Abbott Laboratories 2014 Annual Report Download - page 55

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ABBOTT 2014 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 underlying 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:
(inmillions) 2014 2013
January1 $555 $«783
Transfers in (out of ) from other categories — 6
Separation of AbbVie Inc. — (165)
Actual return on plan assets:
Assets on hand at year end 25 29
Assets sold during the year 21 51
Purchases, sales and settlements, net 67 (149)
December31 $668 $«555
The investment mix of equity securities, fixed income and other
asset allocation strategies is based upon achieving a desired return,
balancing 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 actual
asset allocation percentages at year end are consistent with the
company’s targeted asset allocation percentages.
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 $393million in
2014 and $724million in 2013 to defined pension plans. Abbott
expects to contribute approximately $585million to its pension
plans in 2015, of which approximately $470million relates to
its main domestic pension plan.
Total benefit payments expected to be paid to participants, which
includes payments funded from company assets, as well as paid
from the plans, are as follows:
(inmillions)
Defined
Benefit Plans
Medical and
Dental Plans
2015 $÷«212 $÷70
2016 225 71
2017 240 72
2018 259 73
2019 278 74
2020 to 2024 1,735 407
The Abbott Stock Retirement Plan is the principal defined contri-
bution plan. Abbott’s contributions to this plan were $85million
in 2014, $86million in 2013 and $150million in 2012. The contri-
bution amount in 2012 included amounts associated with the
businesses transferred to AbbVie.
NOTE 14—TAXES ON EARNINGS FROM CONTINUING
OPERATIONS
Taxes on earnings from continuing operations reflect the annual
eective rates, including charges for interest and penalties. Deferred
income taxes reflect the tax consequences on future years of dier-
ences between the tax bases of assets and liabilities and their
financial reporting amounts.
In 2014, taxes on earnings from continuing operations reflect the
recognition of $440million of tax expense associated with a one-
time repatriation of 2014 non-U.S. earnings, partially oset by the
favorable resolution of various tax positions and adjustments of tax
uncertainties pertaining to prior years. Earnings from discontinued
operations in 2014 include the recognition of $166million of tax
benefits as a result of the resolution of various tax positions related
to AbbVie’s operations prior to the separation. In 2013, taxes on
earnings from continuing operations reflect the recognition of
$230million of tax benefits as a result of the favorable resolution
of various tax positions pertaining to prior years. Earnings from
discontinued operations in 2013 include the recognition of
$193million of tax benefits as a result of the resolution of various
tax positions related to AbbVie’s operations prior to the separation.
In addition, as a result of the American Taxpayer Relief Act of 2012
signed into law in January 2013, Abbott recognized a tax benefit in
the tax provision related to continuing operations of approximately
$103million for the retroactive extension of the research tax credit
and the look-through rules of section 954(c)(6) of the Internal
Revenue Code to the beginning of 2012. The $1.58billion domestic
loss before taxes in 2012 includes $1.29billion of net loss on the
early extinguishment of debt.
U.S. income taxes are provided on those earnings of foreign sub-
sidiaries which are intended to be remitted to the parent company.
Abbott does not record deferred income taxes on earnings rein-
vested indefinitely in foreign subsidiaries. Undistributed earnings