Abbott Laboratories 2012 Annual Report Download - page 64

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Abbott 2012 Annual Report
Financial Review
In 2011, Abbott began recording the annual fee imposed by health
care reform legislation on companies that sell branded prescription
drugs to specified government programs. The amount of the annual
fee is based on the ratio of certain of Abbott’s sales as compared to
the total such sales of all covered entities multiplied by a fixed dollar
amount specified in the legislation by year. In 2011, additional rebates
were incurred related to the Medicare Part D coverage gap “donut
hole.” Beginning in 2013, Abbott will record the 2.3 percent excise tax
imposed by health care reform legislation on the sale of certain medi-
cal devices in the U.S.
Abbott’s primary markets are highly competitive and subject to sub-
stantial government regulations throughout the world. Abbott expects
debate to continue over the availability, method of delivery, and pay-
ment for health care products and services. It is not possible to predict
the extent to which Abbott or the health care industry in general might
be adversely affected by these factors in the future. A more complete
discussion of these factors is contained in Item 1, Business, and Item
1A, Risk Factors, to the Annual Report on Form 10-K.
Private Securities Litigation Reform Act of 1995 –
A Caution Concerning Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, Abbott cautions investors that any forward-look-
ing statements or projections made by Abbott, including those made
in this document, are subject to risks and uncertainties that may cause
actual results to differ materially from those projected. Economic, com-
petitive, governmental, technological and other factors that may affect
Abbott’s operations are discussed in Item 1A, Risk Factors, to the
Annual Report on Form 10-K.
Contingent Obligations
Abbott has periodically entered into agreements in the ordinary
course of business, such as assignment of product rights, with other
companies which has resulted in Abbott becoming secondarily liable
for obligations that Abbott was previously primarily liable. Since Abbott
no longer maintains a business relationship with the other parties,
Abbott is unable to develop an estimate of the maximum potential
amount of future payments, if any, under these obligations. Based
upon past experience, the likelihood of payments under these agree-
ments is remote. In addition, Abbott periodically acquires a business
or product rights in which Abbott agrees to pay contingent consider-
ation based on attaining certain thresholds or based on the
occurrence of certain events.
Legislative Issues
In 2010, the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act (collectively referred
to herein as “health care reform legislation”) were signed into law in
the U.S. Health care reform legislation included an increase in the
basic Medicaid rebate rate from 15.1 percent to 23.1 percent and
extended the rebate to drugs provided through Medicaid managed
care organizations.
Beginning in 2013, health care reform legislation will eliminate the
federal income tax deduction for prescription drug expenses of retirees
for which Abbott receives reimbursement under the Medicare Part D
retiree drug subsidy program. As a result, Abbott recorded a charge of
approximately $60 million in the first quarter 2010 to reduce deferred
tax assets associated with retiree health care liabilities.
Assuming $100 invested on 12/31/07 with dividends reinvested.
Abbott Laboratories
S&P 500 Index
S&P 500 Health Care
2007 20092008 2010 2011 2012
$150
$100
$50
Performance Graph
This graph compares the change
in Abbott’s cumulative total share-
holder return on its common shares
with the Standard & Poor’s 500
Index and the Standard & Poor’s
500 Health Care Index.