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2015 ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT

  • Page 2
    ... returns to shareholders. TA B L E O F C O N T E N T S 1 5 16 20 24 28 32 33 57 Letter to Shareholders This is Abbott Nutrition Medical Devices Diagnostics Established Pharmaceuticals Financial Report Consolidated Financial Statements and Notes Management Report on Internal Control Over Financial...

  • Page 3
    ABBOTT 2015 ANNUAL REPORT MILES D. WHITE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER D E A R F E L LOW S H A R E H O L D E R: 2015 demonstrated our company's fundamental ability to execute. In a year characterized by heavy macroeconomic headwinds, we delivered strong underlying growth in ...

  • Page 4
    ... fit, timing, and returns that will benefit shareholders over the long term. We believe we found just such an opportunity in our recent agreement to acquire Alere, the leader in point-ofcare diagnostics. OUR FORMULA FOR SUCCESS This was the environment we navigated in 2015 en route to delivering...

  • Page 5
    ...remains ready and able to provide what our customers need. LEADING Abbott has long been a leader in many ways: in developing new technologies, in growing market-leading products, and in business practices from corporate governance to human resources to global citizenship. What all of these come down...

  • Page 6
    ... Admired Company in Fortune magazine's annual ranking for the third year in a row. We intend to not just maintain, but to improve this high level of performance. Because, at Abbott, our work is too important to do it any other way. MILES D. WHITE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER...

  • Page 7
    ABBOTT 2015 ANNUAL REPORT THIS IS ABBOT T Our solutions-across the spectrum of care and for all stages of life-help people live their best lives through better health. 5

  • Page 8
    ABBOTT 2015 ANNUAL REPORT LIFE. MIL A TERESHINA Moscow, Russia Similac 6

  • Page 9
    ABBOTT 2015 ANNUAL REPORT to the fullest. People across the world share a simple goal. They want to live their fullest lives, achieve their highest potential, become their best possible selves. At Abbott, we help them do that, with innovative, high-quality products and services that help people ...

  • Page 10
    ABBOTT 2015 ANNUAL REPORT BALANCED and broad-based 8

  • Page 11
    ...-changing world. OUR BUSINESS MIX DIAGNOSTICS 23% 18% NUTRITION 34% 25% ESTABLISHED PHARMACEUTICALS MEDICAL DEVICES OUR CUSTOMER MIX OUR GEOGRAPHIC PRESENCE 1/2 of Abbott's sales are now direct to consumers Abbott's business is evenly split between developed and fastergrowing markets 50...

  • Page 12
    ABBOTT 2015 ANNUAL REPORT strong GLOBALLY 10

  • Page 13
    ... ANNUAL REPORT 150+ Abbott has sales in more than 150 countries, serving every region of the world. We're well established in the world's largest and fastest-growing markets, with strong positions that allow us to more effectively meet our customers' needs. STRENGTH IN MA JOR MARKETS Our presence...

  • Page 14
    ABBOTT 2015 ANNUAL REPORT ALIGNED with a changing world At every stage of life Our products are there to help from infancy through adulthood Infants Infant Formula Diagnostics Pharmaceuticals Children Pediatric Nutrition Diagnostics Diabetes Care Pharmaceuticals Adults Adult Nutrition ...

  • Page 15
    ABBOTT 2015 ANNUAL REPORT ISAO ARITO Yokohama, Japan Tecnis Optiblue Lens As the global population ages and economies expand, Abbott is well positioned to grow with the world's demand for healthcare. INCREASED INVESTMENT IN HEALTHCARE Fast-growing economies around the world tend to increase the ...

  • Page 16
    ABBOTT 2015 ANNUAL REPORT LEADING across our businesses TALAL BALUBAID Saudi Arabia FreeStyle Libre 14

  • Page 17
    ABBOTT 2015 ANNUAL REPORT Leaders set the agenda. With leading positions in each of our businesses, Abbott is well positioned to drive change and improve healthcare throughout the world. LEADING commercial presence • Sales in more than 150 countries • #2 pharmaceutical company in India • Top-...

  • Page 18
    2015 Business Review ABBOTT 2015 ANNUAL REPORT NUTRITION A SOLID FOUNDATION FOR A FULL LIFE Norie Zambrano has a busy life in Manila, Philippines, but she loves to explore the natural beauty that can be found just outside of town. Her schedule sometimes makes it challenging to eat right, so she ...

  • Page 19
    ... product portfolio that's balanced between adult and pediatric nutrition. INVESTMENTS IN ASIA In recent years, we've built our presence in the region through targeted investments in manufacturing, supply chain and research-anddevelopment facilities. In 2015, we opened a new research-and-development...

  • Page 20
    2015 Business Review ABBOTT 2015 ANNUAL REPORT NUTRITION UNIQUELY BALANCED FOR GROWTH At Abbott, we develop sciencebased nutrition products to help make every stage of life a healthy one. We offer trusted brands like Similac infant formula and the complete nutrition of PediaSure, for children, ...

  • Page 21
    ... Adult Nutrition portfolio In 2015, Abbott launched Similac Non-GMO for parents who prefer products made without genetically engineered ingredients NEW PRODUCT LAUNCHES IN 2015 38 #1 Similac is the leading infant formula brand in the U.S. Abbott has high-quality manufacturing facilities close...

  • Page 22
    2015 Business Review ABBOTT 2015 ANNUAL REPORT MEDICAL DEVICES INNOVATION IN ACTION Roberto Gullin, of Veneto, Italy, was an avid cyclist in excellent physical condition, so the chest pains he was experiencing took him by ...

  • Page 23
    ...Vascular, Medical Optics and Diabetes Care businesses. These organizations share a common focus on leading-edge technological innovation that improves outcomes while lowering overall healthcare costs. In addition to Absorb, our Vascular business also offers MitraClip, the world's first transcatheter...

  • Page 24
    ... and the Middle East 2015 B U S I N E S S H I G H L I G H T S DIABETES CARE • Launched FreeStyle Precision Neo Blood Glucose Monitoring system in the U.S., providing consumers an affordable, well-known brand in the over-thecounter segment of the market • Received approval in India for FreeStyle...

  • Page 25
    ... that makes it easier for doctors to use, in a number of markets outside the U.S. • Acquired Tendyne Holdings, Inc., broadening Abbott's foundation as a leader in treatments for mitral-valve disease VASCULAR VISION $1.1 $2.8 DIABETES $1.1 2015 S A L E S B Y B U S I N E S S (in billions) 23

  • Page 26
    2015 Business Review ABBOTT 2015 ANNUAL REPORT DIAGNOSTICS TIMELY INFORMATION TO IMPROVE THE QUALITY OF CARE Gina Walker of Chillicothe, Ohio, USA, is the proud mom of two very active kids. When she needed a blood transfusion following a medical emergency, she could feel confident in the safety ...

  • Page 27
    ... the world's blood supply. It's advancements like these that have helped Abbott maintain our position as a pioneer and leader in in vitro diagnostics. With a varied portfolio of sophisticated instruments, tests and technologies for screening and diagnosing diseases and monitoring general health, we...

  • Page 28
    ...entire healthcare system. Abbott develops and commercializes in vitro diagnostics instruments, tests and related automation and informatics solutions for use in hospitals, reference labs, physician offices, emergency departments, critical care and remote settings. CORE LABORATORY Abbott's focus on...

  • Page 29
    ... laboratories more efficient LEADING BRANDS ACROSS OUR DIAGNOSTICS BUSINESS new systems in development These new Abbott systems will improve care while creating greater efficiencies in the healthcare system 6 » ARCHITECT Immunoassay and clinical chemistry systems and tests » ABBOTT PRISM Blood...

  • Page 30
    2015 Business Review ABBOTT 2015 ANNUAL REPORT ESTABLISHED PHARMACEUTICALS EXPANDING OUR IMPACT IN FASTGROWING MARKETS Guillermo Santos Reyes of Santo Domingo, Dominican Republic, wears many hats - bank messenger, husband, father, and grandfather. There are a lot of people relying on him, ...

  • Page 31
    ... of our Developed Markets pharmaceuticals business to Mylan, and continued to build on our presence in Latin America and Russia, integrating the operations of CFR Pharmaceuticals and Veropharm, the two branded-generic pharmaceutical companies we acquired in 2014. CONTROLIP Guillermo uses Controlip...

  • Page 32
    ..., Brazil • Advanced integrations of 2014 acquisitions, Veropharm and CFR pharmaceuticals, strengthening Abbott's commercial, research, and manufacturing infrastructure in Russia and Latin America, respectively • Completed sale of Developed Markets pharmaceuticals business to Mylan. Abbott is now...

  • Page 33
    ABBOTT 2015 ANNUAL REPORT >1,500 PRODUCTS IN OUR PORTFOLIO LARGE PORTFOLIO GLOBAL STRENGTH Abbott's extensive portfolio of branded generic products lets us more easily tailor our product offering to the needs of specific markets Abbott has a pharmaceutical commercial presence in approximately ...

  • Page 34
    ... Income 35 Consolidated Statement of Cash Flows 36 Consolidated Balance Sheet 38 Consolidated Statement of Shareholders' Investment 39 Notes to Consolidated Financial Statements 57 Management Report on Internal Control Over Financial Reporting 58 Reports of Independent Registered Public Accounting...

  • Page 35
    ABBOTT 2015 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T O F E A R N I N G S (in millions except per share data) Year Ended December 31 Net Sales Cost of products sold, excluding amortization of intangible assets Amortization of intangible assets Research and development Selling, general ...

  • Page 36
    ... (losses) and prior service cost and credits and amortization of net actuarial losses and prior service cost and credits, net of taxes of $101 in 2015, $(459) in 2014 and $393 in 2013 Unrealized gains (losses) on marketable equity securities, net of taxes of $104 in 2015, $(7) in 2014 and $(10) in...

  • Page 37
    ... consideration payments related to business acquisitions Transfer of cash and cash equivalents to AbbVie Inc. Purchases of common shares Proceeds from stock options exercised, including income tax benefit Dividends paid Net Cash (Used in) From Financing Activities Effect of exchange rate changes on...

  • Page 38
    ABBOTT 2015 ANNUAL REPORT C O N S O L I D AT E D B A L A N C E S H E E T (dollars in millions) December 31 Assets Current Assets: Cash and cash equivalents Investments, primarily bank time deposits and U.S. treasury bills Trade receivables, less allowances of-2015: $337; 2014: $310 Inventories: ...

  • Page 39
    ABBOTT 2015 ANNUAL REPORT C O N S O L I D AT E D B A L A N C E S H E E T (dollars in millions) December 31 Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings Trade accounts payable Salaries, wages and commissions Other accrued liabilities Dividends payable Income ...

  • Page 40
    ... Net earnings Separation of AbbVie Inc. Cash dividends declared on common shares (per share-2015: $0.98; 2014: $0.90; 2013: $0.64) Effect of common and treasury share transactions End of Year Accumulated Other Comprehensive Income (Loss): Beginning of Year Business dispositions / separation Other...

  • Page 41
    ...'s developed markets pharmaceuticals business. Mylan N.V. is publicly traded. The sale was announced in July 2014. On February 10, 2015, Abbott completed the sale of its animal health business to Zoetis Inc. Abbott entered an agreement to sell this business in November 2014. The historical operating...

  • Page 42
    ...actuarially determined cost of pension and post-employment benefits over the service attribution periods of the employees. Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. Differences...

  • Page 43
    ... combined Mylan's existing business and Abbott's developed markets branded generics pharmaceuticals business. Mylan N.V. is publicly traded. Historically, this business was included in Abbott's Established Pharmaceutical Products segment. Abbott retained its branded generics pharmaceuticals business...

  • Page 44
    ... generics pharmaceuticals and animal health businesses AbbVie Total Earnings Before Tax Developed markets generics pharmaceuticals and animal health businesses AbbVie Total Net Earnings Developed markets generics pharmaceuticals and animal health businesses AbbVie Total 2015 2014 2013 Balance Sheet...

  • Page 45
    .... Revenue from operations in Venezuela represented approximately 2% of Abbott's total net sales and pre-tax income totaled approximately $200 million in 2015 and $175 million in 2014. Abbott's sales in Venezuela primarily relate to the Nutritional and Established Pharmaceuticals segments. Abbott had...

  • Page 46
    ...CFR more than doubles Abbott's branded generics pharmaceutical presence in Latin America and further expands its presence in emerging markets. CFR's financial results are included in Abbott's financial statements beginning on September 26, 2014, the date that Abbott acquired control of this business...

  • Page 47
    ...various commercial operations in order to reduce costs and improve efficiencies in Abbott's core diagnostics, established pharmaceuticals and nutritionals businesses. Abbott recorded employee related severance charges of approximately $66 million in 2015, $125 million in 2014 and $78 million in 2013...

  • Page 48
    ...its worldwide pharmaceutical, vascular and core diagnostics businesses as well as selected domestic and international commercial and research and development operations. Abbott recorded charges for employee severance as well as for the impairment of manufacturing facilities and other assets. In 2013...

  • Page 49
    ...acquisition. Abbott has readily available financial resources, including unused lines of credit of $5.0 billion which expire in 2019 and that support commercial paper borrowing arrangements. Abbott's weighted-average interest rate on short-term borrowings was 0.2% at December 31, 2015, 2014 and 2013...

  • Page 50
    ... due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax. Abbott is a party to interest rate hedge contracts totaling $4.0 billion at December 31, 2015 and $1.5 billion at December 31, 2014 and December 31, 2013, to manage its exposure to changes...

  • Page 51
    ... N.V. ordinary shares. The fair value of the Mylan N.V. equity securities was determined based on the value of the publicly-traded ordinary shares. The fair value of foreign currency forward exchange contracts is determined using a market approach, which utilizes values for comparable derivative...

  • Page 52
    ...2015 ANNUAL REPORT N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTE 12-LITIGATION AND ENVIRONMENTAL MATTERS Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico...

  • Page 53
    ...: Discount rate Expected aggregate average longterm change in compensation 2015 4.3% 4.4% 2014 3.9% 4.3% 2013 4.9% 5.0% The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows: Discount rate Expected return on plan assets...

  • Page 54
    ...benefit and medical and dental plan assets at fair value: Basis of Fair Value Measurement Quoted Significant Significant Prices in Other Observable Unobservable Active Markets Inputs Inputs (in millions) December 31, 2015: Equities: U.S. large cap (a) U.S. mid cap (b) International (c) Fixed income...

  • Page 55
    ... to this plan were $81 million in 2015, $85 million in 2014 and $86 million in 2013. NOTE 14-TAXES ON EARNINGS FROM CONTINUING OPERATIONS Taxes on earnings from continuing operations reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the...

  • Page 56
    ...Total 2015 2014 2013 The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows: (in millions) Deferred tax assets: Compensation and employee benefits Other, primarily reserves not currently deductible, and NOL's and credit carryforwards Trade receivable...

  • Page 57
    ...'s products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to...

  • Page 58
    ... assets related to developed markets established pharmaceuticals and animal health are included in the Goodwill and intangible assets line in 2013 and All other line in 2014. (in millions) United States China India Germany Japan The Netherlands Switzerland Russia United Kingdom Canada Colombia...

  • Page 59
    ... accounting firm has issued an audit report on their assessment of the effectiveness of the company's internal control over financial reporting. This report appears on page 58. Miles D. White Chairman of the Board and Chief Executive Officer Brian B. Yoor Senior Vice President, Finance and Chief...

  • Page 60
    ABBOTT 2015 ANNUAL REPORT REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Abbott Laboratories: We have audited the accompanying consolidated balance sheets of Abbott Laboratories and subsidiaries as of December 31, 2015 and 2014, and the related ...

  • Page 61
    ... 2015 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Abbott Laboratories: We have audited the accompanying consolidated statements of earnings, comprehensive income, shareholders' investment, and cash flows of Abbott Laboratories...

  • Page 62
    ... effect on cash flows, income or fair values. (A 100-basis point change is believed to be a reasonably possible near-term change in rates.) FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS Abbott holds equity securities from strategic technology acquisitions that are not traded on public stock...

  • Page 63
    ... generics pharmaceutical presence in Latin America and further expanded its presence in emerging markets. Through the acquisition of Veropharm, a leading Russian pharmaceutical company in December 2014, Abbott established a manufacturing footprint in Russia and obtained a portfolio of medicines...

  • Page 64
    ...-term debt totaled $9.0 billion at December 31, 2015. At December 31, 2015, Abbott's long-term debt rating was A+ by Standard and Poor's Corporation and A2 by Moody's Investors Service. As a result of the pending acquisition of Alere, Abbott's credit ratings are under review and it is anticipated...

  • Page 65
    ...return on plan assets. The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott's expected annual rates of change in the cost of health care...

  • Page 66
    ... Services on Abbott's Diabetes Care business also contributed to the overall 3.9% price decline in the U.S. in 2014. (dollars in millions) Total Established Pharmaceuticals Key Emerging Markets Other Nutritionals- International Pediatric Nutritionals U.S. Pediatric Nutritionals International...

  • Page 67
    ... programs continue to have a negative effect on the gross profit margins of the Nutritional and Established Pharmaceutical Products segments. Research and development expense was $1.405 billion in 2015, $1.345 billion in 2014, and $1.371 billion in 2013 and represented a 4.5 percent increase in 2015...

  • Page 68
    ABBOTT 2015 ANNUAL REPORT FINANCIAL REVIEW $570 million of debt, the total cost of the acquisition was $3.4 billion. The acquisition of CFR more than doubles Abbott's branded generics pharmaceutical presence in Latin America and further expands its presence in emerging markets. CFR's financial ...

  • Page 69
    ...its worldwide pharmaceutical, vascular and core diagnostics businesses as well as selected domestic and international commercial and research and development operations. Abbott recorded charges for employee severance as well as for the impairment of manufacturing facilities and other assets. In 2013...

  • Page 70
    ...positions pertaining to AbbVie's operations. The operating results of Abbott's developed markets branded generics pharmaceuticals and animal health businesses as well as the income tax expense related to the businesses transferred to AbbVie, which are being reported as discontinued operations are as...

  • Page 71
    ABBOTT 2015 ANNUAL REPORT FINANCIAL REVIEW Depending upon the product, the phases of development may include: • Drug product development. • Phase I bioequivalence studies to compare a future Established Pharmaceutical's brand with an already marketed compound with the same active ...

  • Page 72
    ... of Asia, the Middle East and Latin America for patients who are at prohibitive risk for mitral valve surgery. Abbott continued clinical development of the MitraClip therapy including the COAPT trial, a prospective, randomized trial in the United States that will evaluate the impact of MitraClip...

  • Page 73
    ... approximately $435 million of one-time net cash outflows related to the separation of AbbVie and $724 million of contributions to defined benefit pension plans. The income tax component of operating cash flow in 2015, 2014 and 2013 includes $70 million, $268 million and $427 million, respectively...

  • Page 74
    ... funding were to become unavailable Capital expenditures of $1.1 billion in 2015, 2014 and 2013 were principally for upgrading and expanding manufacturing and research and development facilities and equipment in various segments, investments in information technology, and laboratory instruments...

  • Page 75
    ... the Consolidated Balance Sheet was retrospectively adjusted to reflect the new presentation. The adoption of ASU 2015-03 did not have a material impact to Abbott's consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides...

  • Page 76
    ...50 2010 2011 2012 2013 2014 2015 This graph compares the change in Abbott's cumulative total shareholder return on its common shares with the Standard & Poor's 500 Index and the Standard & Poor's 500 Health Care Index. Abbott Laboratories S&P 500 Index S&P 500 Health Care Assuming $100 invested on...

  • Page 77
    ...of the developed markets branded generics pharmaceuticals and animal health businesses. See Note 3 to the Consolidated Financial Statements for additional information. (b) On January 1, 2013, Abbott completed the separation of AbbVie Inc., which was formed to hold Abbott's research-based proprietary...

  • Page 78
    ... Commercial Operations Edward M. Liddy Retired Chairman and Chief Executive Officer, The Allstate Corporation, Northbrook, Ill. Stephen R. Fussell* Executive Vice President, Human Resources Sharon J. Bracken Vice President, Point of Care Diagnostics Andrew Scorey Vice President, Nutrition, China...

  • Page 79
    ... the New York Stock Exchange's corporate governance listing standards. In addition, Abbott's CEO and chief financial officer filed with the U.S. Securities and Exchange Commission all required certifications regarding the quality of Abbott's public disclosures in its fiscal 2015 reports. www.abbott...

  • Page 80
    ABBOT T.COM