Abbott Laboratories 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    ... to Shareholders This is Abbott Nutrition Medical Devices Established Pharmaceuticals Diagnostics Financial Report Consolidated Financial Statements and Notes Management Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Financial Instruments...

  • Page 3
    ... WHITE Chairman of the Board and Chief Executive Officer Dear Fellow Shareholder: 2013 was an extraordinary year for our company, captured in simultaneous milestones: On the year's first day we marked our 125th anniversary and we became a new company with the highly successful launch of AbbVie...

  • Page 4
    .... NET SALES WORLDWIDE (dollars in billions) O PE R ATIN G M A RG IN E XPA N S I O N $21.5 $21.8 In 2013, Abbott sales increased approximately 4 percent over 2012, excluding the impact of foreign exchange. 12.0% 7.6% 8.8% Abbott's 2013 operating margin increased by 320 basis points over 2012...

  • Page 5
    ABBOTT 2013 ANNUAL REPORT LET TER TO OUR SHAREHOLDERS This year we will open new manufacturing plants in China and India to be closer to our growing customer base. And we've met this evolution of our profile with a commensurate reshaping of our structure and operations. We're continuing major ...

  • Page 6
    ... in our dividend beginning this year. Strong performance across many of our businesses, combined with gross and operating margin expansion, enabled us to deliver on our 2013 expectations despite some challenges. Miles D. White Chairman of the Board and Chief Executive Officer March 3, 2014 4

  • Page 7
    ABBOTT 2013 ANNUAL REPORT THIS IS ABBOT T Global and Balanced. Aligned with the trends shaping our business and the world. A market leader, poised for accelerated growth. 5

  • Page 8
    When we're healthy, we can test the limits of our potential. We can reach higher. We can achieve more. With a broad portfolio of innovative, science-based products, Abbott helps people at every stage of life be as healthy as they can be and live their best possible lives. THIS IS 6

  • Page 9
    LIFE. BR ADY WRIGHT i-STAT Key West, Florida 7

  • Page 10
    NUTRITION MEDICAL DEVICES THIS IS ABBOT T BAL ANCED In a complex and changing world, Abbott's diversity lets us tailor our product offering to the specific needs of the countries and customers we serve. 8

  • Page 11
    ... four leading businesses of roughly equal size, helps offset volatility in any single business or market. 2013 RE VENUE 25% Medical Devices OUR PRODUCTS S PA N T H E CONTINUUM OF H E A LT H C A R E . 23% Established Pharmaceuticals 21% Diagnostics 31% Nutrition • Prevention • Diagnosis...

  • Page 12
    ABBOTT 2013 ANNUAL REPORT THIS IS ABBOT T GLOBAL Our long-standing - and fastgrowing - presence in key markets around the world lets us understand unique local health needs and deliver solutions designed to meet them. 10

  • Page 13
    ABBOTT 2013 ANNUAL REPORT FRANZISCA DEITRICH iDESIGN Berlin, Germany Our business mix strikes a strong balance between more stable, developed markets and emerging economies that offer higher long-term growth potential. ABBOT T REGIONAL SALES 40% 30% 30% Emerging Markets United States Other ...

  • Page 14
    BAROKA HERLAMBANG Depakote Bandung, Indonesia THIS IS ABBOT T ALIGNED Our broad product portfolio lets our company address important trends in human health and well-being at every stage of life. 12

  • Page 15
    ...aging such as diabetes and cataracts. Abbott is there. As consumers take a more active role in their healthcare decisions, they look for a brand they can trust. Abbott is there. With an increasing emphasis on cost-efficiency, there is ever-greater demand for products and services that deliver real...

  • Page 16
    ABBOTT 2013 ANNUAL REPORT THIS IS ABBOT T LEADING Abbott's reputation for leadership extends well beyond the market-leading products in each of our businesses. We are recognized around the world for the quality of our people, processes and programs. 14

  • Page 17
    ABBOTT 2013 ANNUAL REPORT NUTRITION MEDICAL DEVICES E S TA B LI S HE D PHARM ACEUTICALS DIAGNOSTICS #1 adult nutrition brand Leading pediatric nutrition brand Market leader in 25 countries #1 in drug-eluting stents World's leading drugeluting bioresorbable vascular scaffold #1 in laser ...

  • Page 18
    ... 2013 ANNUAL REPORT » Tshepiso Tshepiso "Teppy" Mashego is a beautiful four-month-old girl who lives in Johannesburg, South Africa, with her mother and father, Pinkie and Mirroph, and her five-yearold sister, Lethabo. Teppy's parents rely on Abbott's Similac Total Comfort formula to help ensure...

  • Page 19
    ABBOTT 2013 ANNUAL REPORT TSHEPISO, WITH MOTHER PINKIE Similac Total Comfort Johannesburg, South Africa People rely on Abbott's science-based nutrition products at every stage of life. They know they can count on our trusted brands to help their children thrive, to provide the extra nutrition ...

  • Page 20
    ... worldwide position in Adult nutrition • Opened nutrition research and development center in China • Launched premium infant formula brand in the fast-growing online channel in China • Significantly expanding manufacturing capacity with new, state-of-the-art manufacturing plants in U.S., India...

  • Page 21
    ABBOTT 2013 ANNUAL REPORT GLOBAL NUTRITION MARKET PROJECTED GROWTH Science-based Innovations Fuel Growth • More than 60 product launches in 2013 • Pediatric nutritionals to support healthy growth during pregnancy and throughout childhood • Adult nutritionals designed to aid recovery and ...

  • Page 22
    ABBOTT 2013 ANNUAL REPORT D I N E S H VA R M A Absorb Bioresorbable Vascular Scaffold Jaipur, India MEDICAL DEVICES Technology leaders in key areas of medical need 20

  • Page 23
    ... life and awaiting the birth of his first child. Patient-focused innovations let Abbott's medical device businesses - Vascular, Diabetes Care and Vision Care - deliver improved outcomes for people around the world. Our next-generation technologies can help people recover more quickly, monitor more...

  • Page 24
    ...healthcare infrastructure in emerging markets KEY GROWTH OPPORTUNITIES 2013 SALES BY DIVISION Vision Care $1.14 billion Diabetes Care $1.31 billion Vascular Devices $3.01 billion • Bioresorbable vascular scaffold - first-of-its-kind treatment in the large cardiovascular market • Blood-glucose...

  • Page 25
    ... Acquisition of OptiMedica in August 2013 enhances Abbott's position in this important market by adding laser-assisted surgery technology to our portfolio VA S C U L A R • Focused on meeting the needs of insulin users • FreeStyle Precision Neo, a consumer blood glucose meter, approved in Europe...

  • Page 26
    ABBOTT 2013 ANNUAL REPORT « Elena Elena is an active 12-year old from Luts'k, Ukraine. When she's not in school, she enjoys dance classes, where she studies both traditional folk and modern hip-hop styles. Elena was born thanks, in part, to her mother's use of Duphaston (dydrogesterone), Abbott's ...

  • Page 27
    ABBOTT 2013 ANNUAL REPORT E L E N A K O S H E LY U K Duphaston Luts'k, Ukraine With targeted portfolios of trusted pharmaceutical brands, Abbott's Established Pharmaceuticals business is committed to improving the lives of people throughout the world. Tailoring our product offerings to the ...

  • Page 28
    ABBOTT 2013 ANNUAL REPORT E S TA B L I S H E D P H A R M AC E U T I C A L S KEY MARKET TRENDS 2013 BUSINESS HIGHLIGHTS • Consumer reliance on trusted brands to ensure product quality • Broad-based improvement in healthcare systems around the world • Rising middle-class incomes in emerging ...

  • Page 29
    ABBOTT 2013 ANNUAL REPORT PROJECTED EMERGING-M ARKET CONSUMER SPEND ON PHARM ACEUTICAL S Abbott's global presence in branded-generic pharmaceuticals is strong and growing • Sales in more than 130 countries • Extensive manufacturing network to ensure reliable local supply $406 billion (...

  • Page 30
    ABBOTT 2013 ANNUAL REPORT RICHARD HEIMLER WITH DAUGHTER, RACHEL Vysis ALK New York, New York DIAGNOSTICS A global leader with strong growth 28

  • Page 31
    ...is often the key to successful treatment and a full recovery. Abbott diagnostic technologies - from automated immunodiagnostics systems, to advanced molecular testing and accurate point-of-care devices - provide healthcare professionals with information they need to make the best treatment decisions...

  • Page 32
    ABBOTT 2013 ANNUAL REPORT DIAGNOSTICS KEY MARKET TRENDS 2013 BUSINESS HIGHLIGHTS • Aging global populations • Increasing emphasis on the use of in vitro testing in diagnosis and disease prevention • Increased reliance on point-of-care testing • Growth in personalized medicine driving ...

  • Page 33
    ABBOTT 2013 ANNUAL REPORT PROJECTED WORLDWIDE GROWTH FOR IN VITRO DIAGNOSTICS Leading Brands ARCHITECT - Immunoassay systems and tests ABBOTT PRISM - Blood-screening system m2000 - Molecular testing system CELL-DYN - Hematology analyzers i-STAT - Point-of-Care testing system $35 billion (...

  • Page 34
    ... Control Over Financial Reporting 57 58 59 70 71 72 73 Reports of Independent Registered Public Accounting Firm Financial Instruments and Risk Management Financial Review Performance Graph Summary of Selected Financial Data Directors and Corporate Officers Shareholder and Corporate Information 32

  • Page 35
    ABBOTT 2013 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 (in millions except per share data) Year Ended December 31 Net Sales Cost of products sold Amortization of intangible assets Research and development Selling, general and administrative Total Operating Cost and ...

  • Page 36
    ABBOTT 2013 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 (in millions) Year Ended December 31 2013 Net Earnings $ 2,576 Less: Earnings from Discontinued Operations, net of tax 193 Earnings from Continuing Operations 2,383 Foreign currency ...

  • Page 37
    ... consideration payments related to business acquisitions Transfer of cash and cash equivalents to AbbVie Inc. Purchases of common shares Proceeds from stock options exercised, including income tax benefit Dividends paid Net Cash (Used in) From Financing Activities Effect of exchange rate changes on...

  • Page 38
    ...December 31 Assets Current Assets: Cash and cash equivalents Investments, primarily bank time deposits and U.S. treasury bills Trade receivables, less allowances of - 2013: $312; 2012: $406 Inventories: Finished products Work in process Materials Total inventories Deferred income taxes Other prepaid...

  • Page 39
    ABBOTT 2013 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 in millions) December 31 Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings Trade accounts payable Salaries, wages and commissions Other accrued liabilities Dividends payable Income ...

  • Page 40
    ...,491,382 Earnings Employed in the Business: Beginning of Year Net earnings Separation of AbbVie Inc. Cash dividends declared on common shares (per share - 2013: $0.64; 2012: $1.67; 2011: $1.92) Effect of common and treasury share transactions End of Year Accumulated Other Comprehensive Income (Loss...

  • Page 41
    ...amounts for sales rebates, income taxes, pension and other post-employment benefits, valuation of intangible assets, litigation, derivative financial instruments, and inventory and accounts receivable exposures. Foreign Currency Translation - The statements of earnings of foreign subsidiaries whose...

  • Page 42
    ...actuarially determined cost of pension and post-employment benefits over the service attribution periods of the employees. Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. Differences...

  • Page 43
    ... losses, net of income taxes, primarily related to the pension and other benefit plan net liabilities as well as foreign translation was transferred to AbbVie. In 2013, there are no operating results related to discontinued operations other than a favorable adjustment to tax expense of $193...

  • Page 44
    ... Abbott has adjusted its employee stock compensation awards and separated its defined benefit programs for pensions and post-employment medical and dental benefit plans. See notes 8 and 12 for additional information. NOTE 3 - SUPPLEMENTAL FINANCIAL INFORMATION Other (income) expense, net, for 2013...

  • Page 45
    ... actuarial losses and prior service cost is included as a component of net periodic benefit plan cost - see Note 12 for additional information. NOTE 5 - BUSINESS ACQUISITIONS NOTE 6 - GOODWILL AND INTANGIBLE ASSETS In August 2013, Abbott acquired 100 percent of IDEV Technologies, net of debt, for...

  • Page 46
    ... and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2013, Abbott recorded employee severance charges of...

  • Page 47
    ... of purchasing its shares relating to its share-based programs. In connection with the separation of AbbVie on January 1, 2013, Abbott modified its outstanding equity awards granted under incentive stock programs for its employees. The awards were generally modified such that immediately following...

  • Page 48
    ... due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax. Abbott is a party to interest rate hedge contracts totaling $1.5 billion, $9.5 billion and $6.8 billion at December 31, 2013, 2012 and 2011, respectively, to manage its exposure to changes...

  • Page 49
    ...investment in a foreign subsidiary Interest rate swaps designated as fair value hedges Foreign currency forward exchange contracts not designated as hedges Gain (loss) Recognized in Other Comprehensive Income (loss) 2013 2012 2011 $ 35 110 n/a n/a $ 13 65 n/a n/a $ 67 (30) n/a n/a Income Statement...

  • Page 50
    ...) December 31, 2013: Equity securities Interest rate swap financial instruments Foreign currency forward exchange contracts Total Assets Fair value of hedged longâ€'term debt Foreign currency forward exchange contracts Contingent consideration related to business combinations Total Liabilities...

  • Page 51
    ... Projected benefit obligation Fair value of plan assets 2013 $408 505 - 2012 $8,100 9,619 6,243 In 2011, $776 million of assets and liabilities of a plan sponsored by Abbott Healthcare BV, a Dutch subsidiary of Abbott Laboratories, were irrevocably transferred to a Dutch insurance company in...

  • Page 52
    ... Discount rate Expected aggregate average long-term change in compensation 2013 4.9% 5.0% 2012 4.3% 5.3% 2011 5.0% 5.3% The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows: Discount rate Expected return on plan assets...

  • Page 53
    ABBOTT 2013 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 following table summarizes the bases used to measure the defined benefit and medical and dental plan assets at fair value: (in millions) Basis of Fair Value Measurement Quoted Significant Prices ...

  • Page 54
    ... to the parent company. Abbott does not record deferred income taxes on earnings reinvested indefinitely in foreign subsidiaries. Undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment aggregated $24.0 billion at December 31, 2013. It is...

  • Page 55
    ... products. Diagnostic Products - Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. For segment reporting purposes, the Core Laboratories Diagnostics, Molecular Diagnostics, Point of Care and Ibis diagnostic divisions...

  • Page 56
    ... in 2011. (in millions) Established Pharmaceuticals Nutritionals Diagnostics Vascular Total Reportable Segments Other Total (in millions) 2013 Total Reportable Segment Assets $11,178 Cash, investments and restricted funds (c) 8,217 Current deferred income taxes (c) 2,528 Nonâ€'reportable segments...

  • Page 57
    ABBOTT 2013 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 15 - QUARTERLY RESULTS (UNAUDITED) (in millions except per share data) First Quarter Continuing Operations: Net Sales Gross Profit Earnings from Continuing Operations Basic Earnings per Common ...

  • Page 58
    ... public accounting firm has issued an audit report on their assessment of the effectiveness of the company's internal control over financial reporting. This report appears on page 57. Miles D. White Chairman of the Board and Chief Executive Officer Thomas C. Freyman Executive Vice President, Finance...

  • Page 59
    ... Board of Directors and Shareholders of Abbott Laboratories: We have audited the accompanying consolidated balance sheets of Abbott Laboratories and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of earnings, comprehensive income, shareholders...

  • Page 60
    ... flows, income or market values. (A 100-basis point change is believed to be a reasonably possible near-term change in rates.) FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS Abbott holds equity securities from strategic technology acquisitions that are not traded on public stock exchanges. The...

  • Page 61
    ... of 2014. In Abbott's worldwide diagnostics business, margin improvement continued to be a key focus in 2013. Operating margins increased from 19.2 percent of sales in 2011 to 22.2 percent in 2013 as the business continued to execute on efficiency initiatives in the manufacturing and supply chain...

  • Page 62
    ABBOTT 2013 ANNUAL REPORT FINANCIAL REVIEW approvals across numerous countries and expanding its presence in emerging markets. In the diagnostics business, Abbott will focus on the development of next-generation instrument platforms and other advanced technologies, expansion in emerging markets, ...

  • Page 63
    ABBOTT 2013 ANNUAL REPORT FINANCIAL REVIEW return on plan assets. The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott's expected ...

  • Page 64
    ...strategic products and has recorded the related gains in net sales in accordance with Abbott's revenue recognition policies as discussed in Note 1 to the consolidated financial statements. Related net sales were not significant in 2013, 2012 and 2011. The expiration of licenses and patent protection...

  • Page 65
    ... and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2013, Abbott recorded employee severance charges of...

  • Page 66
    ... derived from operations in Puerto Rico, Switzerland, Ireland and Singapore where Abbott benefits from a combination of favorable statutory tax rules, tax rulings, grants, and exemptions. See Note 13 to the consolidated financial statements for a full reconciliation of the effective tax rate to the...

  • Page 67
    ABBOTT 2013 ANNUAL REPORT FINANCIAL REVIEW In addition, approximately $1 billion of accumulated other comprehensive losses, net of income taxes, primarily related to the pension and other benefit plan net liabilities as well as foreign translation was transferred to AbbVie. In 2013, discontinued ...

  • Page 68
    ... available in Europe, parts of Asia, the Middle East and Latin America. Abbott expects to seek product approval in additional markets in 2014. In addition, Abbott will continue clinical development of the MitraClip therapy including the COAPT trial, a landmark, prospective, randomized trial in the...

  • Page 69
    ... in 2012, received approval in Canada and a number of Latin American and Asian countries. In 2014, Abbott plans to continue to work to introduce new products, including the launch of new pre-loaded IOLs, which are designed to improve the ease of use for the cataract surgeon. Molecular Diagnostics...

  • Page 70
    ... pension plans. Abbott expects annual cash flow from operating activities to continue to exceed Abbott's capital expenditures and cash dividends. DEBT AND CAPITAL At December 31, 2013 Abbott's long-term debt rating was A+ by Standard & Poor's Corporation and A1 by Moody's Investors Service. Abbott...

  • Page 71
    ... balance. CAPITAL EXPENDITURES Capital expenditures of $1.1 billion in 2013, $1.8 billion in 2012 and $1.5 billion in 2011 were principally for upgrading and expanding manufacturing and research and development facilities and equipment in various segments, investments in information technology, and...

  • Page 72
    ... 31, 2007 with dividend reinvestment, Abbott's cumulative total shareholder return on its common shares is 70%, compared to 44% for the S&P 500 Index and 79% for the S&P 500 Healthcare Index. $200 $150 $100 $50 2008 2009 2010 2011 2012 2013 Abbott Laboratories S&P 500 Index S&P 500 Health Care...

  • Page 73
    ... share Financial Position: Working capital Longâ€'term investment securities Net property & equipment Total assets Longâ€'tem debt Shareholders' investment Book value per share Other Statistics: Gross profit margin Research and development to net sales Net cash from operating activities Capital...

  • Page 74
    ...General Counsel and Secretary Gene Huang Vice President, Chief Economist Corlis D. Murray Senior Vice President, Quality Assurance, Regulatory and Engineering Services Sally E. Blount, Ph.D. Dean of the J.L. Kellogg Graduate School of Management at Northwestern University, Evanston, Ill. Richard...

  • Page 75
    ... 100 Abbott Park Road Abbott Park, IL 60064-6400 U.S.A. (847) 937-6100 WE B S I T E TA X INFORM ATION FOR SHAREHOLDERS Abbott is an Illinois High Impact Business and is located in a U.S. federal Foreign Trade Sub-Zone (Sub-Zone 22F). Dividends may be eligible for a subtraction from base income...

  • Page 76
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