Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


		Page
Consolidated Statement of Earnings		44
Consolidated Statement of Comprehensive Income		45
Consolidated Statement of Cash Flows		46
Consolidated Balance Sheet		47
Consolidated Statement of Shareholders’ Investment		49
Notes to Consolidated Financial Statements		50
Management Report on Internal Control Over Financial Reporting		86
Report of Independent Registered Public Accounting Firm		87
Report of Independent Registered Public Accounting Firm		90

Abbott Laboratories and Subsidiaries

Consolidated Statement of Earnings

(in millions except per share data)


	Year Ended December 31
	2019		2018		2017
Net Sales	$	31,904	$	30,578	$	27,390
Cost of products sold, excluding amortization of intangible assets		13,231		12,706		12,409
Amortization of intangible assets		1,936		2,178		1,975
Research and development		2,440		2,300		2,260
Selling, general and administrative		9,765		9,744		9,182
Total Operating Cost and Expenses		27,372		26,928		25,826
Operating Earnings		4,532		3,650		1,564
Interest expense		670		826		904
Interest income		(94)		(105)		(124)
Net foreign exchange (gain) loss		7		28		(34)
Debt extinguishment costs		63		167		—
Other (income) expense, net		(191)		(139)		(1,413)
Earnings from Continuing Operations Before Taxes		4,077		2,873		2,231
Taxes on Earnings from Continuing Operations		390		539		1,878

Earnings from Continuing Operations		3,687		2,334		353

Net Earnings from Discontinued Operations, net of taxes		—		34		124

Net Earnings	$	3,687	$	2,368	$	477

Basic Earnings Per Common Share --
Continuing Operations	$	2.07	$	1.32	$	0.20
Discontinued Operations		—		0.02		0.07
Net Earnings	$	2.07	$	1.34	$	0.27

Diluted Earnings Per Common Share --
Continuing Operations	$	2.06	$	1.31	$	0.20
Discontinued Operations		—		0.02		0.07
Net Earnings	$	2.06	$	1.33	$	0.27

Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share		1,768		1,758		1,740
Dilutive Common Stock Options		13		12		9
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options		1,781		1,770		1,749
Outstanding Common Stock Options Having No Dilutive Effect		61		—		—

The accompanying notes to consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subsidiaries

Consolidated Statement of Comprehensive Income

(in millions)


	Year Ended December 31
	2019		2018		2017
Net Earnings	$	3,687	$	2,368	$	477
Foreign currency translation gain (loss) adjustments		(12)		(1,460)		1,365
Net actuarial gains (losses) and prior service cost and credits and amortization of net actuarial losses and prior service cost and credits, net of taxes of $(238) in 2019, $47 in 2018 and $(61) in 2017		(814)		132		(243)
Unrealized gains (losses) on marketable equity securities, net of taxes of $(76) in 2017		—		—		64
Net (losses) gains on derivative instruments designated as cash flow hedges, net of taxes of $(17) in 2019, $50 in 2018 and $(43) in 2017		(53)		136		(134)
Other Comprehensive Income (Loss)		(879)		(1,192)		1,052
Comprehensive Income	$	2,808	$	1,176	$	1,529

Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax as of December 31:
Cumulative foreign currency translation (loss) adjustments	$	(4,924)	$	(4,912)	$	(3,452)
Net actuarial (losses) and prior service (cost) and credits		(3,540)		(2,726)		(2,521)
Cumulative unrealized (losses) gains on marketable equity securities		—		—		(5)
Cumulative (losses) gains on derivative instruments designated as cash flow hedges		(1)		52		(84)
Accumulated other comprehensive income (loss)	$	(8,465)	$	(7,586)	$	(6,062)

The accompanying notes to consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subsidiaries

Consolidated Statement of Cash Flows

(in millions)


	Year Ended December 31
	2019		2018		2017
Cash Flow From (Used in) Operating Activities:
Net earnings	$	3,687	$	2,368	$	477
Adjustments to reconcile earnings to net cash from operating activities —
Depreciation		1,078		1,100		1,046
Amortization of intangible assets		1,936		2,178		1,975
Share-based compensation		519		477		406
Amortization of inventory step-up		—		32		907
Investing and financing losses, net		184		126		47
Loss on extinguishment of debt		63		167		—
Amortization of bridge financing fees		—		—		5
Gains on sale of businesses		—		—		(1,163)
Gain on sale of Mylan N.V. shares		—		—		(45)
Trade receivables		(275)		(190)		(207)
Inventories		(593)		(514)		249
Prepaid expenses and other assets		(138)		23		109
Trade accounts payable and other liabilities		220		747		615
Income taxes		(545)		(214)		1,149
Net Cash From Operating Activities		6,136		6,300		5,570

Cash Flow From (Used in) Investing Activities:
Acquisitions of property and equipment		(1,638)		(1,394)		(1,135)
Acquisitions of businesses and technologies, net of cash acquired		(170)		(54)		(17,183)
Proceeds from business dispositions		48		48		6,042
Proceeds from the sale of Mylan N.V. shares		—		—		2,704
Purchases of investment securities		(103)		(131)		(210)
Proceeds from sales of investment securities		21		73		129
Other		27		102		35
Net Cash From (Used in) Investing Activities		(1,815)		(1,356)		(9,618)

Cash Flow From (Used in) Financing Activities:
Proceeds from issuance of (repayments of) short-term debt, net and other		—		(26)		(1,034)
Proceeds from issuance of long-term debt and debt with maturities over 3 months		1,842		4,009		6,742
Repayments of long-term debt and debt with maturities over 3 months		(3,441)		(12,433)		(8,650)
Purchase of Alere preferred stock		—		—		(710)
Acquisition and contingent consideration payments related to business acquisitions		—		—		(13)
Purchases of common shares		(718)		(238)		(117)
Proceeds from stock options exercised		298		271		350
Dividends paid		(2,270)		(1,974)		(1,849)
Net Cash From (Used in) Financing Activities		(4,289)		(10,391)		(5,281)

Effect of exchange rate changes on cash and cash equivalents		(16)		(116)		116
Net Increase (Decrease) in Cash and Cash Equivalents		16		(5,563)		(9,213)
Cash and Cash Equivalents, Beginning of Year		3,844		9,407		18,620
Cash and Cash Equivalents, End of Year	$	3,860	$	3,844	$	9,407

Supplemental Cash Flow Information:
Income taxes paid	$	930	$	740	$	570
Interest paid		677		845		917

The accompanying notes to consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subsidiaries

Consolidated Balance Sheet

(dollars in millions)


	December 31
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	3,860	$	3,844
Investments, primarily bank time deposits and U.S. treasury bills		280		242
Trade receivables, less allowances of — 2019: $384; 2018: $314		5,425		5,182
Inventories:
Finished products		2,784		2,407
Work in process		560		499
Materials		972		890
Total inventories		4,316		3,796
Other prepaid expenses and receivables		1,786		1,568
Total current assets		15,667		14,632
Investments		883		897
Property and equipment, at cost:
Land		519		501
Buildings		3,702		3,555
Equipment		11,468		10,756
Construction in progress		1,110		894
		16,799		15,706
Less: accumulated depreciation and amortization		8,761		8,143
Net property and equipment		8,038		7,563
Intangible assets, net of amortization		17,025		18,942
Goodwill		23,195		23,254
Deferred income taxes and other assets		3,079		1,885
	$	67,887	$	67,173

Abbott Laboratories and Subsidiaries

Consolidated Balance Sheet

(dollars in millions)


	December 31
	2019		2018
Liabilities and Shareholders’ Investment
Current liabilities:
Short-term borrowings	$	201	$	200
Trade accounts payable		3,252		2,975
Salaries, wages and commissions		1,237		1,182
Other accrued liabilities		4,035		3,780
Dividends payable		635		563
Income taxes payable		226		305
Current portion of long-term debt		1,277		7
Total current liabilities		10,863		9,012
Long-term debt		16,661		19,359
Post-employment obligations and other long-term liabilities		9,062		8,080
Commitments and contingencies
Shareholders’ investment:
Preferred shares, one dollar par value Authorized — 1,000,000 shares, none issued		—		—
Common shares, without par value Authorized — 2,400,000,000 shares Issued at stated capital amount — Shares: 2019: 1,976,855,085; 2018: 1,971,189,465		23,853		23,512
Common shares held in treasury, at cost — Shares: 2019: 214,351,838; 2018: 215,570,043		(10,147)		(9,962)
Earnings employed in the business		25,847		24,560
Accumulated other comprehensive income (loss)		(8,465)		(7,586)
Total Abbott Shareholders’ Investment		31,088		30,524
Noncontrolling interests in subsidiaries		213		198
Total Shareholders’ Investment		31,301		30,722
	$	67,887	$	67,173

The accompanying notes to consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subsidiaries

Consolidated Statement of Shareholders’ Investment

(in millions except shares and per share data)


	Year Ended December 31
	2019		2018		2017
Common Shares:
Beginning of Year
Shares: 2019: 1,971,189,465; 2018: 1,965,908,188; 2017: 1,707,475,455	$	23,512	$	23,206	$	13,027
Issued under incentive stock programs
Shares: 2019: 5,665,620; 2018: 5,281,277; 2017: 8,834,924		209		163		242
Issued for St. Jude Medical acquisition
Shares: 2017: 249,597,809		—		—		9,835
Share-based compensation		521		479		406
Issuance of restricted stock awards		(389)		(336)		(304)
End of Year
Shares: 2019: 1,976,855,085; 2018: 1,971,189,465; 2017: 1,965,908,188	$	23,853	$	23,512	$	23,206
Common Shares Held in Treasury:
Beginning of Year
Shares: 2019: 215,570,043; 2018: 222,305,719; 2017: 234,606,250	$	(9,962)	$	(10,225)	$	(10,791)
Issued under incentive stock programs
Shares: 2019: 7,796,030; 2018: 8,870,735; 2017: 8,696,320		361		408		400
Issued for St. Jude Medical acquisition
Shares: 2017: 3,906,848		—		—		180
Purchased
Shares: 2019: 6,577,825; 2018: 2,135,059; 2017: 302,637		(546)		(145)		(14)
End of Year
Shares: 2019: 214,351,838; 2018: 215,570,043; 2017: 222,305,719	$	(10,147)	$	(9,962)	$	(10,225)
Earnings Employed in the Business:
Beginning of Year	$	24,560	$	23,978	$	25,565
Impact of adoption of new accounting standards		—		351		—
Net earnings		3,687		2,368		477
Cash dividends declared on common shares (per share — 2019: $1.32; 2018: $1.16; 2017: $1.075)		(2,343)		(2,047)		(1,947)
Effect of common and treasury share transactions		(57)		(90)		(117)
End of Year	$	25,847	$	24,560	$	23,978
Accumulated Other Comprehensive Income (Loss):
Beginning of Year	$	(7,586)	$	(6,062)	$	(7,263)
Impact of adoption of new accounting standards		—		(332)		—
Business dispositions		—		—		149
Other comprehensive income (loss)		(879)		(1,192)		1,052
End of Year	$	(8,465)	$	(7,586)	$	(6,062)
Noncontrolling Interests in Subsidiaries:
Beginning of Year	$	198	$	201	$	179
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases		15		(3)		22
End of Year	$	213	$	198	$	201

The accompanying notes to consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

NATURE OF BUSINESS — Abbott’s principal business is the discovery, development, manufacture and sale of a broad line of health care products.

BASIS OF CONSOLIDATION — The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.

USE OF ESTIMATES — The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for sales rebates, income taxes, pension and other post-employment benefits, valuation of intangible assets, litigation, derivative financial instruments, and inventory and accounts receivable exposures.

FOREIGN CURRENCY TRANSLATION — The statements of earnings of foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using average exchange rates for the period. The net assets of foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using exchange rates as of the balance sheet date. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in equity as a component of Accumulated other comprehensive income (loss). Transaction gains and losses are recorded on the Net foreign exchange (gain) loss line of the Consolidated Statement of Earnings.

REVENUE RECOGNITION — Revenue from product sales is recognized upon the transfer of control, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Revenue from the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer’s normal requirements are recorded when the conditions noted above are met. In those situations, management records a returns reserve for such revenue, if necessary. In certain of Abbott’s businesses, primarily within diagnostics, Abbott participates in selling arrangements that include multiple performance obligations (e.g., instruments, reagents, procedures, and service agreements). The total transaction price of the contract is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Sales of product rights for marketable products are recorded as revenue upon disposition of the rights.

INCOME TAXES — Deferred income taxes are provided for the tax effect of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at the enacted statutory rate to be in effect when the taxes are paid. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax related to the U.S. Tax Cuts and Jobs Act, or any additional outside basis differences that exist, as these amounts continue to be indefinitely reinvested in foreign operations. Interest and penalties on income tax obligations are included in taxes on earnings.

EARNINGS PER SHARE — Unvested restricted stock units and awards that contain non-forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two-class method. Under the two-class method, net earnings are allocated between common shares and participating securities. Earnings from Continuing Operations allocated to common shares in 2019, 2018 and 2017 were $3.666 billion, $2.320 billion and $346 million, respectively. Net earnings allocated to common shares in 2019, 2018 and 2017 were $3.666 billion, $2.353 billion and $468 million, respectively.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 1 — Summary of Significant Accounting Policies (Continued)

PENSION AND POST-EMPLOYMENT BENEFITS — Abbott accrues for the 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 between the expected long-term return on plan assets and the actual return are amortized over a five-year period. Actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method.

FAIR VALUE MEASUREMENTS — For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model. Purchased intangible assets are recorded at fair value. The fair value of significant purchased intangible assets is based on independent appraisals. Abbott uses a discounted cash flow model to value intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants. Intangible assets are reviewed for impairment on a quarterly basis. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually.

SHARE-BASED COMPENSATION — The fair value of stock options and restricted stock awards and units are amortized over their requisite service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense.

LITIGATION — Abbott accounts for litigation losses in accordance with FASB ASC No. 450, “Contingencies.” Under ASC No. 450, loss contingency provisions are recorded for probable losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. Legal fees are recorded as incurred.

CASH, CASH EQUIVALENTS AND INVESTMENTS — Cash equivalents consist of bank time deposits, U.S. government securities money market funds and U.S. treasury bills with original maturities of three months or less. Abbott holds certain investments with a carrying value of $321 million that are accounted for under the equity method of accounting. Investments held in a rabbi trust and investments in publicly traded equity securities are recorded at fair value and changes in fair value are recorded in earnings. Investments in equity securities that are not traded on public stock exchanges are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Investments in debt securities are classified as held-to-maturity, as management has both the intent and ability to hold these securities to maturity, and are reported at cost, net of any unamortized premium or discount. Income relating to these securities is reported as interest income.

TRADE RECEIVABLE VALUATIONS — Accounts receivable are stated at their net realizable value. The allowance against gross trade receivables reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Accounts receivable are charged off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.

INVENTORIES — Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Cost includes material and conversion costs.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 1 — Summary of Significant Accounting Policies (Continued)

PROPERTY AND EQUIPMENT — Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment:


Classification		Estimated Useful Lives
Buildings		10 to 50 years
Equipment		3 to 20 years

PRODUCT LIABILITY — Abbott accrues for product liability claims when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The liabilities are adjusted quarterly as additional information becomes available. Product liability losses are self-insured.

RESEARCH AND DEVELOPMENT COSTS — Internal research and development costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone results are achieved.

ACQUIRED IN-PROCESS AND COLLABORATIONS RESEARCH AND DEVELOPMENT (IPR&D) — The initial costs of rights to IPR&D projects obtained in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical or medical device 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.

CONCENTRATION OF RISK AND GUARANTEES — Due to the nature of its operations, Abbott is not subject to significant concentration risks relating to customers, products or geographic locations. Product warranties are not significant.

Abbott has no material exposures to off-balance sheet arrangements; 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 companies, 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 obligations. 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 contingent consideration based on attaining certain thresholds or based on the occurrence of certain events.

Note 2 – New Accounting Standards

Recently Adopted Accounting Standards

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from Accumulated other comprehensive income (loss) to retained earnings (Earnings employed in the business). Abbott adopted the new standard at the beginning of the fourth quarter of 2018. As a result of the adoption of the new standard, approximately $337 million of stranded tax effects were reclassified from Accumulated other comprehensive income (loss) to Earnings employed in the business.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 2 – New Accounting Standards (Continued)

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Abbott adopted the standard on January 1, 2018, using a modified retrospective approach and recorded a cumulative catch-up adjustment to Earnings employed in the business in the Consolidated Balance Sheet that was not significant.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to measure and recognize a lease asset and liability on the balance sheet for most leases, including operating leases. Abbott adopted the new standard as of January 1, 2019 using the modified retrospective approach and applied the standard’s transition provisions as of January 1, 2019. As a result, no changes were made to the December 31, 2018 Consolidated Balance Sheet. Abbott elected to apply the package of practical expedients related to transition. These practical expedients allowed Abbott to carry forward its historical assessments of whether any existing contracts are or contain leases, the lease classification for each lease existing at January 1, 2019, and whether any initial direct costs for such leases qualified for capitalization. The new lease accounting standard did not have a material impact on the amounts reported in the Consolidated Statement of Earnings but does have a material impact on the amounts reported in the Consolidated Balance Sheet. Adoption of the new standard resulted in the recording of approximately $850 million of new right of use (ROU) assets and additional liabilities for operating leases on the Consolidated Balance Sheet as of January 1, 2019.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. Abbott adopted the standard on January 1, 2018. Under the new standard, changes in the fair value of equity investments with readily determinable fair values are recorded in Other (income) expense, net within the Consolidated Statement of Earnings. Previously, such fair value changes were recorded in other comprehensive income. Abbott has elected the measurement alternative allowed by ASU 2016-01 for its equity investments without readily determinable fair values. These investments are measured at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Changes in the measurement of these investments are being recorded in Other (income) expense, net within the Consolidated Statement of Earnings. As part of the adoption, the cumulative-effect adjustment to Earnings employed in the business in the Consolidated Balance Sheet for net unrealized losses on equity investments that were recorded in Accumulated other comprehensive income (loss) as of December 31, 2017 was not significant.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of the ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Abbott adopted the new standard as of January 1, 2018, using the modified retrospective approach method. Under this method, entities recognize the cumulative effect of applying the new standard at the date of initial application with no restatement of comparative periods presented. The cumulative effect of applying the new standard resulted in an increase to Earnings employed in the business in the Consolidated Balance Sheet of $23 million which was recorded on January 1, 2018. The new standard has been applied only to those contracts that were not completed as of January 1, 2018. The impact of adopting ASU 2014-09 was not significant to individual financial statement line items in the Consolidated Balance Sheet and Consolidated Statement of Earnings.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 2 – New Accounting Standards (Continued)

Recent Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard becomes effective for Abbott in the first quarter of 2021 and early adoption is permitted. Abbott does not expect adoption of this new standard to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. The new standard will be effective for Abbott at the beginning of 2020. Adoption of the new standard will not have a material impact on the consolidated financial statements.

Note 3 — Revenue

Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott's products are generally sold directly to retailers, wholesalers, distributors, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. Abbott has four reportable segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 3 — Revenue (Continued)

The following tables provide detail by sales category:


	2019						2018						2017
(in millions)	U.S.		Int'l		Total		U.S.		Int'l		Total		U.S.		Int'l		Total
Established Pharmaceutical Products —
Key Emerging Markets	$	—	$	3,392	$	3,392	$	—	$	3,363	$	3,363	$	—	$	3,307	$	3,307
Other		—		1,094		1,094		—		1,059		1,059		—		980		980
Total		—		4,486		4,486		—		4,422		4,422		—		4,287		4,287

Nutritionals —
Pediatric Nutritionals		1,879		2,282		4,161		1,843		2,254		4,097		1,777		2,112		3,889
Adult Nutritionals		1,231		2,017		3,248		1,232		1,900		3,132		1,254		1,782		3,036
Total		3,110		4,299		7,409		3,075		4,154		7,229		3,031		3,894		6,925

Diagnostics —
Core Laboratory		1,086		3,570		4,656		985		3,401		4,386		921		3,142		4,063
Molecular		149		293		442		152		332		484		160		303		463
Point of Care		438		123		561		432		121		553		440		110		550
Rapid Diagnostics		1,214		840		2,054		1,148		924		2,072		296		244		540
Total		2,887		4,826		7,713		2,717		4,778		7,495		1,817		3,799		5,616

Medical Devices —
Rhythm Management (a)		1,057		1,087		2,144		1,105		1,093		2,198		1,043		1,089		2,132
Electrophysiology (a)		742		979		1,721		678		883		1,561		596		757		1,353
Heart Failure		574		195		769		467		179		646		491		152		643
Vascular		1,047		1,803		2,850		1,126		1,803		2,929		1,180		1,712		2,892
Structural Heart		616		784		1,400		488		751		1,239		432		651		1,083
Neuromodulation		660		171		831		690		174		864		636		172		808
Diabetes Care		678		1,846		2,524		457		1,476		1,933		332		1,082		1,414
Total		5,374		6,865		12,239		5,011		6,359		11,370		4,710		5,615		10,325

Other (b)		27		30		57		36		26		62		115		122		237

Total	$	11,398	$	20,506	$	31,904	$	10,839	$	19,739	$	30,578	$	9,673	$	17,717	$	27,390

(a)	Insertable Cardiac Monitor (ICM) sales, which had previously been reported in Electrophysiology, are now included in Rhythm Management. Historic periods have been adjusted to reflect this change.

(b)	Diabetes Care sales, which had previously been reported in Other, are now included in the Medical Devices segment. Historic periods have been adjusted to reflect this change.

Abbott recognizes revenue from product sales upon the transfer of control, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. For maintenance agreements that provide service beyond Abbott’s standard warranty and other service agreements, revenue is recognized ratably over the contract term. A time-based measure of progress appropriately reflects the transfer of services to the customer. Payment terms between Abbott and its customers vary by the type of customer, country of sale, and the products or services offered. The term between invoicing and the payment due date is not significant.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 3 — Revenue (Continued)

Management exercises judgment in estimating variable consideration. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Abbott provides rebates to government agencies, wholesalers, group purchasing organizations and other private entities.

Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government agency price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, Abbott estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when Abbott records its sale of the product. Settlement of the rebate generally occurs from one to six months after sale. Abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Historically, adjustments to prior years' rebate accruals have not been material to net income.

Other allowances charged against gross sales include cash discounts and returns, which are not significant. Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because Abbott's historical returns are low, and because sales return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant.

Abbott also applies judgment in determining the timing of revenue recognition related to contracts that include multiple performance obligations. The total transaction price of the contract is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. For goods or services for which observable standalone selling prices are not available, Abbott uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Remaining Performance Obligations

As of December 31, 2019, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $3.3 billion in the Diagnostic Products segment and approximately $380 million in the Medical Devices segment. Abbott expects to recognize revenue on approximately 60 percent of these remaining performance obligations over the next 24 months, approximately 16 percent over the subsequent 12 months and the remainder thereafter.

These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations, extended warranty or service obligations related to previously sold equipment, and remote monitoring services related to previously implanted devices. Abbott has applied the practical expedient described in Accounting Standards Codification (ASC) 606-10-50-14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.

Assets Recognized for Costs to Obtain a Contract with a Customer

Abbott has applied the practical expedient in ASC 340-40-25-4 and records as an expense the incremental costs of obtaining contracts with customers in the period of occurrence when the amortization period of the asset that Abbott otherwise would have recognized is one year or less. Upfront commission fees paid to sales personnel as a result of obtaining or renewing contracts with customers are incremental to obtaining the contract. Abbott capitalizes these amounts as contract costs. Capitalized commission fees are amortized based on the contract duration to which the assets relate which ranges from two to ten years. The amounts as of December 31, 2019 and 2018 were not significant.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 3 — Revenue (Continued)

Additionally, the cost of transmitters provided to customers that use Abbott’s remote monitoring service with respect to certain medical devices are capitalized as contract costs. Capitalized transmitter costs are amortized based on the timing of the transfer of services to which the assets relate, which typically ranges from eight to ten years. The amounts as of December 31, 2019 and 2018 were not significant.

Other Contract Assets and Liabilities

Abbott discloses Trade receivables separately in the Consolidated Balance Sheet at their net realizable value. Contract assets primarily relate to Abbott’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were not significant.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. Abbott’s contract liabilities arise primarily in the Medical Devices reportable segment when payment is received upfront for various multi-period extended service arrangements. Changes in the contract liabilities during the period are as follows:


(in millions)
Contract Liabilities
Balance at January 1, 2018	$	198
Unearned revenue from cash received during the period		304
Revenue recognized related to contract liability balance		(243)
Balance at December 31, 2018		259
Unearned revenue from cash received during the period		411
Revenue recognized related to contract liability balance		(376)
Balance at December 31, 2019	$	294

Note 4 — Discontinued Operations and Business Dispositions

In February 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. (Mylan) for 110 million ordinary shares (or approximately 22 percent) of a newly formed entity (Mylan N.V.) that combined Mylan’s existing business and Abbott’s developed markets branded generics pharmaceuticals business. In April 2015, Abbott sold 40.25 million of the 110 million ordinary shares of Mylan N.V. and recorded a pretax gain of $207 million on $2.29 billion in net proceeds from the sale of these shares. In 2017, Abbott sold 69.75 million ordinary shares of Mylan N.V. and received $2.704 billion in proceeds. Abbott recorded a $45 million gain from the sale of these ordinary shares in 2017, which was recognized in the Other (income) expense, net line of the Consolidated Statement of Earnings. Abbott no longer has an ownership interest in Mylan N.V.

The net earnings of discontinued operations include income tax benefits of $39 million in 2018 and $109 million in 2017. These tax benefits primarily relate to the resolution of various tax positions related to AbbVie’s operations for years prior to the separation. Abbott completed the separation of AbbVie Inc. (AbbVie), which was formed to hold Abbott’s research-based proprietary pharmaceuticals business, in January 2013. 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 generally will be liable for all other taxes attributable to its business.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 4 — Discontinued Operations and Business Dispositions (Continued)

In September 2016, Abbott announced that it entered into a definitive agreement to sell Abbott Medical Optics (AMO), its vision care business, to Johnson & Johnson for $4.325 billion in cash, subject to customary purchase price adjustments for cash, debt and working capital. The decision to sell AMO reflected Abbott's proactive shaping of its portfolio in line with its strategic priorities. In February 2017, Abbott completed the sale of AMO to Johnson & Johnson and recognized a pre-tax gain of $1.163 billion including working capital adjustments, which was reported in the Other (income) expense, net line of the Consolidated Statement of Earnings in 2017. Abbott recorded an after-tax gain of $728 million in 2017 related to the sale of AMO. The operating results of AMO up to the date of sale continued to be included in Earnings from continuing operations as the business did not qualify for reporting as discontinued operations. For 2017, the AMO loss before taxes included in Abbott’s consolidated earnings was $18 million.

Note 5 — Supplemental Financial Information

Other (income) expense, net, for 2019, 2018 and 2017 includes approximately $225 million, $160 million and $160 million of income, respectively, related to the non-service cost components of the net periodic benefit costs associated with the pension and post-retirement medical plans. Other (income) expense, net, for 2017 includes a pre-tax gain of $1.163 billion related to the sale of AMO to Johnson & Johnson. In 2017, Abbott recorded a $45 million pre-tax gain related to the sale of the Mylan N.V. ordinary shares. See Note 4 — Discontinued Operations and Business Dispositions for further discussion of these 2017 sales.

The detail of various balance sheet components is as follows:


	December 31,		December 31,
(in millions)	2019		2018
Long-term Investments:
Equity securities	$	836	$	856
Other		47		41
Total	$	883	$	897

Abbott’s equity securities as of December 31, 2019 and December 31, 2018, include $346 million and $307 million, respectively, of investments in mutual funds that are held in a rabbi trust acquired as part of the St. Jude Medical, Inc. (St. Jude Medical) business acquisition. These investments, which are specifically designated as available for the purpose of paying benefits under a deferred compensation plan, are not available for general corporate purposes and are subject to creditor claims in the event of insolvency.

Abbott also holds certain investments as of December 31, 2019 with a carrying value of $321 million that are accounted for under the equity method of accounting and other equity investments with a carrying value of $158 million that do not have a readily determinable fair value. The $158 million carrying value includes an unrealized gain of approximately $50 million on an investment. The gain was recorded in the second quarter of 2018 and relates to an observable price change for a similar investment of the same issuer.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 5 — Supplemental Financial Information (Continued)

In the first quarter of 2019, in conjunction with the acquisition of Cephea Valve Technologies, Inc., Abbott acquired a research & development (R&D) asset valued at $102 million, which was immediately expensed. The $102 million of expense was recorded in the R&D line of Abbott's Consolidated Statement of Earnings.


	December 31,		December 31,
(in millions)	2019		2018
Other Accrued Liabilities:
Accrued rebates payable to government agencies	$	212	$	166
Accrued other rebates (a)		655		608
All other		3,168		3,006
Total	$	4,035	$	3,780

	(a)	Accrued wholesaler chargeback rebates of $175 million and $197 million at December 31, 2019 and 2018, respectively, are netted in trade receivables because Abbott’s customers are invoiced at a higher catalog price but only remit to Abbott their contract price for the products.


	December 31,		December 31,
(in millions)	2019		2018
Post-employment Obligations and Other Long-term Liabilities:
Defined benefit pension plans and post-employment medical and dental plans for significant plans	$	2,817	$	2,040
Deferred income taxes		1,546		2,056
Operating lease liabilities		755		—
All other (b)		3,944		3,984
Total	$	9,062	$	8,080

	(b)	2019 includes approximately $580 million of net unrecognized tax benefits, as well as approximately $68 million of acquisition consideration payable. 2018 includes approximately $465 million of net unrecognized tax benefits, as well as approximately $65 million of acquisition consideration payable.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 6 — Accumulated Other Comprehensive Income (Loss)

The components of the changes in accumulated other comprehensive income (loss) from continuing operations, net of income taxes, are as follows:


					Cumulative		Cumulative
			Net Actuarial		Unrealized		Gains (Losses)
	Cumulative		(Losses)		Gains (Losses)		on Derivative
	Foreign		and Prior		on		Instruments
	Currency		Service		Marketable		Designated as
	Translation		(Costs) and		Equity		Cash Flow
(in millions)	Adjustments		Credits		Securities		Hedges		Total
Balance at December 31, 2017	$	(3,452)	$	(2,521)	$	(5)	$	(84)	$	(6,062)
Impact of adoption of new accounting standards		—		(337)		5		—		(332)
Other comprehensive income (loss) before reclassifications		(1,488)		(18)		—		58		(1,448)
(Income) loss amounts reclassified from accumulated other comprehensive income (a)		28		150		—		78		256
Net current period other comprehensive income (loss)		(1,460)		132		—		136		(1,192)
Balance at December 31, 2018		(4,912)		(2,726)		—		52		(7,586)
Other comprehensive income (loss) before reclassifications		(12)		(719)		—		2		(729)
(Income) loss amounts reclassified from accumulated other comprehensive income (a)		—		(95)		—		(55)		(150)
Net current period other comprehensive income (loss)		(12)		(814)		—		(53)		(879)
Balance at December 31, 2019	$	(4,924)	$	(3,540)	$	—	$	(1)	$	(8,465)

(a)	Reclassified amounts for foreign currency translation adjustments are recorded in the Consolidated Statement of Earnings as Net Foreign exchange (gain) loss and gains/losses related to cash flow hedges are recorded as Cost of products sold. Net actuarial losses and prior service cost is included as a component of net periodic benefit cost – see Note 15 for additional information.

Note 7 — Business Acquisitions

On January 4, 2017, Abbott completed the acquisition of St. Jude Medical, a global medical device manufacturer, for approximately $23.6 billion, including approximately $13.6 billion in cash and approximately $10 billion in Abbott common shares, which represented approximately 254 million shares of Abbott common stock, based on Abbott’s closing stock price on the acquisition date. As part of the acquisition, approximately $5.9 billion of St. Jude Medical’s debt was assumed, repaid or refinanced by Abbott. The acquisition provides expanded opportunities for future growth and is an important part of the company's ongoing effort to develop a strong, diverse portfolio of devices, diagnostics, nutritionals and branded generic pharmaceuticals. The combined business competes in nearly every area of the cardiovascular device market, as well as in the neuromodulation market.

Under the terms of the agreement, for each St. Jude Medical common share, St. Jude Medical shareholders received $46.75 in cash and 0.8708 of an Abbott common share. At an Abbott stock price of $39.36, which reflects the closing price on January 4, 2017, this represented a value of approximately $81 per St. Jude Medical common share and total purchase consideration of $23.6 billion. The cash portion of the acquisition was funded through a combination of medium and long-term debt issued in November 2016 and a $2.0 billion 120-day senior unsecured bridge term loan facility which was subsequently repaid.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 7 — Business Acquisitions (Continued)

In 2016, Abbott and St. Jude Medical agreed to sell certain businesses to Terumo Corporation (Terumo) for approximately $1.12 billion. The sale included the St. Jude Medical Angio-Seal™ and Femoseal™ vascular closure and Abbott’s Vado® Steerable Sheath businesses. The sale closed on January 20, 2017 and no gain or loss was recorded in the Consolidated Statement of Earnings.

On October 3, 2017, Abbott acquired Alere, a diagnostic device and service provider, for $51.00 per common share in cash, which equated to a purchase price of approximately $4.5 billion. As part of the acquisition, Abbott tendered for Alere’s preferred shares for a total value of approximately $0.7 billion. In addition, approximately $3.0 billion of Alere’s debt was assumed and subsequently repaid. The acquisition establishes Abbott as a leader in point of care testing, expands Abbott’s global diagnostics presence and provides access to new products, channels and geographies. Abbott utilized a combination of cash on hand and debt to fund the acquisition. See Note 11 — Debt and Lines of Credit for further details regarding the debt utilized for the acquisition.

In the third quarter of 2017, Alere entered into agreements to sell its Triage MeterPro cardiovascular and toxicology business and the assets and liabilities related to its B-type Natriuretic Peptide assay business run on Beckman Coulter analyzers to Quidel. The transactions with Quidel reflect a total purchase price of $400 million payable at the close of the transaction, $240 million payable in six annual installments beginning approximately six months after the close of the transaction, and contingent consideration with a maximum value of $40 million. In the third quarter of 2017, Alere entered into an agreement with Siemens Diagnostics Holding II B.V. (Siemens) to sell its subsidiary, Epocal Inc., for approximately $200 million payable at the close of the transaction. Alere agreed to divest these businesses in connection with the review by the Federal Trade Commission and the European Commission of Abbott’s agreement to acquire Alere. The sale to Quidel closed on October 6, 2017, and the sale to Siemens closed on October 31, 2017. No gain or loss on these sales was recorded in the Consolidated Statement of Earnings.

In 2017, consolidated Abbott results include $6.5 billion of sales and a pre-tax loss of approximately $1.3 billion related to the St. Jude Medical and Alere acquisitions, including approximately $1.5 billion of intangible amortization and $907 million of inventory step-up amortization. The pre-tax loss excludes acquisition, integration and restructuring-related costs.

If the acquisitions of St. Jude Medical and Alere had occurred at the beginning of 2016, unaudited pro forma consolidated net sales would have been approximately $28.9 billion and the unaudited pro forma consolidated net loss from continuing operations would have been approximately $485 million in 2016. This includes amortization of approximately $940 million of inventory step-up and $1.7 billion of intangibles related to St. Jude Medical and Alere. For 2017, unaudited pro forma consolidated net sales would have been approximately $28.9 billion and unaudited pro forma consolidated net earnings from continuing operations would have been approximately $750 million, which includes $225 million of intangible amortization related to Alere. The unaudited pro forma consolidated net earnings from continuing operations for 2017 exclude inventory step-up amortization related to St. Jude Medical and Alere of approximately $907 million which was recorded in 2017 but included in the 2016 unaudited pro forma results as noted above. The unaudited pro forma information is not necessarily indicative of the consolidated results of operations that would have been realized had the St. Jude Medical and Alere acquisitions been completed as of the beginning of 2016, nor is it meant to be indicative of future results of operations that the combined entity will experience.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 7 — Business Acquisitions (Continued)

On July 17, 2017, Abbott commenced a tender offer to purchase for cash the 1.77 million outstanding shares of Alere’s Series B Convertible Perpetual Preferred Stock at a price of $402 per share, plus accrued but unpaid dividends to, but not including, the settlement date of the tender offer. This tender offer was subject to the satisfaction of certain conditions, including Abbott’s acquisition of Alere and upon there being validly tendered (and not properly withdrawn) at the expiration date of the tender offer that number of shares of Preferred Stock that equaled at least a majority of the Preferred Stock issued and outstanding at the expiration of the tender offer. The tender offer expired on October 3, 2017. All conditions to the offer were satisfied and Abbott accepted for payment the 1.748 million shares of Preferred Stock that were validly tendered (and not properly withdrawn). The remaining shares were cashed out for an amount equal to the $400.00 per share liquidation preference of such shares, plus accrued but unpaid dividends, without interest. Payment for all of the shares of Preferred Stock was made in the fourth quarter of 2017.

Note 8 — Goodwill and Intangible Assets

The total amount of goodwill reported was $23.2 billion at December 31, 2019 and $23.3 billion at December 31, 2018. Foreign currency translation adjustments decreased goodwill by approximately $103 million in 2019 and $440 million in 2018. Purchase price accounting adjustments associated with the Alere acquisition decreased goodwill by $326 million in 2018. The amount of goodwill related to reportable segments at December 31, 2019 was $3.0 billion for the Established Pharmaceutical Products segment, $286 million for the Nutritional Products segment, $3.7 billion for the Diagnostic Products segment, and $16.1 billion for the Medical Devices segment. There was no significant reduction of goodwill relating to impairments in 2019 and 2018.

The gross amount of amortizable intangible assets, primarily product rights and technology was $27.6 billion and $25.7 billion as of December 31, 2019 and 2018, respectively, and accumulated amortization was $11.9 billion and $10.4 billion as of December 31, 2019 and 2018, respectively. Foreign currency translation adjustments decreased intangible assets by approximately $71 million in 2019 and $281 million in 2018. In 2018, purchase price allocation adjustments increased intangible assets by $280 million. The estimated annual amortization expense for intangible assets recorded at December 31, 2019 is approximately $2.1 billion in 2020, $2.0 billion in 2021, $2.0 billion in 2022, $2.0 billion in 2023 and $1.9 billion in 2024. Amortizable intangible assets are amortized over 2 to 20 years.

Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, were approximately $1.3 billion and $3.6 billion at December 31, 2019 and 2018, respectively. The decrease is due to an in-process research and development intangible asset related to the Medical Devices segment that became amortizable at the end of 2019. In 2017, Abbott recorded a $53 million impairment of an in-process research and development project related to the Medical Devices segment.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 9 — Restructuring Plans

From 2017 to 2019, Abbott management approved restructuring plans as part of the integration of the acquisitions of St. Jude Medical into the Medical Devices segment, and Alere into the Diagnostic Products segment, in order to leverage economies of scale and reduce costs. Abbott recorded employee related severance and other charges of approximately $72 million in 2019, $52 million in 2018 and $187 million in 2017. Approximately $19 million in 2019, $5 million in 2018 and $5 million in 2017 are recorded in Cost of products sold, approximately $4 million in 2019 and $10 million in 2018 are recorded in Research and development, and approximately $49 million in 2019, $37 million in 2018 and $182 million in 2017 are recorded in Selling, general and administrative expense. Abbott also assumed restructuring liabilities of approximately $23 million as part of the St Jude Medical and Alere acquisitions.

The following summarizes the activity related to these actions and the status of the related accruals:


(in millions)
Liabilities assumed as part of business acquisitions	$	23
Restructuring charges		187
Payments and other adjustments		(142)
Accrued balance at December 31, 2017		68
Restructuring charges		52
Payments and other adjustments		(79)
Accrued balance at December 31, 2018		41
Restructuring charges		72
Payments and other adjustments		(67)
Accrued balance at December 31, 2019	$	46

From 2016 to 2019, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbott businesses including the nutritional, established pharmaceuticals and vascular businesses. Abbott recorded employee related severance and other charges of approximately $66 million in 2019, $28 million in 2018 and $120 million in 2017. Approximately $16 million in 2019, $10 million in 2018 and $7 million in 2017 are recorded in Cost of products sold, approximately $28 million in 2019, $2 million in 2018 and $77 million in 2017 are recorded in Research and development, and approximately $22 million in 2019, $16 million in 2018 and $36 million in 2017 are recorded in Selling, general and administrative expense. Additional charges of approximately $2 million in 2017 were recorded, primarily for accelerated depreciation.

The following summarizes the activity for these restructurings:


(in millions)
Restructuring charges recorded in 2016	$	32
Payments and other adjustments		(15)
Accrued balance at December 31, 2016		17
Restructuring charges		120
Payments and other adjustments		(18)
Accrued balance at December 31, 2017		119
Restructuring charges		28
Payments and other adjustments		(77)
Accrued balance at December 31, 2018		70
Restructuring charges		66
Payments and other adjustments		(57)
Accrued balance at December 31, 2019	$	79

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 10 — Incentive Stock Program

The 2017 Incentive Stock Program authorizes the granting of nonqualified stock options, restricted stock awards, restricted stock units, performance awards, foreign benefits and other share-based awards. Stock options and restricted stock awards and units comprise the majority of benefits that have been granted and are currently outstanding under this program and a prior program. In 2019, Abbott granted 4,579,283 stock options, 736,100 restricted stock awards and 6,628,009 restricted stock units under this program.

Under Abbott’s stock incentive programs, the purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options generally vest equally over three years. Restricted stock awards generally vest over 3 years, with no more than one-third of the award vesting in any one year upon Abbott reaching a minimum return on equity target. Restricted stock units vest over three years and upon vesting, the recipient receives one share of Abbott stock for each vested restricted stock unit. The aggregate fair market value of options and restricted stock awards and units is recognized as expense over the requisite service period, which may be shorter than the vesting period if an employee is retirement eligible. Forfeitures are estimated at the time of grant. Restricted stock awards and settlement of vested restricted stock units are issued out of treasury shares. Abbott generally issues new shares for exercises of stock options. As a policy, Abbott does not purchase its shares relating to its share-based programs.

In April 2017, Abbott’s shareholders authorized the 2017 Incentive Stock Program under which a maximum of 170 million shares were available for issuance. At December 31, 2019, approximately 127 million shares remained available for future issuance.

In connection with the completion of the St. Jude Medical acquisition in the first quarter of 2017, unvested St. Jude Medical stock options and restricted stock units were assumed by Abbott and converted into Abbott options and restricted stock units (as applicable) of substantially equivalent value, in accordance with the merger agreement. The number of shares underlying the converted options was 7,364,571 at a weighted average exercise price of $30.50. The number of restricted stock units converted was 2,324,500 at a weighted average grant date fair value of $37.69.

The following table summarizes stock option activity for the year ended December 31, 2019 and the outstanding stock options as of December 31, 2019.


		Weighted		Weighted
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
(intrinsic values in millions)	Options	Price		Life (Years)	Value
Outstanding at December 31, 2018	33,074,613	$	42.21	6.3	$	996
Granted	4,579,283		76.35
Exercised	(7,281,472)		35.51
Lapsed	(494,509)		60.06
Outstanding at December 31, 2019	29,877,915	$	48.78	6.2	$	1,138
Exercisable at December 31, 2019	20,555,321	$	41.26	5.3	$	937

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 10 — Incentive Stock Program (Continued)

The following table summarizes restricted stock awards and units activity for 2019.


		Weighted
		Average
		Grant-Date
	Share Units	Fair Value
Outstanding at December 31, 2018	15,952,602	$	52.11
Granted	7,364,109		76.17
Vested	(7,750,049)		48.52
Forfeited	(1,103,348)		62.28
Outstanding at December 31, 2019	14,463,314	$	65.51

The fair market value of restricted stock awards and units vested in 2019, 2018 and 2017 was $588 million, $458 million and $348 million, respectively.

The total intrinsic value of options exercised in 2019, 2018 and 2017 was $315 million, $249 million and $233 million, respectively. The total unrecognized compensation cost related to all share-based compensation plans at December 31, 2019 amounted to approximately $419 million, which is expected to be recognized over the next three years.

Total non-cash stock compensation expense charged against income from continuing operations in 2019, 2018 and 2017 for share-based plans totaled approximately $519 million, $477 million and $406 million, respectively, and the tax benefit recognized was approximately $197 million, $185 million and $242 million, respectively. The decrease in the tax benefit in 2018 primarily relates to the Tax Cuts and Jobs Act (TCJA), which reduces the U.S. federal corporate tax rate from 35% to 21%. Stock compensation cost capitalized as part of inventory is not significant.

The table below summarizes the fair value of an option granted in 2019, 2018 and 2017 and the assumptions included in the Black-Scholes option-pricing model used to estimate the fair value:


	2019			2018			2017
Fair value	$	14.50		$	10.93		$	6.54
Risk-free interest rate		2.5	%		2.7	%		2.1	%
Average life of options (years)		6.0			6.0			6.0
Volatility		19.8	%		19.0	%		18.0	%
Dividend yield		1.7	%		1.9	%		2.4	%

The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S. government issues with a remaining term equal to the option’s expected life. The average life of an option is based on both historical and projected exercise and lapsing data. Expected volatility is based on implied volatilities from traded options on Abbott’s stock and historical volatility of Abbott’s stock over the expected life of the option. Dividend yield is based on the option’s exercise price and annual dividend rate at the time of grant.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 11 — Debt and Lines of Credit

The following is a summary of long-term debt at December 31:


(in millions)	2019		2018
0.00% Notes, due 2020	$	1,272	$	1,300
2.80% Notes, due 2020		—		500
2.90% Notes, due 2021		—		2,850
2.55% Notes, due 2022		750		750
0.875% Notes, due 2023		1,272		1,303
3.40% Notes, due 2023		1,050		1,050
5-year term loan due 2024		546		—
0.10% Notes, due 2024		658		—
3.875% Notes, due 2025		500		500
2.95% Notes, due 2025		1,000		1,000
1.50% Notes, due 2026		1,272		1,300
3.75% Notes, due 2026		1,700		1,700
0.375% Notes, due 2027		658		—
4.75% Notes, due 2036		1,650		1,650
6.15% Notes, due 2037		547		547
6.00% Notes, due 2039		515		515
5.30% Notes, due 2040		694		694
4.75% Notes, due 2043		700		700
4.90% Notes, due 2046		3,250		3,250
Unamortized debt issuance costs		(90)		(102)
Other, including fair value adjustments relating to interest rate hedge contracts designated as fair value hedges		(6)		(141)
Total carrying amount of long-term debt		17,938		19,366
Less: Current portion		1,277		7
Total long-term portion	$	16,661	$	19,359

On February 16, 2018, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes. Redemptions under this authorization include the following:

	●	$0.947 billion principal amount of its 5.125% Notes due 2019 – redeemed on March 22, 2018

	●	$1.055 billion of the $2.850 billion principal amount of its 2.35% Notes due 2019 – redeemed on March 22, 2018

	●	$1.300 billion of the $1.795 billion outstanding principal amount of its 2.35% Notes due 2019 – redeemed on June 22, 2018

	●	$0.495 billion outstanding principal amount of its 2.35% Notes due 2019 – redeemed on September 28, 2018

	●	$0.500 billion outstanding principal amount of its 2.80% Notes due 2020 – redeemed on February 24, 2019

Abbott incurred a net charge of $14 million related to the March 22, 2018 early repayment of debt.

In September 2019, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes. This bond redemption authorization supersedes the board’s previous authorization under which $700 million had not yet been redeemed.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 11 — Debt and Lines of Credit (Continued)

On November 19, 2019, Abbott's wholly owned subsidiary, Ireland Financing DAC, completed an offering of €1.180 billion of long-term debt consisting of €590 million of 0.10% Notes due 2024 and €590 million of 0.375% Notes due 2027. The proceeds equated to approximately $1.3 billion. The Notes are guaranteed by Abbott.

On November 21, 2019, Abbott borrowed ¥59.8 billion under a 5-year term loan and designated the yen-denominated loan as a hedge of its net investment in certain foreign subsidiaries. The term loan bears interest at TIBOR plus a fixed spread, and the interest rate is reset quarterly. The proceeds equated to approximately $550 million.

On December 19, 2019, Abbott redeemed the $2.850 billion principal amount of its 2.9% Notes due 2021. Abbott incurred a charge of $63 million related to the early repayment of this debt.

On September 17, 2018, Abbott repaid upon maturity the $500 million aggregate principal amount outstanding of the 2.00% Senior Notes due 2018.

On September 27, 2018, Abbott’s wholly owned subsidiary, Abbott Ireland Financing DAC, completed a euro debt offering of €3.420 billion of long-term debt consisting of €1.140 billion of non-interest bearing Senior Notes due 2020 at 99.727% of par value; €1.140 billion of 0.875% Senior Notes due 2023 at 99.912% of par value; and €1.140 billion of 1.50% Senior Notes due 2026 at 99.723% of par value. The proceeds equated to approximately $4 billion. The notes are guaranteed by Abbott.

On October 28, 2018, Abbott redeemed approximately $4 billion of debt, which included $750 million principal amount of its 2.00% Notes due 2020; $597 million principal amount of its 4.125% Notes due 2020; $900 million principal amount of its 3.25% Notes due 2023; $450 million principal amount of its 3.4% Notes due 2023; and $1.300 billion principal amount of its 3.75% Notes due 2026. These amounts are in addition to the $5 billion authorization in 2018 discussed above. In conjunction with the redemption, Abbott unwound approximately $1.1 billion in interest rate swaps relating to the 3.40% Note due in 2023 and the 3.75% Note due in 2026. Abbott incurred a net charge of $153 million related to the early repayment of this debt and the unwinding of related interest rate swaps.

On November 30, 2018, Abbott entered into a Five Year Credit Agreement (Revolving Credit Agreement) and terminated the 2014 revolving credit agreement. There were no outstanding borrowings under the 2014 revolving credit agreement at the time of its termination. The Revolving Credit Agreement provides Abbott with the ability to borrow up to $5 billion on an unsecured basis. Any borrowings under the Revolving Credit Agreement will mature and be payable on November 30, 2023. Any borrowings under the Revolving Credit Agreement will bear interest, at Abbott’s option, based on either a base rate or Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings.

In the first quarter of 2017, as part of the acquisition of St. Jude Medical, Abbott’s long-term debt increased due to the assumption of outstanding debt previously issued by St. Jude Medical. Abbott exchanged certain St. Jude Medical debt obligations with an aggregate principal amount of approximately $2.9 billion for debt issued by Abbott which consists of:


(in millions)	Principal Amount
2.00% Senior Notes due 2018	$	473.8
2.80% Senior Notes due 2020		483.7
3.25% Senior Notes due 2023		818.4
3.875% Senior Notes due 2025		490.7
4.75% Senior Notes due 2043		639.1

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 11 — Debt and Lines of Credit (Continued)

Following this exchange, approximately $194.2 million of existing St. Jude Medical notes remained outstanding across the five series of existing notes which have the same coupons and maturities as those listed above. There were no significant costs associated with the exchange of debt. In addition, during the first quarter of 2017, Abbott assumed and subsequently repaid approximately $2.8 billion of various St. Jude Medical debt obligations.

In 2017, Abbott issued 364-day yen-denominated debt, of which $201 million and $199 million was outstanding at December 31, 2019 and 2018, respectively. In 2017, Abbott also paid off a $479 million yen-denominated short-term borrowing during the year.

On July 31, 2017, Abbott entered into a 5-year term loan agreement that allowed Abbott to borrow up to $2.8 billion on an unsecured basis for the acquisition of Alere. On October 3, 2017, Abbott borrowed $2.8 billion under this term loan agreement to finance the acquisition of Alere, to repay certain indebtedness of Abbott and Alere, and to pay fees and expenses in connection with the acquisition. Borrowings under the term loan bore interest based on a Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings. Abbott paid off this term loan on January 5, 2018.

On October 3, 2017 Abbott borrowed $1.7 billion under its lines of credit. Proceeds from such borrowing were used to finance the acquisition of Alere, to repay certain indebtedness of Abbott and Alere, and to pay fees and expenses in connection with the acquisition. These lines of credit were part of a 2014 revolving credit agreement that provided Abbott with the ability to borrow up to $5 billion on an unsecured basis. Advances under the revolving credit agreement, including the $1.7 billion borrowing in October 2017, were scheduled to mature and be payable on July 10, 2019. The $1.7 billion borrowing bore interest based on a Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings. Prior to October 3, 2017, no amounts were previously drawn under the revolving credit agreement. In the fourth quarter of 2017, Abbott paid off $550 million on the revolving loan. Abbott paid off the remaining balance on this revolving loan on January 5, 2018.

In the fourth quarter of 2017, in conjunction with the acquisition of Alere, Abbott assumed and subsequently repaid $3.0 billion of Alere’s debt.

Principal payments required on long-term debt outstanding at December 31, 2019 are $1.3 billion in 2020, $5 million in 2021, $752 million in 2022, $2.3 billion in 2023, $1.2 billion in 2024 and $12.5 billion in 2025 and thereafter.

At December 31, 2019, Abbott’s long-term debt rating was A- by Standard & Poor’s Corporation and A3 by Moody’s. Abbott has readily available financial resources, including lines of credit of $5.0 billion which expire in 2023 and support commercial paper borrowing arrangements. Abbott’s weighted-average interest rate on short-term borrowings was 0.4% at December 31, 2019, 0.4% at December 31, 2018 and 0.3% at December 31, 2017.

Note 12 — Leases

Leases where Abbott is the Lessee

Abbott has entered into operating leases as the lessee for office space, manufacturing facilities, R&D laboratories, warehouses, vehicles and equipment. Finance leases are not significant. Abbott’s operating leases generally have remaining lease terms of 1 to 10 years. Some leases include options to extend beyond the original lease term, generally up to 10 years and some include options to terminate early. These options have been included in the determination of the lease liability when it is reasonably certain that the option will be exercised.

For all of its asset classes, Abbott elected the practical expedient allowed under FASB ASC No. 842, “Leases” to account for each lease component (e.g., the right to use office space) and the associated non-lease components (e.g., maintenance services) as a single lease component. Abbott also elected the short-term lease accounting policy for all asset classes; therefore, Abbott is not recognizing a lease liability or ROU asset for any lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that Abbott is reasonably certain to exercise.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 12 — Leases (Continued)

As Abbott’s leases typically do not provide an implicit rate, the interest rate used to determine the present value of the payments under each lease typically reflects Abbott’s incremental borrowing rate based on information available at the lease commencement date. Abbott’s incremental borrowing rates at January 1, 2019 were used for operating leases that commenced prior to January 1, 2019.

The following table provides information related to Abbott’s operating leases:


	Year Ended
(in millions)	December 31, 2019
Operating lease cost (a)	$	314

Cash paid for amounts included in the measurement of operating lease liabilities	$	253

ROU assets arising from entering into new operating lease obligations	$	310

	(a)	Includes short-term lease expense and variable lease costs, which were immaterial in the year ended December 31, 2019.

The weighted average remaining lease term and discount rate for operating leases as of December 31, 2019 were 8 years and 3.9%, respectively.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2019 were as follows:


(in millions)
2020	$	238
2021		197
2022		155
2023		115
2024		80
Thereafter		353
Total future minimum lease payments – undiscounted		1,138
Less: imputed interest		(178)
Present value of lease liabilities	$	960

The following table summarizes the amounts and location of operating lease ROU assets and lease liabilities as of December 31, 2019:


(in millions)	December 31, 2019		Balance Sheet Caption

Operating Lease - ROU Asset	$	934	Deferred income taxes and other assets

Operating Lease Liability:
Current	$	205	Other accrued liabilities
Non-current		755	Post-employment obligations and other long-term liabilities
Total Liability	$	960

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 12 — Leases (Continued)

Leases where Abbott is the Lessor

Certain assets, primarily diagnostics instruments, are leased to customers under contractual arrangements that typically include an operating or sales-type lease as well as performance obligations for reagents and other consumables. Sales-type leases are not significant. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where instruments are provided under operating lease arrangements, some portion or the entire lease revenue may be variable and subject to subsequent non-lease component (e.g., reagent) sales. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Operating lease revenue represented less than 3 percent of Abbott’s total net sales in the year ended December 31, 2019.

Assets related to operating leases are reported within Net property and equipment on the Consolidated Balance Sheet. The original cost and the net book value of such assets were $2.8 billion and $1.2 billion, respectively, as of December 31, 2019.

Note 13 — Financial Instruments, Derivatives and Fair Value Measures

Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates primarily for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts, with gross notional amounts totaling $6.8 billion at December 31, 2019, and $5.1 billion at December 31, 2018, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value. Accumulated gains and losses as of December 31, 2019 will be included in Cost of products sold at the time the products are sold, generally through the next twelve to eighteen months.

Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies, in exchange for primarily U.S. dollars and European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar and European currencies. At December 31, 2019 and 2018, Abbott held gross notional amounts of $9.1 billion and $13.6 billion, respectively, of such foreign currency forward exchange contracts.

In November 2019, Abbott borrowed ¥59.8 billion under a 5-year term loan and designated the yen-denominated loan as a hedge of the net investment in certain foreign subsidiaries. From the date of the borrowing through December 31, 2019, the value of this long-term debt decreased approximately $4 million to $546 million due to foreign exchange rate changes. The change in the value was recorded in Accumulated other comprehensive income (loss), net of tax. In March 2017, Abbott repaid its $479 million yen-denominated short-term debt which was designated as a hedge of the net investment in a foreign subsidiary. At December 31, 2016, the value of this short-term debt was $454 million and changes in the fair value of the debt up through the date of repayment due to changes in exchange rates were recorded in Accumulated other comprehensive income (loss), net of tax.

Abbott is a party to interest rate hedge contracts totaling approximately $2.9 billion at December 31, 2019 and 2018, to manage its exposure to changes in the fair value of fixed-rate debt. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.

In October 2018, Abbott unwound approximately $1.1 billion in interest rate swaps relating to the 3.40% Note due in 2023 and the 3.75% Note due in 2026. As a part of the unwinding, Abbott paid approximately $90 million in cash, which was included in the Financing Activities section of the Consolidated Statement of Cash Flows in 2018.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 13 — Financial Instruments, Derivatives and Fair Value Measures (Continued)

In the second quarter of 2017, Abbott unwound approximately $1.5 billion in interest rate swaps relating to the 2.00% Note due in 2020 and the 2.55% Note due in 2022. The proceeds received were not significant.

The following table summarizes the amounts and location of certain derivative financial instruments as of December 31:


	Fair Value — Assets					Fair Value — Liabilities
(in millions)	2019		2018		Balance Sheet Caption	2019		2018		Balance Sheet Caption
Interest rate swaps designated as fair value hedges	$	48	$	—	Deferred income taxes and other assets	$	—	$	100	Post-employment obligations and other long-term liabilities
Foreign currency forward exchange contracts:
Hedging instruments		110		81	Other prepaid expenses and receivables		56		44	Other accrued liabilities
Others not designated as hedges		38		33	Other prepaid expenses and receivables		33		51	Other accrued liabilities
Debt designated as a hedge of net investment in a foreign subsidiary		—		—	n/a		546		—	Long-term debt
	$	196	$	114		$	635	$	195

The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in a foreign subsidiary and certain other derivative financial instruments, as well as the amounts and location of income (expense) and gain (loss) reclassified into income.


	Gain (loss) Recognized in						Income (expense) and
	Other Comprehensive						Gain (loss) Reclassified
	Income (loss)						into Income						Income Statement
(in millions)	2019		2018		2017		2019		2018		2017		Caption
Foreign currency forward exchange contracts designated as cash flow hedges	$	9	$	73	$	(226)	$	79	$	(114)	$	(48)	Cost of products sold
Debt designated as a hedge of net investment in a foreign subsidiary		4		—		(25)		n/a		n/a		n/a	n/a
Interest rate swaps designated as fair value hedges		n/a		n/a		n/a		148		(97)		(24)	Interest expense

A gain of $75 million and losses of $100 million and $64 million were recognized in 2019, 2018 and 2017, respectively, related to foreign currency forward exchange contracts not designated as hedges. These amounts are reported in the Consolidated Statement of Earnings on the Net foreign exchange (gain) loss line.

The interest rate swaps are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 13 — Financial Instruments, Derivatives and Fair Value Measures (Continued)

The carrying values and fair values of certain financial instruments as of December 31 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties.


	2019				2018
	Carrying		Fair		Carrying		Fair
(in millions)	Value		Value		Value		Value
Long-term Investment Securities:
Equity securities	$	836	$	836	$	856	$	856
Other		47		47		41		41
Total Long-term debt		(17,938)		(20,772)		(19,366)		(19,871)
Foreign Currency Forward Exchange Contracts:
Receivable position		148		148		114		114
(Payable) position		(89)		(89)		(95)		(95)
Interest Rate Hedge Contracts:
Receivable position		48		48		—		—
(Payable) position		—		—		(100)		(100)

The fair value of the debt was determined based on significant other observable inputs, including current interest rates.

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:


			Basis of Fair Value Measurement
			Quoted		Significant Other		Significant
	Outstanding		Prices in		Observable		Unobservable
(in millions)	Balances		Active Markets		Inputs		Inputs
December 31, 2019:
Equity securities	$	357	$	357	$	—	$	—
Interest rate swap derivative financial instruments		48		—		48		—
Foreign currency forward exchange contracts		148		—		148		—
Total Assets	$	553	$	357	$	196	$	—
Fair value of hedged long-term debt	$	2,890	$	—	$	2,890	$	—
Foreign currency forward exchange contracts		89		—		89		—
Contingent consideration related to business combinations		68		—		—		68
Total Liabilities	$	3,047	$	—	$	2,979	$	68
December 31, 2018:
Equity securities	$	320	$	320	$	—	$	—
Foreign currency forward exchange contracts		114		—		114		—
Total Assets	$	434	$	320	$	114	$	—
Fair value of hedged long-term debt	$	2,743	$	—	$	2,743	$	—
Interest rate swap derivative financial instruments		100		—		100		—
Foreign currency forward exchange contracts		95		—		95		—
Contingent consideration related to business combinations		71		—		—		71
Total Liabilities	$	3,009	$	—	$	2,938	$	71

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 13 — Financial Instruments, Derivatives and Fair Value Measures (Continued)

The fair value of foreign currency forward exchange contracts is determined using a market approach, which utilizes values for comparable derivative instruments. The fair value of the debt was determined based on the face value of the debt adjusted for the fair value of the interest rate swaps, which is based on a discounted cash flow analysis using significant other observable inputs.

Contingent consideration relates to businesses acquired by Abbott. The fair value of the contingent consideration was determined based on an independent appraisal adjusted for the time value of money and other changes in fair value. The maximum amount for certain contingent consideration is not determinable as it is based on a percent of certain sales. Excluding such contingent consideration, the maximum amount estimated to be due is approximately $470 million, which is dependent upon attaining certain sales thresholds or based on the occurrence of certain events, such as regulatory approvals.

Note 14 — 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 under federal and state remediation laws and is investigating potential contamination at a number of company-owned locations. Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure. No individual site cleanup exposure is expected to exceed $4 million, and the aggregate cleanup exposure is not expected to exceed $10 million.

Abbott is involved in various claims and legal proceedings, and Abbott estimates the range of possible loss for its legal proceedings and environmental exposures to be from approximately $95 million to $130 million. The recorded accrual balance at December 31, 2019 for these proceedings and exposures was approximately $110 million. This accrual represents management’s best estimate of probable loss, as defined by FASB ASC No. 450, “Contingencies.” Within the next year, legal proceedings may occur that may result in a change in the estimated loss accrued by Abbott. While it is not feasible to predict the outcome of all such proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Post-Employment Benefits

Retirement plans consist of defined benefit, defined contribution and medical and dental plans. Information for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:


	Defined Benefit				Medical and
	Plans				Dental Plans
(in millions)	2019		2018		2019		2018
Projected benefit obligations, January 1	$	9,093	$	9,953	$	1,292	$	1,393
Service cost — benefits earned during the year		250		293		23		26
Interest cost on projected benefit obligations		337		308		52		48
(Gains) losses, primarily changes in discount rates, plan design changes, law changes and differences between actual and estimated health care costs		1,856		(1,044)		228		(106)
Benefits paid		(302)		(295)		(76)		(68)
Other, including foreign currency translation		4		(122)		37		(1)
Projected benefit obligations, December 31	$	11,238	$	9,093	$	1,556	$	1,292
Plan assets at fair value, January 1	$	8,553	$	9,298	$	351	$	419
Actual return (loss) on plans’ assets		1,622		(450)		65		(20)
Company contributions		382		114		12		12
Benefits paid		(302)		(295)		(68)		(60)
Other, including foreign currency translation		22		(114)		—		—
Plan assets at fair value, December 31	$	10,277	$	8,553	$	360	$	351
Projected benefit obligations greater than plan assets, December 31	$	(961)	$	(540)	$	(1,196)	$	(941)
Long-term assets	$	687	$	583	$	—	$	—
Short-term liabilities		(26)		(23)		(1)		(1)
Long-term liabilities		(1,622)		(1,100)		(1,195)		(940)
Net liability	$	(961)	$	(540)	$	(1,196)	$	(941)
Amounts Recognized in Accumulated Other Comprehensive Income (loss):
Actuarial losses, net	$	4,131	$	3,326	$	529	$	361
Prior service cost (credits)		(2)		(2)		(95)		(163)
Total	$	4,129	$	3,324	$	434	$	198

The projected benefit obligations for non-U.S. defined benefit plans was $3.3 billion and $2.7 billion at December 31, 2019 and 2018, respectively. The accumulated benefit obligations for all defined benefit plans were $10.2 billion and $8.3 billion at December 31, 2019 and 2018, respectively.

For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2019 and 2018, the aggregate accumulated benefit obligations, the projected benefit obligations and the aggregate plan assets were as follows:


(in millions)	2019		2018
Accumulated benefit obligation	$	1,985	$	1,265
Projected benefit obligation		2,266		1,362
Fair value of plan assets		821		375

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Post-Employment Benefits (Continued)

The components of the net periodic benefit cost were as follows:


							Medical and
	Defined Benefit Plans						Dental Plans
(in millions)	2019		2018		2017		2019		2018		2017
Service cost — benefits earned during the year	$	250	$	293	$	283	$	23	$	26	$	25
Interest cost on projected benefit obligations		337		308		287		52		48		45
Expected return on plans’ assets		(710)		(680)		(613)		(27)		(33)		(33)
Amortization of actuarial losses		132		205		163		22		33		23
Amortization of prior service cost (credits)		1		1		1		(32)		(45)		(45)
Total net cost	$	10	$	127	$	121	$	38	$	29	$	15

In 2017, Abbott recognized a $10 million curtailment gain related to the sale of AMO.

Other comprehensive income (loss) for each respective year includes the amortization of actuarial losses and prior service costs (credits) as noted in the previous table. Other comprehensive income (loss) for each respective year also includes: net actuarial losses of $944 million for defined benefit plans and a loss of $190 million for medical and dental plans in 2019; net actuarial losses of $86 million for defined benefit plans and a gain of $53 million for medical and dental plans in 2018; net actuarial losses of $247 million for defined benefit plans and $97 million for medical and dental plans in 2017. The change in net actuarial losses in 2019 primarily relates to lower discount rates at December 31, 2019 compared to December 31, 2018, partially offset by the impact of actual 2019 asset returns in excess of expected returns.

The pretax amount of actuarial losses and prior service cost (credits) included in Accumulated other comprehensive income (loss) at December 31, 2019 that is expected to be recognized in the net periodic benefit cost in 2020 is $253 million and $1 million of expense, respectively, for defined benefit pension plans and $32 million of expense and $28 million of income, respectively, for medical and dental plans.

The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans are as follows:


	2019		2018		2017
Discount rate	3.0	%	4.0	%	3.4	%
Expected aggregate average long-term change in compensation	4.3	%	4.3	%	4.4	%

The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows:


	2019		2018		2017
Discount rate	4.0	%	3.4	%	3.9	%
Expected return on plan assets	7.5	%	7.7	%	7.6	%
Expected aggregate average long-term change in compensation	4.3	%	4.4	%	4.3	%

The assumed health care cost trend rates for medical and dental plans at December 31 were as follows:


	2019		2018		2017
Health care cost trend rate assumed for the next year	9	%	9	%	9	%
Rate that the cost trend rate gradually declines to	5	%	5	%	5	%
Year that rate reaches the assumed ultimate rate	2025		2025		2027

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Post-Employment Benefits (Continued)

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 benefits and are forward projections of health care costs as of the measurement date. A one-percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2019, by $221 million /$(179) million, and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $12 million/$(9) million.

The following table summarizes the bases used to measure the defined benefit and medical and dental plan assets at fair value:


			Basis of Fair Value Measurement
			Quoted		Significant
			Prices in		Other		Significant
	Outstanding		Active		Observable		Unobservable		Measured at
(in millions)	Balances		Markets		Inputs		Inputs		NAV (k)
December 31, 2019:
Equities:
U.S. large cap (a)	$	2,873	$	1,647	$	—	$	—	$	1,226
U.S. mid and small cap (b)		648		548		4		2		94
International (c)		2,202		464		—		—		1,738
Fixed income securities:
U.S. government securities (d)		562		52		357		—		153
Corporate debt instruments (e)		1,266		362		724		—		180
Non-U.S. government securities (f)		445		3		2		—		440
Other (g)		320		69		27		—		224
Absolute return funds (h)		1,557		424		—		—		1,133
Commodities (i)		32		—		—		1		31
Cash and Cash Equivalents		182		84		—		—		98
Other (j)		550		8		—		—		542
	$	10,637	$	3,661	$	1,114	$	3	$	5,859
December 31, 2018:
Equities:
U.S. large cap (a)	$	2,168	$	1,319	$	5	$	—	$	844
U.S. mid and small cap (b)		515		226		—		—		289
International (c)		1,671		370		—		—		1,301
Fixed income securities:
U.S. government securities (d)		476		51		269		—		156
Corporate debt instruments (e)		1,150		269		701		—		180
Non-U.S. government securities (f)		405		5		—		—		400
Other (g)		199		15		55		—		129
Absolute return funds (h)		1,684		448		—		—		1,236
Commodities (i)		59		—		—		4		55
Cash and Cash Equivalents		192		123		—		—		69
Other (j)		385		11		—		—		374
	$	8,904	$	2,837	$	1,030	$	4	$	5,033

(a)	A mix of index funds and actively managed equity accounts that are benchmarked to various large cap indices.

(b)	A mix of index funds and actively managed equity accounts that are benchmarked to various mid and small cap indices.

(c)	A mix of index funds and actively managed pooled investment funds that are benchmarked to various non-U.S. equity indices in both developed and emerging markets.

(d)	A mix of index funds and actively managed accounts that are benchmarked to various U.S. government bond indices.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Post Employment Benefits (Continued)

(e)	A mix of index funds and actively managed accounts that are benchmarked to various corporate bond indices.

(f)	Primarily United Kingdom, Japan and Eurozone government bonds.

(g)	Primarily asset backed securities and an actively managed, diversified fixed income vehicle benchmarked to the one-month Libor / Euribor.

(h)	Primarily funds invested by managers that have a global mandate with the flexibility to allocate capital broadly across a wide range of asset classes and strategies including, but not limited to equities, fixed income, commodities, interest rate futures, currencies and other securities to outperform an agreed upon benchmark with specific return and volatility targets.

(i)	Primarily investments in private energy funds.

(j)	Primarily investments in private funds, such as private equity, private credit and private real estate.

(k)	In accordance with ASU 2015-07, investments measured at fair value using the net asset value (NAV) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

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 NAV provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. For approximately half of these funds, investments may be redeemed once per month, with a required 7 to 30 day notice period. For the remaining funds, daily redemption of an investment is allowed. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry recognized vendors. Abbott did not have any unfunded commitments related to fixed income funds at December 31, 2019 and 2018. Fixed income securities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the NAV provided by the fund administrator. For the majority of these funds, investments may be redeemed either weekly or monthly, with a required 2 to 14 day notice period. For the remaining funds, investments may be generally redeemed daily.

Absolute return funds and commodities are valued at the NAV provided by the fund administrator. All private funds are valued at the NAV provided by the fund on a one-quarter lag adjusted for known cash flows and significant events through the reporting date. Abbott did not have any unfunded commitments related to absolute return funds at December 31, 2019 and 2018. Investments in these funds may be generally redeemed monthly or quarterly with required notice periods ranging from 5 to 90 days. For approximately $235 million and $100 million of the absolute return funds, redemptions are subject to a 33 percent gate and a 25 percent gate, respectively, and $45 million is subject to a lock until 2022. For commodities, investments in the private energy funds cannot be redeemed but the funds will make distributions through liquidation. The estimate of the liquidation period for each fund ranges from 2020 to 2022. Abbott’s unfunded commitments in these funds as of December 31, 2019 and 2018 were not significant. Investments in the private funds (excluding private energy funds) cannot be redeemed but the funds will make distributions through liquidation. The estimate of the liquidation period for each fund ranges from 2020 to 2029. Abbott’s unfunded commitment in these funds was $571 million and $518 million as of December 31, 2019 and 2018, respectively.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Post-Employment Benefits (Continued)

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 concentrations 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 $382 million in 2019 and $114 million in 2018 to defined pension plans. Abbott expects to contribute approximately $387 million to its pension plans in 2020.

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:


	Defined		Medical and
(in millions)	Benefit Plans		Dental Plans
2020	$	315	$	76
2021		325		78
2022		342		79
2023		360		80
2024		382		82
2025 to 2029		2,219		421

The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott’s contributions to this plan were $158 million in 2019, $146 million in 2018 and $79 million in 2017. The 2018 contributions include amounts related to participants of the St. Jude Medical Retirement Plan which was terminated in January 2018.

Note 16 — 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 tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.

The Tax Cuts and Jobs Act (TCJA) was enacted in the U.S. on December 22, 2017. The TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2018, Abbott completed its accounting for all of the enactment date income tax effects of the TCJA.

Effective for fiscal years beginning after December 31, 2017, the TCJA subjects taxpayers to tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries. In January 2018, the FASB staff provided guidance that an entity may make an accounting policy election to either recognize deferred taxes related to items that will give rise to GILTI in future years or provide for the tax expense related to GILTI in the year that the tax is incurred. Abbott has elected to treat the GILTI tax as a period expense and provide for the tax in the year that the tax is incurred.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 16 — Taxes on Earnings from Continuing Operations (Continued)

In the fourth quarter of 2017, Abbott recorded an estimate of net tax expense of $1.46 billion for the impact of the TCJA, which was included in Taxes on Earnings from Continuing Operations in the Consolidated Statement of Earnings. The estimate was provisional and included a charge of approximately $2.89 billion for the transition tax, partially offset by a net benefit of approximately $1.42 billion for the remeasurement of deferred tax assets and liabilities, and a net benefit of approximately $10 million related to certain other impacts of the TCJA. In 2018, Abbott recorded $130 million of additional tax expense which increased the final tax expense related to the TCJA to $1.59 billion. The $130 million of additional tax expense reflects a $120 million increase in the transition tax from $2.89 billion to $3.01 billion and a $10 million reduction in the net benefit related to the remeasurement of deferred tax assets and liabilities. In 2019, taxes on earnings from continuing operations include an $86 million reduction to the transition tax. The $86 million reduction to the transition tax liability was the result of the issuance of final transition tax regulations by the U.S. Department of Treasury in 2019. This adjustment decreased the cumulative net tax expense related to the TCJA to $1.50 billion.

The one-time transition tax is based on Abbott’s total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The tax computation also requires the determination of the amount of post-1986 E&P considered held in cash and other specified assets. As of December 31, 2019, the remaining balance of Abbott’s transition tax obligation is approximately $1.33 billion, which will be paid over the next seven years as allowed by the TCJA.

In 2019, taxes on earnings from continuing operations included $68 million of tax expense resulting from tax legislation enacted in the fourth quarter of 2019 in India. In 2018, taxes on earnings from continuing operations included $98 million of net tax expense related to the settlement of Abbott’s 2014-2016 federal income tax audit in the U.S., partial settlement of the former St. Jude Medical consolidated group’s 2014 and 2015 federal income tax returns in the U.S. and audit settlements in various countries. In 2017, taxes on earnings from continuing operations include $435 million of tax expense related to the gain on the sale of the AMO business.

Undistributed foreign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in its foreign entities is not practicable. In the U.S., Abbott’s federal income tax returns through 2016 are settled except for the federal income tax returns of the former Alere consolidated group which are settled through 2015 and the former St. Jude Medical consolidated group which are settled through 2013. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. Reserves for interest and penalties are not significant.

Earnings from continuing operations before taxes, and the related provisions for taxes on earnings from continuing operations, were as follows:


(in millions)	2019		2018		2017
Earnings From Continuing Operations Before Taxes:
Domestic	$	889	$	(430)	$	308
Foreign		3,188		3,303		1,923
Total	$	4,077	$	2,873	$	2,231

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 16 — Taxes on Earnings from Continuing Operations (Continued)


(in millions)	2019		2018		2017
Taxes on Earnings From Continuing Operations:
Current:
Domestic	$	291	$	(812)	$	2,260
Foreign		590		606		508
Total current		881		(206)		2,768
Deferred:
Domestic		(305)		832		(679)
Foreign		(186)		(87)		(211)
Total deferred		(491)		745		(890)
Total	$	390	$	539	$	1,878

Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:


	2019		2018		2017
Statutory tax rate on earnings from continuing operations	21.0	%	21.0	%	35.0	%
Impact of foreign operations	(5.0)		(5.4)		(16.3)
Impact of TCJA and other related items	(2.1)		6.3		65.5
Foreign-derived intangible income benefit	(2.0)		(1.9)		—
Domestic impairment loss	—		(2.1)		—
Excess tax benefits related to stock compensation	(2.5)		(3.1)		(5.4)
Research tax credit	(1.2)		(1.8)		(1.9)
Resolution of certain tax positions pertaining to prior years	—		3.4		—
State taxes, net of federal benefit	0.8		0.4		0.5
Federal tax cost on sale of Mylan N.V. shares	—		—		3.4
All other, net	0.6		2.0		3.4
Effective tax rate on earnings from continuing operations	9.6	%	18.8	%	84.2	%

Impact of foreign operations is primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, and Singapore.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 16 — Taxes on Earnings from Continuing Operations (Continued)

The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows:


(in millions)	2019		2018
Deferred tax assets:
Compensation and employee benefits	$	982	$	829
Other, primarily reserves not currently deductible, and NOL’s and credit carryforwards		2,227		2,546
Trade receivable reserves		190		196
Inventory reserves		110		97
Lease liabilities		209		—
Deferred intercompany profit		259		203
Total deferred tax assets before valuation allowance		3,977		3,871
Valuation allowance		(978)		(1,363)
Total deferred tax assets		2,999		2,508
Deferred tax liabilities:
Depreciation		(219)		(226)
Right of Use lease assets		(209)		—
Other, primarily the excess of book basis over tax basis of intangible assets		(3,107)		(3,557)
Total deferred tax liabilities		(3,535)		(3,783)
Total net deferred tax assets (liabilities)	$	(536)	$	(1,275)

Abbott has incurred losses in a foreign jurisdiction where realization of the future economic benefit is so remote that the benefit is not reflected as a deferred tax asset.

The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled:


(in millions)	2019		2018
January 1	$	1,120	$	1,440
Decrease in tax positions due to acquisitions		—		(13)
Increase due to current year tax positions		137		164
Increase due to prior year tax positions		75		235
Decrease due to prior year tax positions		(117)		(611)
Settlements		(32)		(91)
Lapse of statute		(8)		(4)
December 31	$	1,175	$	1,120

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $1.07 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease within a range of $220 million to $510 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 17 — Segment and Geographic Area Information

Abbott’s principal business is the discovery, development, manufacture and sale of a broad line of health care products. Abbott’s products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world.

Beginning in the fourth quarter of 2019, the results of the Diabetes Care business, which had previously been included in Other, were aggregated with the results of the businesses in the Cardiovascular and Neuromodulation segment to comprise the Medical Devices reportable segment. Historic periods have been adjusted to reflect this change.

On October 3, 2017, Abbott completed the acquisition of Alere. Beginning with the fourth quarter of 2017, Abbott’s Diagnostic Products reportable segment includes the results of Alere from the date of acquisition.

Abbott’s reportable segments are as follows:

Established Pharmaceutical Products—International sales of a broad line of branded generic pharmaceutical products.

Nutritional Products—Worldwide sales of a broad line of adult and pediatric nutritional products.

Diagnostic Products—Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. For segment reporting purposes, the Core Laboratories Diagnostics, Rapid Diagnostics, Molecular Diagnostics and Point of Care divisions are aggregated and reported as the Diagnostic Products segment. Rapid Diagnostics is the business acquired from Alere.

Medical Devices — Worldwide sales of rhythm management, electrophysiology, heart failure, vascular, structural heart, neuromodulation and diabetes care products. For segment reporting purposes, the Cardiac Arrhythmias & Heart Failure, Vascular, Neuromodulation, Structural Heart and Diabetes Care divisions are aggregated and reported as the Medical Devices segment.

Non-reportable segments include AMO through the date of its sale in February 2017.

Abbott's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost. Remaining costs, if any, are not allocated to segments. In addition, intangible asset amortization is not allocated to operating segments, and intangible assets and goodwill are not included in the measure of each segment’s assets.

The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.


	Net Sales to External Customers (a)						Operating Earnings (a)
(in millions)	2019		2018		2017		2019		2018		2017
Established Pharmaceutical Products	$	4,486	$	4,422	$	4,287	$	904	$	894	$	848
Nutritional Products		7,409		7,229		6,925		1,705		1,652		1,589
Diagnostic Products		7,713		7,495		5,616		1,912		1,868		1,468
Medical Devices		12,239		11,370		10,325		3,769		3,500		3,011
Total Reportable Segments		31,847		30,516		27,153	$	8,290	$	7,914	$	6,916
Other		57		62		237
Total	$	31,904	$	30,578	$	27,390

(a)	Net sales were unfavorably affected by the relatively stronger U.S. dollar in 2019 and 2018. Operating earnings were unfavorably affected by the impact of foreign exchange in 2019, 2018 and 2017.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 17 — Segment and Geographic Area Information (Continued)


(in millions)	2019		2018		2017
Total Reportable Segment Operating Earnings	$	8,290	$	7,914	$	6,916
Corporate functions and benefit plan costs		(468)		(618)		(506)
Net interest expense		(576)		(721)		(780)
Loss on extinguishment of debt		(63)		(167)		—
Share-based compensation		(519)		(477)		(406)
Amortization of intangible assets		(1,936)		(2,178)		(1,975)
Other, net (b)		(651)		(880)		(1,018)
Earnings from Continuing Operations Before Taxes	$	4,077	$	2,873	$	2,231

(b)

Other, net includes integration costs associated with the acquisition of St. Jude Medical and Alere, and restructuring charges in 2019. Other, net includes inventory step-up amortization, integration costs associated with the acquisition of St. Jude Medical and Alere, and restructuring charges in 2018. In 2017, Other, net includes inventory step-up amortization, integration costs associated with the acquisition of St. Jude Medical and Alere, and restructuring charges, partially offset by the gain on the sale of the AMO business. Charges for restructuring actions and other cost reduction initiatives were approximately $215 million in 2019, $153 million in 2018 and $384 million in 2017.


							Additions to
							Property, Plant
	Depreciation						and Equipment (c)						Total Assets
(in millions)	2019		2018		2017		2019		2018		2017		2019		2018		2017
Established Pharmaceuticals	$	98	$	92	$	90	$	109	$	131	$	181	$	2,858	$	2,664	$	2,728
Nutritionals		139		150		164		141		86		147		3,274		3,071		3,160
Diagnostics		403		397		300		726		609		374		5,235		4,464		4,226
Medical Devices		266		294		338		532		408		276		6,640		5,886		5,799
Total Reportable Segments		906		933		892		1,508		1,234		978	$	18,007	$	16,085	$	15,913
Other		172		167		154		160		160		157
Total	$	1,078	$	1,100	$	1,046	$	1,668	$	1,394	$	1,135

(c)	Amounts exclude property, plant and equipment acquired through business acquisitions.


(in millions)	2019		2018		2017
Total Reportable Segment Assets	$	18,007	$	16,085	$	15,913
Cash and investments		5,023		4,983		10,493
Goodwill and intangible assets		40,220		42,196		45,493
All other		4,637		3,909		4,351
Total Assets	$	67,887	$	67,173	$	76,250

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 17 — Segment and Geographic Area Information (Continued)


	Net Sales to External
	Customers (d)
(in millions)	2019		2018		2017
United States	$	11,398	$	10,839	$	9,673
China		2,346		2,311		2,146
Germany		1,751		1,619		1,366
Japan		1,435		1,326		1,255
India		1,397		1,333		1,237
Switzerland		1,068		1,005		841
The Netherlands		975		930		929
All Other Countries		11,534		11,215		9,943
Consolidated	$	31,904	$	30,578	$	27,390

(d)Sales by country are based on the country that sold the product.

Long-lived assets on a geographic basis primarily include property, plant and equipment. It excludes goodwill, intangible assets, deferred tax assets, and financial instruments. At December 31, 2019 and 2018, long-lived assets totaled $10.2 billion and $8.7 billion, respectively, and in the United States such assets totaled $5.1 billion and $4.3 billion, respectively. Long-lived asset balances associated with other countries were not material on an individual country basis in either of the two years.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 18 — Quarterly Results (Unaudited)


(in millions except per share data)	2019		2018
First Quarter
Continuing Operations:
Net Sales	$	7,535	$	7,390
Gross Profit		3,889		3,739
Earnings from Continuing Operations		672		409
Basic Earnings per Common Share		0.38		0.23
Diluted Earnings per Common Share		0.38		0.23
Net Earnings		672		418
Basic Earnings Per Common Share (a)		0.38		0.24
Diluted Earnings Per Common Share (a)		0.38		0.23
Second Quarter
Continuing Operations:
Net Sales	$	7,979	$	7,767
Gross Profit		4,217		3,923
Earnings from Continuing Operations		1,006		718
Basic Earnings per Common Share		0.57		0.41
Diluted Earnings per Common Share		0.56		0.40
Net Earnings		1,006		733
Basic Earnings Per Common Share (a)		0.57		0.42
Diluted Earnings Per Common Share (a)		0.56		0.41
Third Quarter
Continuing Operations:
Net Sales	$	8,076	$	7,656
Gross Profit		4,234		3,946
Earnings from Continuing Operations		960		552
Basic Earnings per Common Share		0.54		0.31
Diluted Earnings per Common Share		0.53		0.31
Net Earnings		960		563
Basic Earnings Per Common Share (a)		0.54		0.32
Diluted Earnings Per Common Share (a)		0.53		0.32
Fourth Quarter
Continuing Operations:
Net Sales	$	8,314	$	7,765
Gross Profit		4,397		4,086
Earnings from Continuing Operations		1,049		655
Basic Earnings per Common Share		0.59		0.37
Diluted Earnings per Common Share		0.59		0.37
Net Earnings		1,049		654
Basic Earnings Per Common Share (a)		0.59		0.37
Diluted Earnings Per Common Share (a)		0.59		0.37

(a)	The sum of the four quarters of earnings per share for 2019 and 2018 may not add to the full year earnings per share amount due to rounding and/or the use of quarter-to-date weighted average shares to calculate the earnings per share amount in each respective quarter.

Management Report on Internal Control Over Financial Reporting

The management of Abbott Laboratories is responsible for establishing and maintaining adequate internal control over financial reporting. Abbott’s internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Abbott’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2019. In making this assessment, it used the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2019, the company’s internal control over financial reporting was effective based on those criteria.

Abbott’s independent registered public 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 90.

Miles D. White

Chairman of the Board and Chief Executive Officer

Brian B. Yoor

Executive Vice President, Finance and Chief Financial Officer

Robert E. Funck, Jr.

Senior Vice President, Finance and Controller

February 21, 2020

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Abbott Laboratories

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Abbott Laboratories and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, shareholders’ investment and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 21, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

		Evaluation of acquired in-process research & development intangible assets
Description of the Matter		As described in Note 8 to the consolidated financial statements, acquired in-process research & development (“IPR&D”) intangible assets were approximately $1.3 billion at December 31, 2019. IPR&D intangible assets are assessed for impairment annually, or more frequently if impairment indicators suggest the fair value of the IPR&D intangible asset may be below its carrying value. Auditing the fair value estimate of IPR&D intangible assets is complex because the estimate involves making assumptions about the timing and amount of forecasted future net cash flows of the related IPR&D projects, as well as the risk associated with the forecasted future net cash flows. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s IPR&D intangible asset impairment assessment, as well as its process for identification of events that indicate an IPR&D intangible asset may be impaired. This included controls over management's review of the valuation model and the significant assumptions (e.g., discount rate, projected research and development (“R&D”) costs, probability of technical success, projected revenues and product profitability) used to develop the prospective financial information (PFI). To test the fair value of the Company’s IPR&D intangible assets, our audit procedures included, among others, evaluating the Company's use of the income approach, testing the significant assumptions described above used to develop the prospective financial information and testing the completeness and accuracy of the underlying data. For example, we compared certain significant assumptions to current industry, market and economic trends, historical results of the Company's business and other guideline companies within the same industry and to other relevant factors. We performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the IPR&D assets resulting from changes in the assumptions. We also involved our valuation specialists to assist in testing certain significant assumptions in the fair value estimate. In addition, to evaluate the probability of technical success, we considered the phase of development of the IPR&D project and the Company's history of obtaining regulatory approvals.
		Income taxes – Unrecognized tax benefits
Description of the Matter		As described in Note 16 to the consolidated financial statements, unrecognized tax benefits were approximately $1.2 billion at December 31, 2019. Unrecognized tax benefits are assessed by management quarterly for identification and measurement, or more frequently if there are any indicators suggesting change in unrecognized tax benefits. Assessing tax positions involves judgement including interpreting tax laws of multiple jurisdictions and assumptions relevant to the measurement of an unrecognized tax benefit, including the estimated amount of tax liability that may be incurred should the tax position not be sustained upon inspection by a tax authority. These judgements and assumptions can significantly affect unrecognized tax benefits.

How We Addressed the Matter in our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s identification and measurement of unrecognized tax benefits, as well as its process for the assessment of events that may indicate a change in unrecognized tax benefits is warranted. For example, we tested controls over management’s review of the completeness of identified unrecognized tax benefits, as well as controls over management’s review of significant assumptions used within the measurement of unrecognized tax benefits. With the support of our tax professionals and valuation specialists, among other audit procedures performed, we evaluated the reasonableness of management’s judgement with respect to the interpretation of tax laws of multiple jurisdictions by reading and evaluating management’s documentation, including relevant accounting policies, and by considering how tax law, including statutes, regulations and case law, affected management’s judgments. We tested the completeness of management’s assessment of the identification of unrecognized tax benefits and possible outcomes related to it including evaluation of technical merits of the unrecognized tax benefits. We also tested appropriateness and consistency of management’s methods and significant assumptions associated with the measurement of unrecognized tax benefits, including assessing the estimated amount of tax liability that may be incurred should the tax position not be sustained upon inspection by a tax authority.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Chicago, Illinois

February 21, 2020

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Abbott Laboratories

Opinion on Internal Control over Financial Reporting

We have audited Abbott Laboratories and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Abbott Laboratories and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, shareholders’ investment and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 21, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, Illinois

February 21, 2020

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