Abbott Laboratories 2012 Annual Report Download - page 35

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Abbott 2012 Annual Report
income of approximately $60 million from the resolution of a contrac-
tual agreement and a loss of approximately $62 million for the
impairment of certain equity securities. As discussed in Note 1, Other
(income) expense, net, for 2011 includes a charge of $137 million to
recognize the cumulative immaterial impacts to 2009 and 2010 relat-
ing to the change in year end for foreign subsidiaries. In addition,
Other (income) expense, net, for 2011 includes $56 million of fair value
adjustments and accretion in the contingent consideration related to
the acquisition of Solvay’s pharmaceutical business. Other (income)
expense, net, for 2012, 2011 and 2010 also includes ongoing con-
tractual payments from Takeda associated with the conclusion of the
TAP joint venture.
(dollars in millions)
Other Accrued Liabilities: 2012 2011 2010
Accrued rebates payable
to government agencies $1,020 $1,049 $ 900
Accrued other rebates (a) 1,079 1,030 862
All other (b) 4,689 5,776 4,253
Total $6,788 $7,855 $6,015
(a) Accrued wholesaler chargeback rebates of $300, $239 and $216 at December 31, 2012,
2011 and 2010, respectively, are netted in trade receivables because Abbott’s customers
are invoiced at a higher catalog price but only remit to Abbott their contract price for the
products. The 2011 balances have been revised to reflect a reclassification of certain
amounts from Accrued other rebates to All other.
(b) 2011 includes $1,509 related to a previously disclosed government investigation and
$400 for acquired in-process research and development. 2012, 2011 and 2010 includes
acquisition consideration payable of $400 related to the acquisition of Piramal Healthcare
Limited’s Healthcare Solutions business.
(dollars in millions)
Post-employment Obligations and
Other Long-term Liabilities: 2012 2011 2010
Defined benefit pension plans and
post-employment medical and
dental plans for significant plans $4,557 $3,301 $2,425
Deferred income taxes 710 703 1,112
All other (c) 3,789 4,227 4,486
Total $9,056 $8,231 $8,023
(c) 2012, 2011 and 2010 includes acquisition consideration payable of $385, $770 and
$1,150, respectively, related to the acquisition of Piramal Healthcare Limited’s Healthcare
Solutions business.
The judgment entered by the U.S. District Court for the Eastern District
of Texas against Abbott in its litigation with New York University and
Centocor, Inc. required Abbott to secure the judgment in the event that
its appeal to the Federal Circuit court was unsuccessful in overturning
the district court’s decision. In the first quarter of 2010, Abbott depos-
ited $1.87 billion with an escrow agent and considered these assets to
be restricted. On February 23, 2011, the Federal Circuit reversed
the district court’s final judgment and found Centocor’s patent invalid.
On April 25, 2011 Centocor petitioned the Federal Circuit to rehear
and reconsider the decision. In June 2011 the Federal Circuit denied
Centocor’s petition and the restrictions on the funds were lifted.
Note 3 — Financial Instruments, Derivatives and Fair Value
Measures
Certain Abbott foreign subsidiaries enter into foreign currency forward
exchange contracts to manage exposures to changes in foreign
exchange rates for anticipated intercompany purchases by those
subsidiaries whose functional currencies are not the U.S. dollar.
These contracts, totaling $1.6 billion at December 31, 2012 and 2011
and $1.3 billion at December 31, 2010 are designated as cash flow
hedges of the variability of the cash flows due to changes in foreign
exchange rates and are recorded at fair value. Accumulated gains
and losses as of December 31, 2012 will be included in Cost of
products sold at the time the products are sold, generally through
the next twelve months. The amount of hedge ineffectiveness was
not significant in 2012, 2011 and 2010.
Abbott enters into foreign currency forward exchange contracts
to manage currency exposures for foreign currency denominated
third-party trade payables and receivables, and for intercompany
loans and trade accounts payable where the receivable or payable is
denominated in a currency other than the functional currency of the
entity. For intercompany loans, the contracts require Abbott to sell or
buy foreign currencies, primarily European currencies and Japanese
yen, in exchange for primarily U.S. dollars and other European
currencies. For intercompany and trade payables and receivables,
the currency exposures are primarily the U.S. dollar, European curren-
cies and Japanese yen. At December 31, 2012, 2011 and 2010,
Abbott held $18.2 billion, $15.7 billion and $10.8 billion, respectively,
of such foreign currency forward exchange contracts.
Abbott has designated foreign denominated short-term debt as a
hedge of the net investment in a foreign subsidiary of approximately
$615 million, $680 million and $650 million as of December 31, 2012,
2011 and 2010, respectively. Accordingly, changes in the fair value
of this debt 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 $9.5 billion,
$6.8 billion and $7.3 billion at December 31, 2012, 2011 and 2010,
respectively, to manage its exposure to changes in the fair value of
fixed-rate debt. These contracts are designated as fair value hedges
of the variability of the fair value of fixed-rate debt due to changes in
the long-term benchmark interest rates. The effect of the hedge is to
change a fixed-rate interest obligation to a variable rate for that portion
of the debt. Abbott records the contracts at fair value and adjusts
the carrying amount of the fixed-rate debt by an offsetting amount.
No hedge ineffectiveness was recorded in income in 2012, 2011 and
2010 for these hedges.
Gross unrealized holding gains on available-for-sale equity securities
totaled $51 million, $64 million and $40 million at December 31, 2012,
2011 and 2010, respectively.
Notes to Consolidated Financial Statements