Abbott Laboratories 2013 Annual Report Download - page 47

ABBOTT 2013 ANNUAL REPORT
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
restricted stock unit. The aggregate fair market value of
restricted stock awards and units is recognized as expense over
the service period. Restricted stock awards and settlement of
vested restricted stock units are issued out of treasury shares.
Abbott generally issues new shares for exercises of stock options.
Abbott does not have a policy of purchasing its shares relating
to its share-based programs.
In connection with the separation of AbbVie on January 1, 2013,
Abbott modified its outstanding equity awards granted under
incentive stock programs for its employees. The awards were gen-
erally modified such that immediately following the separation,
the awardees held the same number of awards in Abbott stock and
an equal number of awards in AbbVie stock. The exercise price on
outstanding Abbott options was adjusted and the exercise price
on the AbbVie options granted under this modification was estab-
lished with the intention of generally preserving the value of the
The aggregate intrinsic value of options outstanding and exercis-
able at December 31, 2013 was $525 million and $487 million,
respectively. The total intrinsic value of options exercised in 2013,
2012 and 2011 was $120 million, $528 million and $94 million,
respectively. The total unrecognized compensation cost related
to all share-based compensation plans at December 31, 2013
amounted to approximately $153 million, which is expected to
be recognized over the next three years.
Total non-cash compensation expense charged against income from
continuing operations in 2013, 2012 and 2011 for share-based plans
totaled approximately $262 million, $284 million and $256 million,
respectively, and the tax benefit recognized was approximately
$84 million, $87 million and $71 million, respectively. Compensation
cost capitalized as part of inventory is not significant.
The fair value of an option granted in 2013, 2012 and 2011 was
$5.77, $6.80, and $6.23, respectively. The fair value of an option
grant was estimated using the Black-Scholes option-pricing model
with the following assumptions:
2013 2012 2011
Risk-free interest rate 1.1% 1.2% 2.7%
Average life of options (years) 6.0 6.0 6.0
Volatility 20.0% 21.0% 21.0%
Dividend yield 1.6% 3.6% 4.1%
The risk-free interest rate is based on the rates available at the
time of the grant for zero-coupon U.S. government issues with a
remaining term equal to the option’s expected life. The average life
of an option is based on both historical and projected exercise and
awards immediately prior to the separation. This modification did
not result in additional compensation expense.
At December 31, 2013, approximately 130 million shares were
reserved for future grants. Subsequent to year-end, the reserve was
reduced by approximately 22 million shares for stock options and
restricted stock awards and units granted by the Board of Directors.
The number of restricted stock awards and units outstanding and
the weighted-average grant-date fair value at December 31, 2013
and January 1, 2013 was 14,385,221 and $30.13 and 15,728,503 and
$25.51, respectively. The number of restricted stock awards and
units, and the weighted-average grant-date fair value, that were
granted, vested and lapsed during 2013 were 7,261,541 and $34.92,
7,821,999 and $25.36 and 782,824 and $29.34, respectively.
The fair market value of restricted stock awards and units vested
in 2013, 2012 and 2011 was $274 million, $385 million and
$237 million, respectively.
lapsing data. Expected volatility is based on implied volatilities
from traded options on Abbott’s stock and historical volatility of
Abbott’s stock over the expected life of the option. Dividend yield
is based on the option’s exercise price and annual dividend rate
at the time of grant.
NOTE 9 — DEBT AND LINES OF CREDIT
The following is a summary of long-term debt at December 31:
(in millions) 2013 2012
1.2% Notes, due 2015 (1) $ — $ 3,500
Variable Rate Notes, due 2015 (1) — 500
1.75% Notes, due 2017 (1) — 4,000
2.0% Notes, due 2018 (1) — 1,000
5.125% Notes, due 2019 947 947
4.125% Notes, due 2020 597 597
2.9% Notes, due 2022 (1) — 3,100
6.15% Notes, due 2037 547 547
6.0% Notes, due 2039 515 515
5.3% Notes, due 2040 694 694
4.4% Notes, due 2042 (1) — 2,600
Other, including fair value adjustments
relating to interest rate hedge contracts
designated as fair value hedges 88 85
Total, net of current maturities 3,388 18,085
Current maturities of long‑term debt 9 309
Total carrying amount $3,397 $18,394
(1) These notes were issued by AbbVie Inc. in November 2012. With the separation of AbbVie
on January 1, 2013, Abbott no longer has any obligations related to this debt.
Options Outstanding Exercisable Options
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Remaining Exercise Remaining
Shares Price Life (Years) Shares Price Life (Years)
December 31, 2012 (a) 48,685,273 $24.97 4.0 43,511,651 $24.68 3.7
Granted 5,652,197 34.91
Exercised (11,370,121) 25.37
Lapsed (210,009) 31.82
December 31, 2013 42,757,340 $26.15 4.0 36,185,039 $25.02 3.1
(a) The amount of options outstanding and the weighted average exercise price have been revised to reflect the impact of the AbbVie separation.