Abbott Laboratories 2015 Annual Report Download - page 43

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ABBOTT 2015 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets of $10million, and trade accounts payable and accrued
liabilities of $373million. Abbott has recorded a prepaid asset of
$266million for its obligation to transfer these net liabilities held
for disposition to AbbVie.
Abbott has retained all liabilities for all U.S. federal and foreign
income taxes on income prior to the separation, as well as certain
non-income taxes attributable to AbbVie’s business. AbbVie gener-
ally will be liable for all other taxes attributable to its business.
NOTE3—DISCONTINUED OPERATIONS
On February 27, 2015, Abbott completed the sale of its developed
markets branded generics pharmaceuticals business to Mylan Inc.
(Mylan) for 110million shares (or approximately 22%) of a newly
formed entity (Mylan N.V.) that 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 in emerging markets. At the date of closing, the 110million
Mylan N.V. shares that Abbott received were valued at $5.77billion
and Abbott recorded an after-tax gain on the sale of the business of
approximately $1.6billion. The shareholder agreement with Mylan
N.V. includes voting and other restrictions that prevent Abbott from
exercising significant influence over the operating and financial
policies of Mylan N.V.
At the close of this transaction Abbott and Mylan entered into a
transition services agreement pursuant to which Abbott and
Mylan are providing various back oce support services to each
other on an interim transitional basis. Transition services may be
provided for up to 2 years. Charges by Abbott under this transition
services agreement are recorded as a reduction of the costs to
provide the respective service in the applicable expense category
in the Consolidated Statement of Earnings. This transition support
does not constitute significant continuing involvement in Mylan’s
operations. Abbott also entered into manufacturing supply agree-
ments with Mylan related to certain products, with the supply
term ranging from 3 to 10 years and requiring a 2 year notice prior
to termination. The cash flows associated with these transition
services and manufacturing supply agreements are not expected to
be significant, and therefore, these cash flows are not direct cash
flows of the disposed component under Accounting Standards
Codification 205.
In April2015, Abbott sold 40.25million of the 110million ordi-
nary shares of Mylan N.V. received in the sale of the developed
markets branded generics pharmaceuticals business to Mylan.
Abbott recorded a pretax gain of $207million on $2.29billion in
net proceeds from the sale of these shares. The gain is recognized
in the Other (income) expense line of the Consolidated Statement
of Earnings. As a result of this sale, Abbott’s ownership interest
inMylan N.V. decreased to approximately 14%.
On February10, 2015, Abbott completed the sale of its animal
health business to Zoetis Inc. Abbott received cash proceeds of
$230million and reported an after tax gain on the sale of approxi-
mately $130million.
products. The fair value of IPR&D projects acquired in a business
combination are capitalized and accounted for as indefinite-lived
intangible assets until completed and are then amortized over
theremaining useful life. Collaborations are not significant for
continuing operations.
Concentration of Risk and Guarantees—Due to the nature of its opera-
tions, Abbott is not subject to significant concentration risks relating
to customers, products or geographic locations. Governmental
accounts in Italy, Spain, Greece and Portugal accounted for 7per-
cent and 9 percent of total net trade receivables as of December31,
2015 and 2014, respectively. Product warranties are not significant.
Abbott has no material exposures to o-balance sheet arrange-
ments; no special purpose entities; nor activities that include
non-exchange-traded contracts accounted for at fair value. Abbott
has periodically entered into agreements in the ordinary course of
business, such as assignment of product rights, with other compa-
nies, 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 obliga-
tions. Based upon past experience, the likelihood of payments
under these agreements is remote. Abbott periodically acquires a
business or product rights in which Abbott agrees to pay contin-
gent consideration based on attaining certain thresholds or based
on the occurrence of certain events.
NOTE2—SEPARATION OF ABBVIE INC.
On January 1, 2013, Abbott completed the separation of AbbVie
Inc. (AbbVie), which was formed to hold Abbott’s research-based
proprietary pharmaceuticals business. Abbott and AbbVie entered
into transitional services agreements prior to the separation pur-
suant to which Abbott and AbbVie provided to each other, on an
interim transitional basis, various services. Transition services
were provided for up to 24 months with an option for a one-year
extension by the recipient. Services provided by Abbott included
certain information technology and back oce support. Billings
byAbbott under these transitional services agreements were
recorded as a reduction of the costs to provide the respective
service in the applicable expense category in the Consolidated
Statement of Earnings. This transitional support enabled AbbVie
to establish its stand-alone processes for various activities that
were previously provided by Abbott and did not constitute signifi-
cant continuing support of AbbVie’s operations.
For a small portion of AbbVie’s operations, the legal transfer of
AbbVie’s assets (net of liabilities) did not occur with the separation
of AbbVie on January 1, 2013 due to the time required to transfer
marketing authorizations and other regulatory requirements in
each of these countries. Under the terms of the separation agree-
ment with Abbott, AbbVie is subject to the risks and entitled to the
benefits generated by these operations and assets. The majority of
these operations were transferred to AbbVie in 2013 and 2014.
These assets and liabilities have been presented as held for disposi-
tion in the Consolidated Balance Sheet. At December 31, 2015, the
assets and liabilities held for disposition consist of cash and trade
accounts receivable of $54million, inventories of $43million, other