Abbott Laboratories 2013 Annual Report Download - page 70

ABBOTT 2013 ANNUAL REPORT
68
FINANCIAL REVIEW
GOODWILL
At December 31, 2013, goodwill recorded as a result of business
combinations totaled $9.8 billion. Goodwill is reviewed for impair-
ment annually in the third quarter or when an event that could
result in an impairment occurs. The results of the last impairment
test indicated that the fair value of each reporting unit was sub-
stantially in excess of its carrying value except for the Medical
Optics unit. While the fair value of the Medical Optics business
exceeds its carrying value, extended economic pressure on govern-
ment-reimbursed cataract procedures in Europe and on the global
LASIK surgery business as well as longer regulatory approval
timelines for products currently under development, the integra-
tion of OptiMedica and the negative impact of foreign currency
movements could result in a valuation in the future where the fair
value of the Medical Optics unit has declined below its carrying
value, thereby triggering the requirement to estimate the implied
fair value of the goodwill and measure for impairment.
FINANCIAL CONDITION
CASH FLOW
Net cash from operating activities amounted to $3.3 billion,
$9.3 billion and $9.0 billion in 2013, 2012 and 2011, respectively.
The decrease in Net cash from operating activities in 2013 was
due to the separation of AbbVie on January 1, 2013. Net cash from
operating activities in 2013 reflects approximately $435 million
of one-time net cash outflows related to the separation of AbbVie
and $724 million of contributions to defined benefit pension plans.
The income tax component of operating cash flow in 2013, 2012
and 2011 includes $427 million, $408 million and $580 million,
respectively, of noncash tax benefits related to the favorable
resolution of various tax positions pertaining to prior years and
2013 also includes a $103 million tax benefit for the retroactive
impact of U.S. tax law changes, which is expected to be realized
in future years. Trade accounts payable and other liabilities in
Net cash from operating activities in 2012 includes the payment
of approximately $1.5 billion related to a litigation accrual
recorded in 2011 related to the business operations of AbbVie.
This was partially offset by increases in other liabilities, primarily
restructuring reserves.
While substantially all cash and cash equivalents at December 31,
2013, 2012 and 2011 is considered reinvested indefinitely in foreign
subsidiaries, Abbott does not expect such reinvestment to affect
its liquidity and capital resources. If these funds were needed for
operations in the U.S., Abbott would be required to accrue and pay
U.S. income taxes to repatriate these funds. Abbott believes that it
has sufficient sources of liquidity to support its assumption that
the disclosed amount of undistributed earnings at December 31,
2013 can be considered to be reinvested indefinitely.
Abbott funded $724 million in 2013, $379 million in 2012 and
$394 million in 2011 to defined benefit pension plans. Abbott
expects pension funding of approximately $400 million in 2014
for its pension plans, of which approximately $300 million relates
to its main domestic 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 has readily available financial resources, including
unused lines of credit of $5.0 billion that support commercial
paper borrowing arrangements which expire in 2017.
In 2012, Abbott redeemed $7.7 billion of long-term notes in
preparation for the separation of AbbVie from Abbott and repaid
$1 billion of long-term notes that were due in 2012. In addition,
AbbVie Inc., a wholly owned subsidiary of Abbott, issued
$14.7 billion of long-term notes that were guaranteed by Abbott
until AbbVie’s separation from Abbott on January 1, 2013. In 2011,
Abbott repaid $2.0 billion of long-term notes using primarily
short-term borrowings.
In October 2008, the board of directors authorized the purchase
of up to $5 billion of Abbott’s common shares from time to time.
Under this authorization, 33.0 million and 37.0 million shares were
purchased in 2013 and 2012 at a cost of approximately $1.2 billion
and $2.2 billion, respectively. No additional purchases of common
shares will be made from this authorization. In June 2013, the
board of directors authorized the purchase of up to $3.0 billion of
Abbott’s common shares from time to time and 10.5 million shares
were purchased under this authorization at a cost of $388 million
in 2013. Abbott has indicated that it plans to purchase over
$2 billion of additional shares from time to time in 2014.
Abbott declared dividends of $0.64 per share in 2013 compared
to $1.67 per share in 2012. Dividends paid were $882 million in
2013 compared to $3.2 billion in 2012. The year-over-year change
in dividends reflects the impact of the separation of AbbVie in
January 2013. In October 2013, Abbott announced an increase
in the company’s quarterly dividend to $0.22 per share from
$0.14 per share, representing an increase of 57 percent. This
increase took effect with the dividend paid in February 2014 to
shareholders of record at the close of business on January 15, 2014.
WORKING CAPITAL
The reduction of cash and cash equivalents from $10.8 billion
at December 31, 2012 to $3.5 billion at December 31, 2013 reflects
the transfer of $5.9 billion of cash and cash equivalents to AbbVie
as part of the separation on January 1, 2013. Working capital was
$9.7 billion at December 31, 2013 and $18.0 billion at December 31,
2012. The decrease in working capital in 2013 was due to the
transfer of approximately $9 billion of working capital to AbbVie
on January 1, 2013 as part of the separation. See note 2 - Separation
of AbbVie for additional information.