Abbott Laboratories 2012 Annual Report Download - page 46

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Abbott 2012 Annual Report
Notes to Consolidated Financial Statements
as of December 31, 2012, 2011 and 2010, respectively, and accumu-
lated amortization was $9.7 billion, $8.3 billion and $6.5 billion as of
December 31, 2012, 2011 and 2010, respectively. Indefinite-lived
intangible assets, which relate to in-process research and develop-
ment acquired in a business combination, were approximately $691
million, $814 million and $1.4 billion at December 31, 2012, 2011 and
2010, respectively. In 2012 and 2011, Abbott recorded impairment
charges of $82 million and $174 million, respectively, for certain
research and development assets due to changes in the projected
development and regulatory timelines for the projects. The 2012
charge relates to a non-reportable segment and in 2011, $125 million
related to a non-reportable segment and $49 million related to the
Other category in Abbott’s segment reporting. Discounted cash flow
analysis was used to analyze fair value and the charges are included in
research and development expenses. The estimated annual amortiza-
tion expense for intangible assets recorded at December 31, 2012,
adjusted for the separation of AbbVie from Abbott, is approximately
$800 million in 2013, $675 million in 2014, $590 million in 2015,
$605 million in 2016 and $565 million in 2017. Intangible asset
amortization is included in Cost of products sold in the consolidated
statement of earnings. Amortizable intangible assets are amortized
over 2 to 30 years (average 11 years).
Note 12 — Restructuring Plans
In 2012, Abbott management approved plans to streamline various
commercial operations in order to reduce costs and improve efficien-
cies in Abbott’s core diagnostics, established pharmaceutical and
nutritionals businesses. Abbott recorded employee related severance
charges of approximately $167 million in 2012. Additional charges of
approximately $22 million were also recorded in 2012, primarily for
asset impairments. Approximately $70 million is recorded in Cost of
products sold and approximately $119 million as Selling, general and
administrative expense. As of December 31, 2012, no significant cash
payments have been made relating to these actions.
In 2011 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
2011 and 2010, Abbott recorded charges of approximately $194 mil-
lion and $56 million, respectively, reflecting the impairment of
manufacturing facilities and other assets, employee severance and
other related charges. Approximately $76 million in 2011 is classified
as Cost of products sold, $69 million as Research and development
and $49 million as Selling, general and administrative. Approximately
$56 million in 2010 is classified as Cost of products sold. The following
summarizes the activity for these restructurings:
(dollars in millions)
Accrued balance at January 1, 2010 $ 145
2010 restructuring charges 56
Payments, impairments and other adjustments (124)
Accrued balance at December 31, 2010 77
2011 restructuring charges 194
Payments, impairments and other adjustments (94)
Accrued balance at December 31, 2011 177
Payments and other adjustments (48)
Accrued balance at December 31, 2012 $ 129
and development of $238 million in 2010 and (3) the acquisition of
equity interests in Reata of $62 million each in 2011 and 2010. In 2011,
certain milestones were achieved in the development for the treatment
of chronic kidney disease and charges to acquired in-process and col-
laborations research and development of $188 million were recorded.
In the first quarter of 2012, $50 million of research and development
expense was recorded related to the achievement of a clinical develop-
ment milestone under the license agreement. The license agreement
requires additional payments of up to $150 million if certain development
and regulatory milestones associated with the chronic kidney disease
compound are achieved.
On October 17, 2012 Reata informed Abbott that it is discontinuing
the Phase III clinical study for bardoxolone methyl for chronic kidney
disease. Reata and Abbott will closely examine the data from this
study to determine whether there is an appropriate path forward for
the development of bardoxolone methyl in chronic kidney disease or
other indications. In the fourth quarter of 2012, Abbott recorded a
charge of approximately $50 million for the impairment of the equity
investment in Reata.
In 2011, Abbott entered into an agreement with Biotest AG to develop
and commercialize a treatment for rheumatoid arthritis and psoriasis
resulting in a charge to acquired in-process and collaborations
research and development of $85 million. Additional payments totaling
up to $395 million based on projected regulatory approval timelines
could be required for the achievement of certain development, regula-
tory and commercial milestones under this agreement. In 2010, Abbott
entered into an agreement with Neurocrine Biosciences to develop
and commercialize a product for the treatment of endometriosis result-
ing in a charge to acquired in-process and collaborations research
and development of $75 million. Additional payments of approximately
$500 million could be required for the achievement of certain develop-
ment, regulatory and commercial milestones under this agreement.
Note 11 — Goodwill and Intangible Assets
Abbott recorded goodwill of approximately $3.4 billion in 2010 related
to the acquisitions of Solvay’s pharmaceuticals business, Piramal
Healthcare Limited’s Healthcare Solutions business, Facet Biotech and
STARLIMS Technologies. Goodwill related to the Solvay, Piramal and
Facet acquisitions was allocated to the pharmaceutical products seg-
ments. In addition, in 2010, Abbott paid $250 million to Boston
Scientific as a result of the approval to market the Xience V drug-elut-
ing stent in Japan, resulting in an increase in goodwill in the Vascular
Products segment. Foreign currency translation and other adjustments
increased (decreased) goodwill in 2012, 2011 and 2010 by $69 mil-
lion, $(225) million and $(879) million, respectively. The amount of
goodwill related to reportable segments at December 31, 2012 was
$6.3 billion for the Proprietary Pharmaceutical Products segment,
$3.0 billion for the Established Pharmaceutical Products segment,
$209 million for the Nutritional Products segment, $385 million for the
Diagnostic Products segment, and $2.7 billion for the Vascular
Products segment. There were no significant reductions of goodwill
relating to impairments or disposal of all or a portion of a business.
The gross amount of amortizable intangible assets, primarily product
rights and technology was $17.6 billion, $17.5 billion and $17.3 billion