Abbott Laboratories 2015 Annual Report Download - page 74

FINANCIAL REVIEW
ABBOTT 2015 ANNUAL REPORT
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inthese countries or if significant adverse changes in their reim-
bursement practices were to occur, Abbott may not be able to
collect the entire balance.
VENEZUELA OPERATIONS
Since January 2010, Venezuela has been designated as a highly
inflationary economy under U.S. GAAP. In 2014 and 2015, the
government of Venezuela operated multiple mechanisms to
exchange bolivars into U.S. dollars. These mechanisms included
the CENCOEX, SICAD, and SIMADI rates, which stood at 6.3, 13.5,
and approximately 200, respectively, at December 31, 2015. In2015,
Abbott continued to use the CENCOEX rate of 6.3 Venezuelan
bolivars to the U.S. dollar to report the results, financial 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.
Revenue from operations in Venezuela represented approxi-
mately 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. The economic
uncertainty associated with Venezuela increased in 2015 due
tothe continued hyper-inflation and political uncertainty in the
country and lower oil prices, among other factors. Abbott had
netmonetary assets that are subject to revaluation in Venezuela
of approximately $440million at December 31, 2015. Such
assetsare comprised primarily of cash.
On February 17, 2016, the Venezuelan government announced that
the three-tier exchange rate system will be reduced to two rates and
the ocial rate for food and medicine imports will be adjusted from
6.3 to 10 bolivars per U.S. dollar. As a result of the new 10 bolivars
per U.S. dollar exchange rate, Abbott’s net monetary assets in
Venezuela will be subject to revaluation during the quarter ending
March 31, 2016, which will result in recognition of a foreign currency
exchange loss in that period. Based on Abbott’s net monetary assets
subject to revaluation at December 31, 2015, remeasuring these
assets at a rate of 10 bolivars per U.S. dollar would result in a foreign
currency loss of approximately $165 million.
Abbott cannot be certain that the Venezuelan government will
not make further revisions to the ocial exchange rate in the
future which could result in additional foreign currency losses.
While Abbott intends to continue to sell medically critical products
in this country, Abbott cannot predict the impact of continued
hyper-inflation, low oil prices, and the new exchange rate system
on the Venezuelan economy or on the future operating results and
financial position of its business in this country.
CAPITAL EXPENDITURES
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 placed with customers.
In September2014, the board of directors authorized the repur-
chase of up to $3.0billion of Abbott’s common shares from time
totime. The 2014 authorization was in addition to the $512million
unused portion of a previous program announced in June2013.
In2015, Abbott repurchased 11.3million shares at a cost of
$512million under the unused portion of the 2013 authorization
and 36.2million shares at a cost of $1.7billion under the program
authorized in 2014 for a total of 47.5million shares at a cost of
$2.2billion. In 2014, Abbott repurchased 54.6million shares at
acost of $2.1billion under the program announced in June 2013.
In2013, Abbott repurchased 10.5million shares at a cost of
$388million under the 2013 authorization and 33.0million shares
at a cost of $1.2billion under a previous authorization for a total
of43.5million shares at a cost of $1.6billion.
Abbott declared dividends of $0.98 per share in 2015 compared
to$0.90 per share in 2014, a 9% increase. Dividends paid were
$1.443billion in 2015 compared to $1.342billion in 2014. The
year-over-year change in dividends reflects the impact of the
increase in the dividend rate.
WORKING CAPITAL
The increase of cash and cash equivalents from $4.1billion at
December 31, 2014 to $5.0billion at December 31, 2015 reflects the
cash generated by operating activities as well as the proceeds from
the sale of investment securities. Working capital was $5.0billion
at December31, 2015 and $3.1billion at December31, 2014. The
increase in working capital in 2015 was due to an increase in cash
and cash equivalents and short-term investments and a decrease
in short-term borrowings primarily due to the proceeds received
related to the recent divestiture of businesses and the issuance
oflong-term debt.
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 and has been stable in 2015. Governmental receivables in
these four countries accounted for less than 1 percent of Abbott’s
total assets and 7 percent of total net trade receivables as of
December 31, 2015, down from 9 percent as of December 31, 2014.
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 pay-
ment plans and obtains positive confirmation of the validity of the
receivables. 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 government funding were to become unavailable