Abbott Laboratories 2012 Annual Report Download - page 41

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Abbott 2012 Annual Report
Notes to Consolidated Financial Statements
Earnings before taxes, and the related provisions for taxes on
earnings, were as follows:
(dollars in millions)
Earnings Before Taxes: 2012 2011 2010
Domestic $ (620) $ 364 $ (275)
Foreign 6,883 4,835 5,988
Total $ 6,263 $ 5,199 $ 5,713
Taxes on Earnings: 2012 2011 2010
Current:
Domestic $ 198 $ (586) $ 1,462
Foreign 1,230 1,187 835
Total current 1,428 601 2,297
Deferred:
Domestic (483) 162 (1,068)
Foreign (645) (293) (142)
Total deferred (1,128) (131) (1,210)
Total $ 300 $ 470 $ 1,087
Differences between the effective income tax rate and the U.S.
statutory tax rate were as follows:
2012 2011 2010
Statutory tax rate on earnings 35.0% 35.0% 35.0%
Benefit of lower foreign tax rates
and tax exemptions (24.9) (22.9) (19.4)
Resolution of certain tax positions
pertaining to prior years (6.5) (11.2) —
Effect of non-deductible litigation reserve 0.6 9.1 —
State taxes, net of federal benefit 0.1 (0.4) 0.4
All other, net 0.5 (0.6) 3.0
Effective tax rate on earnings 4.8% 9.0% 19.0%
As of December 31, 2012, 2011 and 2010, total deferred tax assets
were $7.4 billion, $6.3 billion and $6.1 billion, respectively, and total
deferred tax liabilities were $2.6 billion, $2.9 billion and $3.0 billion,
respectively. Abbott has incurred losses in a foreign jurisdiction where
realization of the future economic benefit is so remote that the benefit
is not reflected as a deferred tax asset. Valuation allowances for
recorded deferred tax assets were not significant. The tax effect of
the differences that give rise to deferred tax assets and liabilities
were as follows:
(dollars in millions) 2012 2011 2010
Compensation and employee benefits $ 1,936 $ 1,658 $ 1,327
Trade receivable reserves 557 492 525
Inventory reserves 211 212 293
Deferred intercompany profit 1,095 711 255
State income taxes 197 227 233
Depreciation (75) (164) (64)
Acquired in-process research and
development and other accruals and
reserves not currently deductible 3,278 2,886 3,401
Other, primarily the excess of book
basis over tax basis of intangible assets (2,447) (2,636) (2,905)
Total $ 4,752 $ 3,386 $ 3,065
The following table summarizes the gross amounts of unrecognized
tax benefits without regard to reduction in tax liabilities or additions to
deferred tax assets and liabilities if such unrecognized tax benefits
were settled.
(dollars in millions) 2012 2011 2010
January 1 $2,123 $2,724 $2,172
Increase due to current year tax positions 673 588 635
Increase due to prior year tax positions 62 282 171
Decrease due to prior year tax positions (438) (824) (94)
Settlements (163) (647) (160)
December 31 $2,257 $2,123 $2,724
The total amount of unrecognized tax benefits that, if recognized,
would impact the effective tax rate is approximately $2.0 billion. Abbott
believes that it is reasonably possible that the recorded amount of gross
unrecognized tax benefits may decrease by $550 million to $650 million,
including cash adjustments, within the next twelve months as a result of
concluding various domestic and international tax matters.
Note 6 — Segment and Geographic Area Information
Abbott’s principal business is the discovery, development, manufacture
and sale of a broad line of health care products. Abbott’s products are
generally sold directly to retailers, wholesalers, hospitals, health care
facilities, laboratories, physicians’ offices and government agencies
throughout the world. Effective January 1, 2012, certain international
operations were transferred from the Established Pharmaceutical
Products segment to the Proprietary Pharmaceutical Products segment.
The segment information below has been adjusted to reflect this reorga-
nization. Abbott’s reportable segments are as follows:
Proprietary Pharmaceutical Products—Worldwide sales of a broad line
of proprietary pharmaceutical products.
Established Pharmaceutical Products—International sales of a broad
line of branded generic pharmaceutical products.
Nutritional Products—Worldwide sales of a broad line of adult and
pediatric nutritional products.
Diagnostic Products—Worldwide sales of diagnostic systems and
tests for blood banks, hospitals, commercial laboratories and alter-
nate-care testing sites. For segment reporting purposes, the Core
Laboratories Diagnostics, Molecular Diagnostics, Point of Care and
Ibis diagnostic divisions are aggregated and reported as the Diagnostic
Products segment.
Vascular Products—Worldwide sales of coronary, endovascular,
structural heart, vessel closure and other medical device products.
Non-reportable segments include the Diabetes Care and Medical
Optics segments.
Abbott’s underlying accounting records are maintained on a legal entity
basis for government and public reporting requirements. Segment
disclosures are on a performance basis consistent with internal man-
agement reporting. Intersegment transfers of inventory are recorded at
standard cost and are not a measure of segment operating earnings.
The cost of some corporate functions and the cost of certain