Abbott Laboratories 2012 Annual Report Download - page 40

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Abbott 2012 Annual Report
Notes to Consolidated Financial Statements
(a) A mix of index funds that track the S&P 500 (50 percent in 2012 and 45 percent in 2011
and 2010) and separate actively managed equity accounts that are benchmarked to the
Russell 1000 (50 percent in 2012 and 55 percent in 2011 and 2010).
(b) A mix of index funds (75 percent) and separate actively managed equity accounts
(25 percent) that track or are benchmarked to the S&P 400 midcap index.
(c) Primarily separate actively managed pooled investment accounts that are benchmarked
to the MSCI and MSCI emerging market indices.
(d) Index funds not actively managed (50 percent in 2012 and 45 percent in 2011 and 2010)
and separate actively managed accounts (50 percent in 2012 and 55 percent in 2011
and 2010).
(e) Index funds not actively managed (20 percent in 2012, 40 percent in 2011 and 15 percent
in 2010) and separate actively managed accounts (80 percent in 2012, 60 percent in 2011
and 85 percent in 2010).
(f) Primarily United Kingdom, Japan and Irish government-issued bonds.
(g) Primarily mortgage backed securities.
(h) Primarily funds invested by managers that have a global mandate with the flexibility to
allocate capital broadly across a wide range of asset classes and strategies including,
but not limited to equities, fixed income, commodities, interest rate futures, currencies
and other securities to outperform an agreed upon benchmark with specific return and
volatility targets.
(i) Primarily investments in liquid commodity future contracts and private energy funds.
(j) Primarily cash and cash equivalents.
Equities that are valued using quoted prices are valued at the
published market prices. Equities in a common collective trust or a
registered investment company that are valued using significant other
observable inputs are valued at the net asset value (NAV) provided by
the fund administrator. The NAV is based on the value of the underly-
ing assets owned by the fund minus its liabilities. Fixed income
securities that are valued using significant other observable inputs
are valued at prices obtained from independent financial service
industry-recognized vendors. Absolute return funds and commodities
are valued at the NAV provided by the fund administrator. Private
energy funds are valued at the NAV provided by the partnership on a
one-quarter lag adjusted for known cash flows and significant events
through the reporting date.
The following table summarizes the change in the value of assets that
are measured using significant unobservable inputs:
(dollars in millions) 2012 2011 2010
January 1 $636 $591 $530
Transfers in (out of) from other categories 2 (1) (37)
Actual return on plan assets:
Assets on hand at year end 59 (14) 41
Assets sold during the year (4) (1) (2)
Purchases, sales and settlements, net 39 61 59
December 31 $732 $636 $591
The investment mix of equity securities, fixed income and other asset
allocation strategies is based upon achieving a desired return, balanc-
ing higher return, more volatile equity securities, and lower return,
less volatile fixed income securities. Investment allocations are made
across a range of markets, industry sectors, capitalization sizes,
and in the case of fixed income securities, maturities and credit quality.
The plans do not directly hold any securities of Abbott. There are no
known significant concentrations of risk in the plans’ assets. Abbott’s
medical and dental plans’ assets are invested in a similar mix as the
pension plan assets.
The plans’ expected return on assets, as shown above is based on
management’s expectations of long-term average rates of return to be
achieved by the underlying investment portfolios. In establishing this
assumption, management considers historical and expected returns
for the asset classes in which the plans are invested, as well as current
economic and capital market conditions.
Abbott funds its domestic pension plans according to IRS funding
limitations. International pension plans are funded according to similar
regulations. Abbott funded $379 million in 2012, $394 million in 2011
and $525 million in 2010 to defined pension plans. Abbott expects
pension funding for its main domestic pension plan of $170 million in
2013. The projected decrease reflects the separation of AbbVie from
Abbott and the transfer of certain assets and liabilities to AbbVie.
Total benefit payments expected to be paid to participants, giving
effect to the separation of AbbVie from Abbott, which includes
payments funded from company assets as well as paid from the
plans, are as follows:
Defined Medical and
(dollars in millions) Benefit Plans Dental Plans
2013 $ 173 $ 78
2014 183 80
2015 197 83
2016 211 87
2017 224 90
2018 to 2022 1,367 510
The Abbott Stock Retirement Plan is the principal defined contribution
plan. Abbott’s contributions to this plan were $150 million in 2012,
$151 million in 2011 and $147 million in 2010.
Abbott provides certain other post-employment benefits, primarily
salary continuation plans, to qualifying domestic employees, and
accrues for the related cost over the service lives of the employees.
Note 5 — Taxes on Earnings
Taxes on earnings reflect the annual effective rates, including charges
for interest and penalties. Deferred income taxes reflect the tax conse-
quences on future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts. The $620 million
domestic loss before taxes in 2012 includes Abbott’s $1.35 billion net
loss on the early extinguishment of debt and approximately $395 million
of separation related expenses. U.S. income taxes are provided on
those earnings of foreign subsidiaries which are intended to be remitted
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 $40.0 billion at December 31,
2012. It is not practicable to determine the amount of deferred income
taxes not provided on these earnings. In the U.S., Abbott’s federal
income tax returns through 2009 are settled except for one item, and
the income tax returns for years after 2009 are open. There are numer-
ous other income tax jurisdictions for which tax returns are not yet
settled, none of which are individually significant. Reserves for interest
and penalties are not significant.