Abbott Laboratories 2013 Annual Report Download - page 46

ABBOTT 2013 ANNUAL REPORT
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discounted cash flow analysis was used to analyze fair value and
the charges are included in research and development expenses.
The estimated annual amortization expense for intangible assets
recorded at December 31, 2013 is approximately $711 million in
2014, $652 million in 2015, $636 million in 2016, $635 million in
2017 and $505 million in 2018. Amortizable intangible assets are
amortized over 2 to 20 years (average 11 years).
NOTE 7 — RESTRUCTURING PLANS
In 2013, Abbott management approved a plan to reduce costs and
improve efficiencies across various functional areas as well as a plan
to streamline certain manufacturing operations in order to reduce
costs and improve efficiencies in Abbott’s established pharmaceuti-
cals business. In addition, in 2012, Abbott management approved
plans to streamline various commercial operations in order to
reduce costs and improve efficiencies in Abbott’s core diagnostics,
established pharmaceutical and nutritionals businesses. Abbott
recorded employee related severance charges of approximately
$78 million in 2013 and $167 million in 2012. Additional charges of
approximately $4 million in 2013 and $22 million in 2012 were also
recorded primarily for asset impairments. Approximately $35 mil-
lion in 2013 and $70 million in 2012 are recorded in Cost of products
sold and approximately $47 million in 2013 and $119 million as
Selling, general and administrative expense in 2012. No significant
cash payments were made during 2012 relating to the 2012 actions.
The following summarizes the activity for these restructurings:
(in millions)
Restructuring charges recorded in 2012 $ 167
Restructuring charges recorded in 2013 78
Payments and other adjustments (97)
Accrued balance at December 31, 2013 $ 148
In 2013 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
approximately $11 million. In 2011, Abbott recorded charges
of approximately $194 million reflecting the impairment of manu-
facturing facilities and other assets, employee severance and other
related charges. Approximately $11 million in 2013 and $18 million
in 2011 are classified as Cost of products sold. The remaining 2011
charge of $176 million related to businesses transferred to AbbVie
and is being recognized in the results of discontinued operations.
The following summarizes the activity for these restructurings:
(in millions)
Accrued balance at January 1, 2011 $ 77
2011 restructuring charges 194
Payments, impairments and other adjustments (94)
Accrued balance at December 31, 2011 177
Payments, impairments and other adjustments (48)
Accrued balance at December 31, 2012 129
Transfer of liability to AbbVie (62)
Restructuring charges 11
Payments and other adjustments (58)
Accrued balance at December 31, 2013 $ 20
An additional $41 million, $110 million and $25 million were
recorded in 2013, 2012 and 2011, respectively, relating to these
restructurings, primarily for accelerated depreciation.
In 2012 and 2010, Abbott management approved restructuring
plans primarily related to the acquisition of Solvay’s pharmaceuticals
business. These plans streamline operations, improve efficiencies and
reduce costs in certain Solvay sites and functions as well as in certain
Abbott and Solvay commercial organizations in various countries.
In 2012, Abbott recorded a charge of approximately $150 million for
employee severance and contractual obligations, primarily related to
the exit from a research and development facility. These charges are
related to businesses transferred to AbbVie and are being recognized
in the results of discontinued operations. The accrued restructuring
reserves of $115 million at December 31, 2012 related to these actions
were transferred to AbbVie on January 1, 2013 as part of the separa‑
tion. As such, there are no remaining accruals being reported in
Abbott’s balance sheet as of December 31, 2013.
In 2011 and 2008, Abbott management approved plans to stream‑
line global manufacturing operations, reduce overall costs, and
improve efficiencies in Abbott’s core diagnostic business. In 2011,
a charge of $28 million was recorded in Cost of products sold.
The following summarizes the activity for these restructurings:
(in millions)
Accrued balance at January 1, 2011 $ 88
2011 restructuring charge 28
Payments and other adjustments (37)
Accrued balance at December 31, 2011 79
Payments and other adjustments (23)
Accrued balance at December 31, 2012 56
Payments and other adjustments (15)
Accrued balance at December 31, 2013 $ 41
In addition, charges of approximately $16 million and $42 million
were recorded in 2012 and 2011, primarily for accelerated depreci‑
ation and product transfer costs.
NOTE 8 — INCENTIVE STOCK PROGRAM
The 2009 Incentive Stock Program authorizes the granting of
nonqualified stock options, restricted stock awards, restricted
stock units, performance awards, foreign benefits and other
share‑based awards. Stock options, replacement stock options
and restricted stock awards and units comprise the majority of
benefits that have been granted and are currently outstanding
under this program and a prior program. In 2013, Abbott granted
4,733,378 stock options, 918,819 replacement stock options,
848,674 restricted stock awards and 6,412,867 restricted stock
units under this program.
The purchase price of shares under option must be at least equal
to the fair market value of the common stock on the date of grant,
and the maximum term of an option is 10 years. Options generally
vest equally over three years. Restricted stock awards generally
vest between 3 and 5 years and for restricted stock awards that
vest over 5 years, no more than one‑third of the award vests in any
one year upon Abbott reaching a minimum return on equity target.
Restricted stock units vest over three years and upon vesting, the
recipient receives one share of Abbott stock for each vested