmaceuticals plans to expand its product portfolio in key designed based on biomimetic principles to mimic the bodys
therapeutic areas with the aim of being among the first to launch natural movement. Supera is available in the U.S., Europe, and
new branded generic medicines for particular pharmaceutical various countries in Asia, the Middle East and Latin America
products. In addition, Established Pharmaceuticals continues to forthe treatment of blockages in blood vessels due to peripheral
expand existing brands into new markets, implement product artery disease, with expanded size matrix approved in the U.S.
enhancements that provide value to patients and acquire strategic Abbott is developing Superas next generation delivery system.
products and technology through licensing activities. Abbott is Abbott is also developing future versions of metallic DES, guide
also actively working on the further development of several key wires and balloon delivery catheters.
brands such as Creon, Duphaston and Influvac. Depending on the
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
Molecular DiagnosticsVarious new molecular in vitro diagnostic businesses in which it participates, and such spending is expected
(IVD) products and next generation instrument systems are in to approximate 7.5 percent of total Abbott sales in 2017. Abbott
various stages of development and commercialization. does not regularly accumulate or make management decisions
based on the total expenses incurred for a particular development
Core Laboratory DiagnosticsAbbott continues to commercialize
phase in a given period.
its next-generation blood screening, immunoassay, clinical chem
istry and hematology systems, along with assays in various areas GOODWILL
including infectious disease, cardiac care, metabolics, oncology, as
At December31, 2016, goodwill recorded as a result of business
well as informatics and automation solutions to increase efficiency
combinations totaled $7.7 billion. Goodwill is reviewed for impair
in laboratories.
ment annually in the third quarter or when an event that could
Diabetes CareIn 2016 Abbott expanded on the results of its result in an impairment occurs, using a quantitative assessment to
REPLACE outcome trial (which covered Type 2 diabetes patients) determine whether it is more likely than not that the fair value of
with the publication of the results of its IMPACT study, which any reporting unit is less than its carrying amount. The income
showed improved glycemic outcomes in people with Type 1 diabe and market approaches are used to calculate the fair value of each
tes using the FreeStyle Libre system. The FreeStyle Libre system reporting unit. The results of the last impairment test indicated
eliminates the need for routine finger sticks by reading glucose that the fair value of each reporting unit was substantially in
levels through a sensor that can be worn on the back of the upper excess of its carrying value.
arm for up to 14 days. It also requires no finger sticks for calibration.
In 2014, Abbott attained the CE Mark in Europe for the FreeStyle FINANCIAL CONDITION
Libre system. In 2016, Abbott launched two apps in Europe for
CASH FLOW
FreeStyle Libre: LibreLink, which enables people with diabetes
toaccess glucose data directly from their FreeStyle Libre sensor Net cash from operating activities amounted to $3.2 billion,
on their Android smartphones and LibreLinkUp, a caregiver app $3.0 billion and $3.7 billion in 2016, 2015 and 2014, respectively.
for remotely monitoring glucose values. In the U.S., in the third The increase in Net cash from operating activities in 2016 reflects
quarter of 2016 Abbott received FDA approval for FreeStyle Libre additional focus on the management of working capital. The
Pro, which is designed to be used by healthcare professionals in a decrease in Net cash from operating activities in 2015 was due in
clinicsetting, and submitted the PMA for a consumer version of large part to the divestiture of the developed market established
FreeStyle Libre. pharmaceuticals business in February 2015, as well as an increase
in contributions to defined benefit plans in 2015. The income tax
NutritionalsAbbott is focusing its research and development
component of operating cash flow in 2016, 2015 and 2014 includes
spendon platforms that span the pediatric, adult and performance
$550 million, $70 million and $268 million, respectively, of non-
nutrition areas: gastro intestinal/immunity health, brain health,
cash tax benefits primarily related to the favorable resolution of
mobility and metabolism, and user experience platforms.
various tax positions pertaining to prior years; 2015 reflects the
Numerous new products that build on advances in these platforms
non-cash impact of approximately $1.1 billion of tax expense
are currently under development, including clinical outcome
associated with the gain on sale of businesses.
testing, and are expected to be launched over the coming years.
The foreign currency loss related to Venezuela reduced Abbotts
Given the diversity of Abbotts business, its intention to remain
cash by approximately $410 million in 2016 and is included in the
abroadbased healthcare company and the numerous sources for
Effect of exchange rate changes on cash and cash equivalents line
potential future growth, no individual project is expected to be
within the Consolidated Statement of Cash Flows. Future fluctua
material to cash flows or results of operations over the next five
tions in the strength of the U.S. dollar against foreign currencies
years. Factors considered included research and development
are not expected to materially impact Abbotts liquidity.
expenses projected to be incurred for the project over the next
year relative to Abbotts total research and development expenses Excluding the proceeds from the November 2016 long-term
as well as qualitative factors, such as marketplace perceptions and debtissuance, over 85% of the cash and cash equivalents at
impact of a new product on Abbotts overall market position. December31, 2016 is considered reinvested indefinitely in foreign
There were no delays in Abbotts 2016 research and development subsidiaries. Abbott does not expect such reinvestment to affect
activities that are expected to have a material impact on itsliquidity and capital resources. If these funds were needed for
operations. operations in the U.S., Abbott may be required to accrue and pay
U.S. income taxes to repatriate these funds. Abbott believes that it
While the aggregate cost to complete the numerous projects
has sufficient sources of liquidity to support its assumption that
currently in development is expected to be material, the total
the disclosed amount of undistributed earnings at December31,
costto complete will depend upon Abbotts ability to successfully
2016 can be considered to be reinvested indefinitely.
complete each project, the rate at which each project advances,
and the ultimate timing for completion. Given the potential for Abbott funded $582 million in 2016, $579 million in 2015 and
significant delays and the high rate of failure inherent in the $393 million in 2014 to defined benefit pension plans. Abbott
development of pharmaceutical, medical device and diagnostic expects pension funding of approximately $364 million in 2017
products and technologies, it is not possible to accurately estimate forits pension plans, of which approximately $270 million relates
the total cost to complete all projects currently in development. to its main domestic pension plan. Abbott expects annual cash
Abbott plans to manage its portfolio of projects to achieve research flow from operating activities to continue to exceed Abbotts
and development spending that will be competitive in each of the capital expenditures and cash dividends.
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DEBT AND CAPITAL In2016, Abbott repurchased 10.4 million shares at a cost of
At December31, 2016, Abbotts long-term debt rating was A+ by $408 million under the program authorized in 2014. In 2015,
Standard & Poors Corporation and A2 by Moodys Investors Abbott repurchased 11.3 million shares at a cost of $512 million
Service. In conjunction with the completion of the St. Jude under the unused portion of the 2013 authorization and
Medical acquisition on January 4, 2017, the ratings were adjusted 36.2 million shares at a cost of $1.7 billion under the program
to BBB by Standard & Poors Corporation and Baa3 by Moodys authorized in 2014 for a total of 47.5 million shares at a cost of
Investors Service. Abbott expects to maintain an investment grade $2.2 billion. In 2014, Abbott repurchased 54.6 million shares at a
rating. Abbott has readily available financial resources, including cost of $2.1 billion under the program announced in June 2013.
unused lines of credit of $5.0 billion which expire in 2019 and that On April 27, 2016, the board of directors authorized the issuance
support commercial paper borrowing arrangements. and sale for general corporate purposes of up to 75 million com
In November 2016, Abbott issued $15.1 billion of medium and mon shares that would result in proceeds of up to $3 billion. No
long-term debt to primarily fund the cash portion of the acquisi shares have been issued under this authorization.
tion of St. Jude Medical. Abbott issued $2.85 billion of 2.35% Abbott declared dividends of $1.045 per share in 2016 compared
Senior Notes due November 22, 2019; $2.85 billion of 2.90% Senior to$0.98 per share in 2015, an increase of approximately 7%.
Notes due November 30, 2021; $1.50 billion of 3.40% Senior Notes Dividends paid were $1.539 billion in 2016 compared to
due November 30, 2023; $3.00 billion of 3.75% Senior Notes due $1.443 billion in 2015. The year-over-year change in dividends
November 30, 2026; $1.65 billion of 4.75% Senior Notes due reflects the impact of the increase in the dividend rate.
November 30, 2036; and $3.25 billion of 4.90% Senior Notes due
November 30, 2046. In November 2016, Abbott also entered into WORKING CAPITAL
interest rate swap contracts totaling $3.0 billion related to the new Working capital was $20.1 billion at December31, 2016 and
debt; the swaps have the effect of changing Abbotts obligation $5.0 billion at December31, 2015. The increase in working
from a fixed interest rate to a variable interest rate obligation on capitalin 2016 was due to a $13.6 billion increase in cash and
the related debt instruments. cash equivalents and a $1.8 billion reduction in short-term
In April 2016, Abbott obtained a commitment for a 364-day senior borrowings, resulting from the proceeds from the long-term
unsecured bridge term loan facility for an amount not to exceed debt issued in November 2016 as well as cash generated from
$17.2 billion, comprised of $15.2 billion for a 364-day bridge loan operating activities. On January 4, 2017, approximately
and $2.0 billion for a 120-day bridge loan to provide financing for $13.6 billion of the $18.6 billion in cash and cash equivalents
the acquisition of St. Jude Medical. The $15.2 billion component at December31, 2016 was used to fund the cash portion of the
ofthe commitment terminated in November 2016 when Abbott acquisition of St.Jude Medical.
issued the $15.1 billion of long-term debt. In December 2016, Substantially all of Abbotts trade receivables in Italy, Spain,
Abbott formalized the $2.0 billion component and entered into a Portugal, and Greece are with governmental health systems. The
120-day bridge term loan facility that provided Abbott the ability collection of outstanding receivables in these countries was stable
to borrow up to $2.0 billion on an unsecured basis to partially in 2015 and 2016. Governmental receivables in these four coun
fundthe St. Jude Medical acquisition. On January 4, 2017, Abbott tries accounted for less than 1 percent of Abbotts total assets in
borrowed $2.0 billion under this facility, of which $1.2 billion both years and 6 percent of total net trade receivables as of
hadbeen repaid as of January 31, 2017. December31, 2016, down from 7 percent as of December31, 2015.
In February 2016, Abbott obtained a commitment for a 364-day With the exception of Greece, Abbott historically has collected
senior unsecured bridge term loan facility for an amount not to almost all of the outstanding receivables in these countries. Abbott
exceed $9 billion in conjunction with its pending acquisition of continues to monitor the credit worthiness of customers located
Alere. This commitment was automatically extended for up to inthese and other geographic areas and establishes an allowance
90days on January 29, 2017. against a trade receivable when it is probable that the balance
In March 2015, Abbott issued $2.5 billion of long-term debt con willnot be collected. In addition to closely monitoring economic
sisting of $750 million of 2.00% Senior Notes due March 15, 2020; conditions and budgetary and other fiscal developments in these
$750 million of 2.55% Senior Notes due March 15, 2022; and countries, Abbott regularly communicates with its customers
$1.0 billion of 2.95% Senior Notes due March 15, 2025. Proceeds regarding the status of receivable balances, including their pay
from this debt were used to pay down short-term borrowings. In ment plans and obtains positive confirmation of the validity of
March 2015, Abbott also entered into interest rate swap contracts thereceivables. Abbott also monitors the potential for and periodi
totaling $2.5 billion. These contracts have the effect of changing cally has utilized factoring arrangements to mitigate credit risk
Abbotts obligation from a fixed interest rate to a variable interest although the receivables included in such arrangements have
rate obligation. historically not been a material amount of total outstanding
receivables. If government funding were to become unavailable
In 2014, Abbott redeemed approximately $500 million of long- inthese countries or if significant adverse changes in their reim
term notes that were assumed as part of the acquisition of bursement practices were to occur, Abbott may not be able to
CFR Pharmaceuticals. collect the entire balance.
In September 2014, the board of directors authorized the repur
VENEZUEL A OPERATIONS
chase of up to $3.0 billion of Abbotts common shares from time to
time. The 2014 authorization was in addition to the $512 million Since January 2010, Venezuela has been designated as a highly
unused portion of a previous program announced in June 2013. inflationary economy under U.S. GAAP. In 2014 and 2015, the
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
government of Venezuela operated multiple mechanisms to accounts, as well as the accelerating deterioration ofeconomic
exchange bolivars into U.S. dollars. These mechanisms included conditions in the country, Abbott concluded that it was appropri
the CENCOEX, SICAD, and SIMADI rates, which stood at 6.3, ate to move to the DICOM rate at the end of the first quarter of
13.5, and approximately 200, respectively, at December31, 2015. 2016. As a result, Abbott recorded a foreign currency exchange
In2015, Abbott continued to use the CENCOEX rate of 6.3 loss of $480 million in 2016 to revalue its net monetary assets in
Venezuelan bolivars to the U.S. dollar to report the results, finan Venezuela. Abbott is continuing to use the DICOM rate to report
cial position, and cash flows related to its operations in Venezuela the results of operations and to remeasure net monetary assets for
since Abbott continued to qualify for this exchange rate to pay for Venezuela at the end of each quarter. As of December31, 2016,
the import of various products into Venezuela. Abbotts Venezuelan operations represented approximately 0.1%
On February 17, 2016, the Venezuelan government announced of Abbotts consolidated assets and any additional foreign cur
thatthe three-tier exchange rate system would be reduced to two rency losses related to Venezuela are not expected to be material.
rates renamed the DIPRO and DICOM rates. The DIPRO rate is CAPITAL EXPENDITURES
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 Capital expenditures of $1.1 billion in 2016, 2015 and 2014 were
market rate published daily by the Venezuelan central bank, principally for upgrading and expanding manufacturing and
whichat the end of the first quarter of 2016 was approximately research and development facilities and equipment in various
263 bolivars per U.S. dollar. As a result of decreasing government segments, investments in information technology, and laboratory
approvals to convert bolivars to U.S. dollars to pay for intercompany instruments placed with customers.
CONTRACTUAL OBLIGATIONS
The table below summarizes Abbotts estimated contractual obligations as of December31, 2016.
Payments Due By Period
2022 and
(inmillions) Total 2017 20182019 20202021 Thereafter
Long-term debt, including current maturities $20,914 $3 $3,801 $4,198 $12,912
Interest on debt obligations 11,234 789 1,536 1,275 7,634
Operating lease obligations 778 145 234 141 258
Capitalized auto lease obligations 40 13 27
Purchase commitments (a) 1,353 1,294 46 12 1
Other long-term liabilities 1,431 784 449 198
Total (b) $35,750 $2,244 $6,428 $6,075 $21,003
(a) Purchase commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements.
(b) Net unrecognized tax benefits totaling approximately $560 million are excluded from the table above as Abbott is unable to reasonably estimate the period of cash settlement with the respective
taxing authorities on such items. See Note14Taxes on Earnings from Continuing Operations for further details. The company has employee benefit obligations consisting of pensions and other
post-employment benefits, including medical and life, which have been excluded from the table. A discussion of the companys pension and post-retirement plans, including funding matters is
included in Note13Post-employment Benefits.
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ABBOTT 2016 ANNUAL REPORT
FINANCIAL REVIEW
anticipate that the new guidance will have a material impact on its on a retrospective basis. The adoption of ASU 201507 only
consolidated financial statements. Abbott cannot predict the impacted the form and content of the basis of fair value measure
impact on its consolidated financial statements in future reporting ment disclosures related to the assets associated with the defined
periods following adoption as this will be dependent upon various benefit and medical and dental plans and did not have an impact
factors including the number of shares issued and changes in the on Abbotts consolidated financial position, results of operations
price of its shares. or cash flows.
In February 2016, the FASB issued ASU 201602, Leases, which In May 2014, the FASB issued ASU 201409, Revenue from
requires lessees to recognize assets and liabilities for most leases Contracts with Customers, which provides a single comprehensive
on the balance sheet. The standard becomes effective for Abbott model for accounting for revenue from contracts with customers
beginning in the first quarter of 2019 and early adoption is permit and will supersede most existing revenue recognition guidance.
ted. Adoption requires application of the new guidance for all The standard becomes effective for Abbott in the first quarter of
periods presented. Abbott is currently evaluating the impact the 2018. Abbott is continuing to evaluate the effect that the standard
new guidance will have on its consolidated financial statements. will have on its consolidated financial statements and related
In January 2016, the FASB issued ASU 201601, Financial disclosures including the areas of variable consideration and new
InstrumentsRecognition and Measurement of Financial Assets and disclosure requirements. Abbott will continue to monitor addi
Financial Liabilities, which provides new guidance for the recogni tional modifications, clarifications or interpretations undertaken
tion, measurement, presentation, and disclosure of financial assets by the FASB that may impact Abbotts current conclusions. Abbott
and liabilities. The standard becomes effective for Abbott beginning is currently expecting to use the modified retrospective method to
in the first quarter of 2018 and early adoption is permitted. Abbott is adopt this standard.
currently evaluating the effect, if any, that the standard will have on PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995A
its consolidated financial statements and related disclosures. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
In May 2015, the FASB issued ASU 201507, Fair Value Measurement Under the safe harbor provisions of the Private Securities
(Topic 820): Disclosures for Investments in Certain Entities That Litigation Reform Act of 1995, Abbott cautions investors that
Calculate Net Asset Value per Share (or its Equivalent), which anyforwardlooking statements or projections made by Abbott,
removes the requirement to categorize in the fair value hierarchy including those made in this document, are subject to risks and
all investments measured at net asset value per share using the uncertainties that may cause actual results to differ materially
practical expedient. This guidance is effective for public business from those projected. Economic, competitive, governmental,
entities for years beginning after December 15, 2015. Abbott has technological and other factors that may affect Abbotts operations
adopted this guidance as of December31, 2016, and has applied it are discussed in Item 1A, Risk Factors.
PERFORMANCE GRAPH
$200
Abbott Laboratories
S&P 500 Index
$150 S&P 500 Health Care
$100
$50
2011 2012 2013 2014 2015 2016
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ABBOTT 2016 ANNUAL REPORT
S U M M A R Y O F S E L E C T E D F I N A N C I A L D ATA
(Dollars in millions except per share data)
Summary of Operations:
Net Sales $ 20,853 20,405 20,247 19,657 19,050
Cost of products sold $ 9,574 9,348 9,773 9,781 9,494
Research & development $ 1,422 1,405 1,345 1,371 1,461
Selling, general, and administrative $ 6,672 6,785 6,530 6,372 6,735
Operating earnings $ 3,185 2,867 2,599 2,133 1,360
Interest expense $ 431 163 150 145 320
Interest income $ (99) (105) (77) (67) (59)
Other (income) expense, net (c) $ 1,440 (374) 8 14 1,319
Earnings before taxes $ 1,413 3,183 2,518 2,041 (220)
Taxes on earnings from continuing operations $ 350 577 797 53 (457)
Earnings from continuing operations $ 1,063 2,606 1,721 1,988 237
Net earnings $ 1,400 4,423 2,284 2,576 5,963
Basic earnings per common share from continuing operations $ 0.71 1.73 1.13 1.27 0.15
Basic earnings per common share $ 0.94 2.94 1.50 1.64 3.76
Diluted earnings per common share from continuing operations $ 0.71 1.72 1.12 1.26 0.15
Diluted earnings per common share $ 0.94 2.92 1.49 1.62 3.72
Financial Positions:
Working capital (d) $ 20,116 4,969 3,089 7,247 15,100
Long-term investment securities $ 2,947 4,041 229 119 274
Net property & equipment $ 5,705 5,730 5,935 5,905 8,063
Total assets $ 52,666 41,247 41,207 42,937 67,148
Long-term debt, including current portion $ 20,684 5,874 3,448 3,381 18,307
Shareholders investment $ 20,717 21,326 21,639 25,267 26,813
Book value per share $ 14.07 14.48 14.35 16.32 17.01
Other Statistics:
Gross profit margin % 54.1 54.2 51.7 50.2 50.2
Research and development to net sales % 6.8 6.9 6.6 7.0 7.7
Net cash from operating activities $ 3,203 2,966 3,675 3,324 9,314
Capital expenditures $ 1,121 1,110 1,077 1,145 1,795
Cash dividends declared per common share (e) $ 1.045 0.98 0.90 0.64 1.67
Common shares outstanding (in thousands) 1,472,869 1,472,665 1,508,035 1,548,098 1,576,667
Number of common shareholders 45,545 47,278 55,171 57,854 60,476
Market price per sharehigh (f ) $ 45.79 51.74 46.50 38.81 34.68
Market price per sharelow (f ) $ 36.00 39.00 35.65 31.64 25.82
Market price per shareclose (f ) $ 38.41 44.91 45.02 38.33 31.34
(a) In February 2015, Abbott completed the disposition of the developed markets branded generics pharmaceuticals and animal health businesses.
See Note 2 to the Consolidated Financial Statements for additional information.
(b) On January 1, 2013, Abbott completed the separation of AbbVie Inc., which was formed to hold Abbotts research-based proprietary pharmaceuticals business.
See Note 2 to the Consolidated Financial Statements for additional information.
(c) 2014 and 2012 include $18 million and $1.35 billion, respectively, for the net loss on extinguishment of debt.
(d) In 2016, working capital includes $13.6 billion of cash that was used to fund the cash portion of the St. Jude Medical acquisition on January 4, 2017.
(e) The decrease in dividend from 2012 to 2013 reflects the impact of the separation of AbbVie.
(f ) The 2012 share prices have been adjusted to reflect the separation of AbbVie.
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ABBOTT 2016 ANNUAL REPORT
D I R E C T O R S A N D C O R P O R AT E O F F I C E R S
76
S H A R E H O L D E R A N D C O R P O R AT E I N F O R M AT I O N
S TO CK L I S T I N G D I V I D E N D D I R EC T D E P O S I T I N V E S TO R N E W S L I N E
The ticker symbol for Abbotts common Shareholders may have quarterly dividends (224) 667-7300
stock is ABT. The principal market for deposited directly into a checking or savings
I N V E S TO R R E L AT I O N S
Abbotts common shares is the New York account at any financial institution that
Stock Exchange. Shares are also listed on participates in the Automated Clearing Dept. 362, AP6D2
the Chicago Stock Exchange and traded on House system. For more information, Abbott
various regional and electronic exchanges. please contact the transfer agent, listed 100 Abbott Park Road
Outside the United States, Abbotts shares below, right. Abbott Park, IL 60064-6400 U.S.A.
are listed on the Swiss Stock Exchange. (224) 667-6100