Abbott Laboratories 2014 Annual Report Download - page 74

FINANCIAL REVIEW
ABBOTT 2014 ANNUAL REPORT
72
WORKING CAPITAL
The increase of cash and cash equivalents from $3.5billion at
December31, 2013 to $4.1billion at December31, 2014 reflects the
increase in cash generated by operating activities as well as the
proceeds from the sale of investment securities. Working capital was
$4.7billion at December31, 2014 and $9.7billion at December31,
2013. The decrease in working capital in 2014 was due to a decline
in short-term investments and an increase in short-term borrow-
ings primarily to fund recent acquisitions and share repurchases.
Substantially all of Abbott’s trade receivables in Italy, Spain,
Portugal, and Greece are with governmental health systems. The
collection of outstanding receivables in these countries improved
in 2014. As a result, governmental receivables in these four coun-
tries accounted for less than 1 percent of Abbott’s total assets and
9percent of total net trade receivables as of December31, 2014,
down from 12 percent as of December31, 2013.
With the exception of Greece, Abbott historically has collected
almost all of the outstanding receivables in these countries. Abbott
continues to monitor the credit worthiness of customers located
in these and other geographic areas and establishes an allowance
against a trade receivable when it is probable that the balance
will not be collected. In addition to closely monitoring economic
conditions and budgetary and other fiscal developments in these
countries, Abbott regularly communicates with its customers
regarding the status of receivable balances, including their payment
plans and obtains positive confirmation of the validity of the receiv-
ables. Abbott also monitors the potential for and periodically has
utilized factoring arrangements to mitigate credit risk although the
receivables included in such arrangements have historically not
been a material amount of total outstanding receivables. If govern-
ment funding were to become unavailable in these countries or if
significant adverse changes in their reimbursement practices were
to occur, Abbott may not be able to collect the entire balance.
FOREIGN CURRENCY DEVELOPMENTS
Since January 2010, Venezuela has been designated as a highly
inflationary economy under U.S. GAAP. In 2014, the government of
Venezuela operated multiple mechanisms to exchange bolivars into
U.S. dollars. In 2014, Abbott continued to use the ocial rate of
6.3Venezuelan bolivars to the U.S. dollar to report the results, finan-
cial position, and cash flows related to its operations in Venezuela
since Abbott continued to qualify for this exchange rate to pay for
the import of various products into Venezuela. Abbott cannot pre-
dict whether there will be a devaluation of the Venezuelan bolivar
or whether it will continue to be able to exchange bolivars at the
6.3rate. As of December31, 2014, Abbott had net monetary assets
that are subject to revaluation in Venezuela of approximately
$240million. In 2014, revenue from operations in Venezuela
represented approximately 2% of Abbott’s total net sales.
CAPITAL EXPENDITURES
Capital expenditures of $1.1billion in 2014 and 2013 and $1.8billion
in 2012 were principally for upgrading and expanding manufac-
turing and research and development facilities and equipment in
various segments, investments in information technology, and
laboratory instruments placed with customers.
While over 85% of the cash and cash equivalents at December31,
2014, is considered reinvested indefinitely in foreign subsidiaries,
Abbott does not expect such reinvestment to aect its liquidity and
capital resources. If these funds were needed for operations in the
U.S., Abbott may be required to accrue and pay U.S. income taxes
to repatriate these funds. Abbott believes that it has sucient
sources of liquidity to support its assumption that the disclosed
amount of undistributed earnings at December31, 2014 can be
considered to be reinvested indefinitely.
Abbott funded $393million in 2014, $724million in 2013 and
$379million in 2012 to defined benefit pension plans. Abbott
expects pension funding of approximately $585million in 2015
for its pension plans, of which approximately $470million relates
to its main domestic pension plans. Abbott expects to fund cash
dividends, capital expenditures, and its other investments in its
businesses with cash flow from operating activities, cash on hand,
short-term investments, and borrowings.
DEBT AND CAPITAL
At December31, 2014, Abbott’s long-term debt rating was A+
by Standard & Poor’s Corporation and A1 by Moody’s Investors
Service. Abbott has readily available financial resources, including
unused lines of credit of $5.0billion that support commercial
paper borrowing arrangements which expire in 2019.
In 2014, Abbott redeemed approximately $500million of long-
term notes that were assumed as part of the acquisition of CFR
Pharmaceuticals. In 2012, Abbott redeemed $7.7billion of long-
term notes in preparation for the separation of AbbVie from Abbott
and repaid $1billion of long-term notes that were due in 2012. In
addition, AbbVie Inc., a wholly owned subsidiary of Abbott, issued
$14.7billion of long-term notes that were guaranteed by Abbott
until AbbVie’s separation from Abbott on January1, 2013.
In September 2014, the board of directors authorized the repur-
chase of up to $3billion of Abbott’s common shares from time to
time. The new authorization is in addition to the $512million
unused portion of a previous program announced in June 2013.
Under the program announced in June 2013, the board of directors
authorized the purchase of up to $3.0billion of Abbott’s common
shares. Under this program, Abbott repurchased 54.6million shares
at a cost of $2.1billion in 2014 and 10.5million shares at a cost of
$388million in the last six months of 2013, leaving $512million
unused under this program. In the first six months of 2013, 33.0mil-
lion shares were purchased at a cost of approximately $1.2billion,
which was under a previous share repurchase authorization.
Abbott declared dividends of $0.90 per share in 2014 compared
to $0.64 per share in 2013, a 40% increase. Dividends paid were
$1.342billion in 2014 compared to $882million in 2013. The year-
over-year change in dividends reflects the impact of the increase
in the dividend rate.