Abbott Laboratories 2013 Annual Report Download - page 43

ABBOTT 2013 ANNUAL REPORT
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Acquired In-Process and Collaborations Research and Development
(IPR&D) — The initial costs of rights to IPR&D projects obtained
in an asset acquisition are expensed as IPR&D unless the project
has an alternative future use. These costs include initial payments
incurred prior to regulatory approval in connection with research
and development collaboration agreements that provide rights
to develop, manufacture, market and/or sell pharmaceutical
products. The fair value of IPR&D projects acquired in a business
combination are capitalized and accounted for as indefinite-lived
intangible assets.
Concentration of Risk and Guarantees — Due to the nature of
its operations, Abbott is not subject to significant concentration
risks relating to customers, products or geographic locations.
Governmental accounts in Italy, Spain, Greece and Portugal
accounted for 12 percent and 16 percent of total net trade receiv-
ables as of December 31, 2013 and 2012 respectively. Product
warranties are not significant.
Abbott has no material exposures to off-balance sheet arrange-
ments; no special purpose entities; nor activities, that include
non-exchange-traded contracts accounted for at fair value. Abbott
has periodically entered into agreements in the ordinary course
of business, such as assignment of product rights, with other
companies, which has resulted in Abbott becoming secondarily
liable for obligations that Abbott was previously primarily liable.
Since Abbott no longer maintains a business relationship with
the other parties, Abbott is unable to develop an estimate of the
maximum potential amount of future payments, if any, under
these obligations. Based upon past experience, the likelihood of
payments under these agreements is remote. Abbott periodically
acquires a business or product rights in which Abbott agrees to
pay contingent consideration based on attaining certain thresholds
or based on the occurrence of certain events.
Recently Adopted Accounting Pronouncements — In February 2013,
the FASB issued a standard pertaining to the reporting of amounts
reclassified out of accumulated other comprehensive income
(AOCI). The standard requires that an entity provide, by compo-
nent, information regarding the amounts reclassified out of AOCI
and the line items in the statement of operations to which the
amounts were reclassified. This guidance is effective prospectively
for reporting periods beginning after December 15, 2012. Abbott’s
adoption of this guidance in the first quarter of 2013 did not have a
material impact on our results of operations or financial position.
NOTE 2 — SEPARATION OF ABBVIE INC.
On November 28, 2012, Abbott’s board of directors declared
a special dividend distribution of all of the outstanding shares
of common stock of AbbVie Inc. (AbbVie), the company formed
to hold Abbott’s research-based proprietary pharmaceuticals
business. For each Abbott common share held at the close of
business on December 12, 2012, Abbott shareholders received
one share of AbbVie stock on January 1, 2013. Abbott has received
a ruling from the Internal Revenue Service that the separation
qualifies as a tax-free distribution to Abbott and its U.S. shareholders
for U.S. federal income tax purposes.
The historical operating results of the research-based proprietary
pharmaceuticals business prior to separation are excluded from
Earnings from Continuing Operations and are presented on the
Earnings from Discontinued Operations line. Discontinued
operations include the results of AbbVie’s business except for
certain corporate overhead costs and certain costs associated
with transition services that will be provided by Abbott to AbbVie.
Discontinued operations also includes other costs incurred by
Abbott to separate AbbVie as well as an allocation of interest
assuming a uniform ratio of consolidated debt to equity for all
of Abbott’s historical operations. The assets, liabilities, and cash
flows of the research-based proprietary pharmaceuticals business
are included in Abbott’s Consolidated Balance Sheet and its
Consolidated Statements of Cash Flows for periods prior to
January 1, 2013.
The following is a summary of the assets and liabilities transferred
to AbbVie as part of the separation on January 1, 2013:
(in billions)
Assets:
Cash and cash equivalents $ 5.9
Investments 2.2
Trade receivables, less allowances 3.2
Inventories 0.7
Prepaid expenses, deferred income taxes, and
other current receivables 2.9
Net property and equipment 2.2
Intangible assets, net of amortization 2.3
Goodwill 6.1
Deferred income taxes and other assets 1.1
26.6
Liabilities:
Short‑term borrowings 1.0
Trade accounts payable and other current liabilities 5.2
Long‑term debt 14.6
Post‑employment obligations, deferred income taxes and
other long‑term liabilities 3.1
23.9
Net Assets Transferred to AbbVie Inc. $ 2.7
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, there are no operating results related to discontinued
operations other than a favorable adjustment to tax expense of
$193 million as a result of the resolution of various tax positions
related to AbbVie’s operations prior to separation. Summarized
financial information for discontinued operations for 2012 and
2011 is as follows:
(in millions)
Year Ended December 31 2012 2011
Net sales $18,380 $17,444
Earnings before taxes 5,958 3,963
Taxes on earnings 574 361
Net earnings 5,384 3,602
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS