Abbott Laboratories 2015 Annual Report Download - page 55

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ABBOTT 2015 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2016 $÷«225 $÷67
2017 238 68
2018 253 69
2019 271 70
2020 290 71
2021 to 2025 1,772 393
The Abbott Stock Retirement Plan is the principal defined contri-
bution plan. Abbott’s contributions 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
eective rates, including charges for interest and penalties.
Deferred income taxes reflect the tax consequences on future
years of dierences between the tax bases of assets and liabilities
and their financial reporting amounts.
In 2015, taxes on earnings from continuing operations include a
taxcost of $71million related to the disposal of shares of Mylan N.V.
stock. 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. 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. 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 in the first
quarter of 2013 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.
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
reinvested indefinitely in foreign subsidiaries as working capital
and plant and equipment aggregated $22.4billion at December31,
2015. It is not practicable to determine the amount of deferred
income taxes not provided on these earnings. In the U.S., Abbott’s
federal income tax returns through 2011 are settled except for
oneitem, and the income tax returns for years after 2011 are open.
There are numerous other income tax jurisdictions for which tax
returns are not yet settled, none of which are individually signifi-
cant. Reserves for interest and penalties are not significant.
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 and private equity 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) 2015 2014
January1 $668 $555
Actual return on plan assets:
Assets on hand at year end (13) 25
Assets sold during the year 5 21
Purchases, sales and settlements, net 336 67
December31 $996 $668
The investment mix of equity securities, fixed income and other
asset allocation strategies is based upon achieving a desired return
as well as balancing higher return, more volatile equity securities
with 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 concentra-
tions 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 $579million in 2015 and
$393million in 2014 to defined pension plans. Abbott expects to
contribute approximately $576million to its pension plans in
2016, of which approximately $470million relates to its main
domestic pension plan.