Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

​
​		Page
Consolidated Statement of Earnings	​	43
Consolidated Statement of Comprehensive Income	​	44
Consolidated Statement of Cash Flows	​	45
Consolidated Balance Sheet	​	46
Consolidated Statement of Shareholders’ Investment	​	48
Notes to Consolidated Financial Statements	​	49
Management Report on Internal Control Over Financial Reporting	​	81
Report of Independent Registered Public Accounting Firm	​	82
Report of Independent Registered Public Accounting Firm	​	84

​

​

​

Abbott Laboratories and Subsidiaries

Consolidated Statement of Earnings

(in millions except per share data)

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31
​		2020			2019			2018
Net Sales	​	$	34,608	​	$	31,904	​	$	30,578
Cost of products sold, excluding amortization of intangible assets	​		15,003	​		13,231	​		12,706
Amortization of intangible assets	​		2,132	​		1,936	​		2,178
Research and development	​		2,420	​		2,440	​		2,300
Selling, general and administrative	​		9,696	​		9,765	​		9,744
Total Operating Cost and Expenses	​		29,251	​		27,372	​		26,928
Operating Earnings	​		5,357	​		4,532	​		3,650
Interest expense	​		546	​		670	​		826
Interest income	​		(46)	​		(94)	​		(105)
Net foreign exchange (gain) loss	​		(8)	​		7	​		28
Debt extinguishment costs	​	​	—	​	​	63	​	​	167
Other (income) expense, net	​		(103)	​		(191)	​		(139)
Earnings from Continuing Operations Before Taxes	​		4,968	​		4,077	​		2,873
Taxes on Earnings from Continuing Operations	​		497	​		390	​		539
​	​	​	​	​	​	​	​	​	​
Earnings from Continuing Operations	​		4,471	​		3,687	​		2,334
​	​	​	​	​	​	​	​	​	​
Net Earnings from Discontinued Operations, net of taxes	​	​	24	​	​	—	​	​	34
​	​	​	​	​	​	​	​	​	​
Net Earnings	​	$	4,495	​	$	3,687	​	$	2,368
​	​	​	​	​	​	​	​	​	​
Basic Earnings Per Common Share --	​	​	​	​	​	​	​	​	​
Continuing Operations	​	$	2.51	​	$	2.07	​	$	1.32
Discontinued Operations	​		0.01	​		—	​		0.02
Net Earnings	​	$	2.52	​	$	2.07	​	$	1.34
​	​	​	​	​	​	​	​	​	​
Diluted Earnings Per Common Share --	​	​	​	​	​	​	​	​	​
Continuing Operations	​	$	2.49	​	$	2.06	​	$	1.31
Discontinued Operations	​		0.01	​		—	​		0.02
Net Earnings	​	$	2.50	​	$	2.06	​	$	1.33
​	​	​	​	​	​	​	​	​	​
Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share	​		1,773	​		1,768	​		1,758
Dilutive Common Stock Options	​		13	​		13	​		12
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options	​		1,786	​		1,781	​		1,770
Outstanding Common Stock Options Having No Dilutive Effect	​	​	9	​		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
​		2020			2019			2018
Net Earnings	​	$	4,495	​	$	3,687	​	$	2,368
Foreign currency translation gain (loss) adjustments	​		65	​		(12)	​		(1,460)
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 $(79) in 2020, $(238) in 2019 and $47 in 2018	​		(331)	​		(814)	​		132
Net (losses) gains on derivative instruments designated as cash flow hedges, net of taxes of $(87) in 2020, $(17) in 2019 and $50 in 2018	​		(215)	​		(53)	​		136
Other Comprehensive Income (Loss)	​		(481)	​		(879)	​		(1,192)
Comprehensive Income	​	$	4,014	​	$	2,808	​	$	1,176
​	​	​	​	​	​	​	​	​	​
Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax as of December 31:	​	​	​	​	​	​	​	​	​
Cumulative foreign currency translation (loss) adjustments	​	$	(4,859)	​	$	(4,924)	​	$	(4,912)
Net actuarial (losses) and prior service (cost) and credits	​		(3,871)	​		(3,540)	​		(2,726)
Cumulative (losses) gains on derivative instruments designated as cash flow hedges	​		(216)	​		(1)	​		52
Accumulated other comprehensive income (loss)	​	$	(8,946)	​	$	(8,465)	​	$	(7,586)

​

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
​		2020			2019			2018
Cash Flow From (Used in) Operating Activities:	​	​	​	​	​	​	​	​	​
Net earnings	​	$	4,495	​	$	3,687	​	$	2,368
Adjustments to reconcile earnings to net cash from operating activities -	​	​	​	​	​	​	​	​	​
Depreciation	​		1,195	​		1,078	​		1,100
Amortization of intangible assets	​		2,132	​		1,936	​		2,178
Share-based compensation	​		546	​		519	​		477
Amortization of inventory step-up	​	​	—	​	​	—	​	​	32
Investing and financing losses, net	​	​	425	​	​	184	​	​	126
Loss on extinguishment of debt	​	​	—	​	​	63	​	​	167
Trade receivables	​		(924)	​		(275)	​		(190)
Inventories	​		(493)	​		(593)	​		(514)
Prepaid expenses and other assets	​		(627)	​		(138)	​		23
Trade accounts payable and other liabilities	​		1,766	​		220	​		747
Income taxes	​		(614)	​		(545)	​		(214)
Net Cash From Operating Activities	​	​	7,901	​	​	6,136	​	​	6,300
​	​	​	​	​	​	​	​	​	​
Cash Flow From (Used in) Investing Activities:	​	​	​	​	​	​	​	​	​
Acquisitions of property and equipment	​		(2,177)	​		(1,638)	​		(1,394)
Acquisitions of businesses and technologies, net of cash acquired	​		(42)	​		(170)	​		(54)
Proceeds from business dispositions	​	​	58	​	​	48	​	​	48
Purchases of investment securities	​		(83)	​		(103)	​		(131)
Proceeds from sales of investment securities	​		10	​		21	​		73
Other	​		19	​		27	​		102
Net Cash From (Used in) Investing Activities	​		(2,215)	​		(1,815)	​		(1,356)
​	​	​	​	​	​	​	​	​	​
Cash Flow From (Used in) Financing Activities:	​	​	​	​	​	​	​	​	​
Proceeds from issuance of (repayments of) short-term debt, net and other	​		2	​		—	​		(26)
Proceeds from issuance of long-term debt and debt with maturities over 3 months	​		1,281	​		1,842	​		4,009
Repayments of long-term debt and debt with maturities over 3 months	​		(1,333)	​		(3,441)	​		(12,433)
Purchases of common shares	​		(403)	​		(718)	​		(238)
Proceeds from stock options exercised	​		245	​		298	​		271
Dividends paid	​		(2,560)	​		(2,270)	​		(1,974)
Other	​	​	(11)	​	​	—	​	​	—
Net Cash From (Used in) Financing Activities	​		(2,779)	​		(4,289)	​		(10,391)
​	​	​	​	​	​	​	​	​	​
Effect of exchange rate changes on cash and cash equivalents	​		71	​		(16)	​		(116)
Net Increase (Decrease) in Cash and Cash Equivalents	​		2,978	​		16	​		(5,563)
Cash and Cash Equivalents, Beginning of Year	​		3,860	​		3,844	​		9,407
Cash and Cash Equivalents, End of Year	​	$	6,838	​	$	3,860	​	$	3,844
​	​	​	​	​	​	​	​	​	​
Supplemental Cash Flow Information:	​	​	​	​	​	​	​	​	​
Income taxes paid	​	$	970	​	$	930	​	$	740
Interest paid	​		549	​		677	​		845

​

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
​		2020			2019
Assets	​	​	​	​	​	​
Current assets:	​	​	​	​	​	​
Cash and cash equivalents	​	$	6,838	​	$	3,860
Investments, primarily bank time deposits and U.S. treasury bills	​		310	​		280
Trade receivables, less allowances of — 2020: $460; 2019: $384	​		6,414	​		5,425
Inventories:	​	​	​	​	​	​
Finished products	​		3,030	​		2,784
Work in process	​		712	​		560
Materials	​		1,270	​		972
Total inventories	​		5,012	​		4,316
Other prepaid expenses and receivables	​		1,867	​		1,786
Total current assets	​		20,441	​		15,667
Investments	​		821	​		883
Property and equipment, at cost:	​	​	​	​	​	​
Land	​		538	​		519
Buildings	​		4,014	​		3,702
Equipment	​		12,884	​		11,468
Construction in progress	​		1,357	​		1,110
​	​		18,793	​		16,799
Less: accumulated depreciation and amortization	​		9,764	​		8,761
Net property and equipment	​		9,029	​		8,038
Intangible assets, net of amortization	​		14,784	​		17,025
Goodwill	​		23,744	​		23,195
Deferred income taxes and other assets	​		3,729	​		3,079
​	​	$	72,548	​	$	67,887

​

​

Abbott Laboratories and Subsidiaries

Consolidated Balance Sheet

(dollars in millions)

​	​	​	​	​	​	​
​	​	December 31
​		2020			2019
Liabilities and Shareholders’ Investment	​	​	​	​	​	​
Current liabilities:	​	​	​	​	​	​
Short-term borrowings	​	$	213	​	$	201
Trade accounts payable	​		3,946	​		3,252
Salaries, wages and commissions	​		1,416	​		1,237
Other accrued liabilities	​		5,165	​		4,035
Dividends payable	​		798	​		635
Income taxes payable	​		362	​		226
Current portion of long-term debt	​		7	​		1,277
Total current liabilities	​		11,907	​		10,863
Long-term debt	​		18,527	​		16,661
Post-employment obligations and other long-term liabilities	​		9,111	​		9,062
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: 2020: 1,981,156,896; 2019: 1,976,855,085	​		24,145	​		23,853
Common shares held in treasury, at cost — Shares: 2020: 209,926,622; 2019: 214,351,838	​		(10,042)	​		(10,147)
Earnings employed in the business	​		27,627	​		25,847
Accumulated other comprehensive income (loss)	​		(8,946)	​		(8,465)
Total Abbott Shareholders’ Investment	​		32,784	​		31,088
Noncontrolling interests in subsidiaries	​		219	​		213
Total Shareholders’ Investment	​		33,003	​		31,301
​	​	$	72,548	​	$	67,887

​

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
​		2020			2019			2018
Common Shares:	​	​	​	​	​	​	​	​	​
Beginning of Year	​	​	​	​	​	​	​	​	​
Shares: 2020: 1,976,855,085; 2019: 1,971,189,465; 2018: 1,965,908,188	​	$	23,853	​	$	23,512	​	$	23,206
Issued under incentive stock programs	​	​	​	​	​	​	​	​	​
Shares: 2020: 4,301,811; 2019: 5,665,620; 2018: 5,281,277	​		181	​		209	​		163
Share-based compensation	​	​	548	​	​	521	​	​	479
Issuance of restricted stock awards	​	​	(437)	​	​	(389)	​	​	(336)
End of Year	​	​	​	​	​	​	​	​	​
Shares: 2020: 1,981,156,896; 2019: 1,976,855,085; 2018: 1,971,189,465	​	$	24,145	​	$	23,853	​	$	23,512
Common Shares Held in Treasury:	​	​	​	​	​	​	​	​	​
Beginning of Year	​	​	​	​	​	​	​	​	​
Shares: 2020: 214,351,838; 2019: 215,570,043; 2018: 222,305,719	​	$	(10,147)	​	$	(9,962)	​	$	(10,225)
Issued under incentive stock programs	​	​	​	​	​	​	​	​	​
Shares: 2020: 6,290,757; 2019: 7,796,030; 2018: 8,870,735	​		298	​		361	​		408
Purchased	​	​	​	​	​	​	​	​	​
Shares: 2020: 1,865,541; 2019: 6,577,825; 2018: 2,135,059	​	​	(193)	​	​	(546)	​	​	(145)
End of Year	​	​	​	​	​	​	​	​	​
Shares: 2020: 209,926,622; 2019: 214,351,838; 2018: 215,570,043	​	$	(10,042)	​	$	(10,147)	​	$	(9,962)
Earnings Employed in the Business:	​	​	​	​	​	​	​	​	​
Beginning of Year	​	$	25,847	​	$	24,560	​	$	23,978
Impact of adoption of new accounting standards	​	​	(5)	​	​	—	​	​	351
Net earnings	​	​	4,495	​	​	3,687	​	​	2,368
Cash dividends declared on common shares (per share — 2020: $1.53; 2019: $1.32; 2018: $1.16)	​		(2,722)	​		(2,343)	​		(2,047)
Effect of common and treasury share transactions	​		12	​		(57)	​		(90)
End of Year	​	$	27,627	​	$	25,847	​	$	24,560
Accumulated Other Comprehensive Income (Loss):	​	​	​	​	​	​	​	​	​
Beginning of Year	​	$	(8,465)	​	$	(7,586)	​	$	(6,062)
Impact of adoption of new accounting standards	​	​	—	​	​	—	​	​	(332)
Other comprehensive income (loss)	​		(481)	​		(879)	​		(1,192)
End of Year	​	$	(8,946)	​	$	(8,465)	​	$	(7,586)
Noncontrolling Interests in Subsidiaries:	​	​	​	​	​	​	​	​	​
Beginning of Year	​	$	213	​	$	198	​	$	201
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases	​		6	​		15	​		(3)
End of Year	​	$	219	​	$	213	​	$	198

​

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 (TCJA), or any additional outside basis differences that exist, as these amounts continue to be indefinitely reinvested in foreign operations. 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. Abbott treats the GILTI tax as a period expense and provides for the tax in the year that the tax is incurred. 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 2020, 2019 and 2018 were $4.449 billion, $3.666 billion and $2.320 billion, respectively. Net earnings allocated to common shares in 2020, 2019 and 2018 were $4.473 billion, $3.666 billion and $2.353 billion, 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (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 $277 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 the net amount expected to be collected. The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. Abbott considers various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge-offs, and specific exposures related to particular customers. Abbott also monitors other risk factors and forward-looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. 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		2 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 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 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 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. Abbott adopted the standard on January 1, 2020 and recorded a cumulative adjustment that was not significant to Earnings employed in the business in the Consolidated Balance Sheet.

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. Adoption of this new standard will not have a material impact on Abbott’s 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:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020								​	2019								​	2018
(in millions)		U.S.			Int’l			Total			U.S.			Int’l			Total			U.S.			Int’l			Total
Established Pharmaceutical Products —	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Key Emerging Markets	​	$	—	​	$	3,209	​	$	3,209	​	$	—	​	$	3,392	​	$	3,392	​	$	—	​	$	3,363	​	$	3,363
Other	​		—	​		1,094	​		1,094	​		—	​		1,094	​		1,094	​	​	—	​	​	1,059	​	​	1,059
Total	​		—	​		4,303	​		4,303	​		—	​		4,486	​		4,486	​	​	—	​	​	4,422	​	​	4,422
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Nutritionals —	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Pediatric Nutritionals	​		1,987	​		2,140	​		4,127	​		1,879	​		2,282	​		4,161	​	​	1,843	​	​	2,254	​	​	4,097
Adult Nutritionals	​		1,292	​		2,228	​		3,520	​		1,231	​		2,017	​		3,248	​	​	1,232	​	​	1,900	​	​	3,132
Total	​		3,279	​		4,368	​		7,647	​		3,110	​		4,299	​		7,409	​	​	3,075	​	​	4,154	​	​	7,229
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Diagnostics —	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Core Laboratory	​		1,166	​		3,309	​		4,475	​		1,086	​		3,570	​		4,656	​	​	985	​	​	3,401	​	​	4,386
Molecular	​		621	​		817	​		1,438	​		149	​		293	​		442	​	​	152	​	​	332	​	​	484
Point of Care	​		369	​		147	​		516	​		438	​		123	​		561	​	​	432	​	​	121	​	​	553
Rapid Diagnostics	​		2,618	​		1,758	​		4,376	​		1,214	​		840	​		2,054	​	​	1,148	​	​	924	​	​	2,072
Total	​		4,774	​		6,031	​		10,805	​		2,887	​		4,826	​		7,713	​	​	2,717	​	​	4,778	​	​	7,495
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Medical Devices —	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Rhythm Management	​		903	​		1,011	​		1,914	​		1,057	​		1,087	​		2,144	​	​	1,105	​	​	1,093	​	​	2,198
Electrophysiology	​		660	​		918	​		1,578	​		742	​		979	​		1,721	​	​	678	​	​	883	​	​	1,561
Heart Failure	​		547	​		193	​		740	​		574	​		195	​		769	​	​	467	​	​	179	​	​	646
Vascular	​		853	​		1,486	​		2,339	​		1,047	​		1,803	​		2,850	​	​	1,126	​	​	1,803	​	​	2,929
Structural Heart	​		540	​		707	​		1,247	​		616	​		784	​		1,400	​	​	488	​	​	751	​	​	1,239
Neuromodulation	​		564	​		138	​		702	​		660	​		171	​		831	​	​	690	​	​	174	​	​	864
Diabetes Care	​	​	864	​	​	2,403	​	​	3,267	​	​	678	​	​	1,846	​	​	2,524	​	​	457	​	​	1,476	​	​	1,933
Total	​		4,931	​		6,856	​		11,787	​		5,374	​		6,865	​		12,239	​	​	5,011	​	​	6,359	​	​	11,370
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other	​		38	​		28	​		66	​		27	​		30	​		57	​	​	36	​	​	26	​	​	62
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total	​	$	13,022	​	$	21,586	​	$	34,608	​	$	11,398	​	$	20,506	​	$	31,904	​	$	10,839	​	$	19,739	​	$	30,578

​

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, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $3.8 billion in the Diagnostic Products segment and approximately $430 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 17 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 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, 2020 and 2019 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, 2020 and 2019 were not significant.

Other Contract Assets and Liabilities

Abbott discloses Trade receivables separately in the Consolidated Balance Sheet at the net amount expected to be collected. 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 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
Unearned revenue from cash received during the period	​		505
Revenue recognized related to contract liability balance	​		(394)
Balance at December 31, 2020	​	$	405

​

​

Note 4 — Discontinued Operations and Business Dispositions

The net earnings of discontinued operations include income tax benefits of $24 million in 2020 and $39 million in 2018. The 2020 tax benefits primarily relate to the resolution of various tax positions related to Abbott’s developed markets branded generic pharmaceuticals business which was sold to Mylan Inc. (Mylan) in 2015. The tax positions relate to years prior to the sale to Mylan. The 2018 tax benefits primarily relate to the resolution of various tax positions related to the operations of AbbVie Inc. (AbbVie) for years prior to the separation. Abbott completed the separation of AbbVie, which was formed to hold Abbott’s research-based proprietary pharmaceuticals business, in January 2013. Abbott retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation.

​

Note 5 — Supplemental Financial Information

Other (income) expense, net, for 2020, 2019 and 2018 includes approximately $205 million, $225 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.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 5 — Supplemental Financial Information (Continued)

The following summarizes the activity for 2020 related to the allowance for doubtful accounts as of December 31, 2020:

​

​	​	​	​
(in millions)		​	​
Allowance for Doubtful Accounts	​	​	​
Balance at December 31, 2019	​	$	228
Impact of adopting ASU 2016-13	​	​	7
Provisions/charges to income	​		88
Amounts charged off and other deductions	​		(35)
Balance at December 31, 2020	​	$	288

​

The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. Abbott considers various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge-offs, and specific exposures related to particular customers. Abbott also monitors other risk factors and forward-looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances.

The detail of various balance sheet components is as follows:

​

​	​	​	​	​	​	​
​	​	December 31,		​	December 31,
(in millions)		2020			2019
Long-term Investments:	​	​	​	​	​	​
Equity securities	​	$	776	​	$	836
Other	​		45	​		47
Total	​	$	821	​	$	883

​

Abbott’s long-term investments as of December 31, 2020 declined versus the balance as of December 31, 2019 due primarily to investment impairments totaling approximately $115 million, recorded in Other (income) expense, net within the Consolidated Statement of Earnings, which was partially offset by approximately $35 million of additional investments during 2020.

Abbott’s equity securities as of December 31, 2020 and December 31, 2019, include $366 million and $346 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, 2020 with a carrying value of $277 million that are accounted for under the equity method of accounting and other equity investments with a carrying value of $113 million that do not have a readily determinable fair value. The $113 million carrying value is net of an approximately $60 million impairment of an investment in 2020 for which Abbott had previously recorded an unrealized gain of approximately $50 million in 2018.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 5 — Supplemental Financial Information (Continued)

In 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)		2020			2019
Other Accrued Liabilities:	​	​	​	​	​	​
Accrued rebates payable to government agencies	​	$	316	​	$	212
Accrued other rebates (a)	​		805	​		655
All other	​		4,044	​		3,168
Total	​	$	5,165	​	$	4,035

	(a)	Accrued wholesaler chargeback rebates of $178 million and $175 million at December 31, 2020 and 2019, 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)		2020			2019
Post-employment Obligations and Other Long-term Liabilities:	​	​	​	​	​	​
Defined benefit pension plans and post-employment medical and dental plans for significant plans	​	$	3,119	​	$	2,817
Deferred income taxes	​		1,406	​		1,546
Operating lease liabilities	​	​	902	​	​	755
All other (b)	​		3,684	​		3,944
Total	​	$	9,111	​	$	9,062

	(b)	Includes approximately $740 million and $580 million of net unrecognized tax benefits in 2020 and 2019, respectively.

​

​

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		​	​	​
​	​	​		​	​	​	​	Gains (Losses)		​	​	​
​	​	Cumulative		​	Net Actuarial		​	on Derivative		​	​	​
​	​	Foreign		​	(Losses) and		​	Instruments		​	​	​
​	​	Currency		​	Prior Service		​	Designated as		​	​	​
​	​	Translation		​	(Costs) and		​	Cash Flow		​	​	​
(in millions)		Adjustments			Credits			Hedges			Total
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)
Other comprehensive income (loss) before reclassifications	​	​	65	​		(523)	​		(140)	​		(598)
(Income) loss amounts reclassified from accumulated other comprehensive income (a)	​	​	—	​		192	​		(75)	​		117
Net current period other comprehensive income (loss)	​	​	65	​	​	(331)	​	​	(215)	​	​	(481)
Balance at December 31, 2020	​	$	(4,859)	​	$	(3,871)	​	$	(216)	​	$	(8,946)

(a)	(Income) loss amounts reclassified from accumulated other comprehensive income 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 14 for additional information.

​

​

Note 7 — Goodwill and Intangible Assets

The total amount of goodwill reported was $23.7 billion at December 31, 2020 and $23.2 billion at December 31, 2019. Foreign currency translation adjustments increased goodwill by approximately $550 million in 2020 and decreased goodwill $103 million in 2019. The amount of goodwill related to reportable segments at December 31, 2020 was $3.0 billion for the Established Pharmaceutical Products segment, $286 million for the Nutritional Products segment, $3.8 billion for the Diagnostic Products segment, and $16.6 billion for the Medical Devices segment. There was no reduction of goodwill relating to impairments in 2020 and 2019.

The gross amount of amortizable intangible assets, primarily product rights and technology, was $27.8 billion and $27.6 billion as of December 31, 2020 and 2019, respectively, and accumulated amortization was $14.2 billion and $11.9 billion as of December 31, 2020 and 2019, respectively. Foreign currency translation adjustments increased intangible assets by approximately $67 million in 2020 and decreased intangible assets by $71 million in 2019. In 2020, asset impairments related to the Medical Devices segment decreased intangible assets by $148 million. The impairment was recorded in the Cost of products sold, excluding amortization of intangible assets line of Abbott’s Consolidated Statement of Earnings. The estimated annual amortization expense for intangible assets recorded at December 31, 2020 is approximately $2.0 billion in 2021, $2.0 billion in 2022, $1.9 billion in 2023, $1.9 billion in 2024 and $1.9 billion in 2025. Amortizable intangible assets are amortized over 2 to 20 years.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 7 — Goodwill and Intangible Assets (Continued)

Indefinite-lived intangible assets, which relate to IPR&D acquired in a business combination, were approximately $1.2 billion and $1.3 billion at December 31, 2020 and 2019, respectively. The decrease is due to an IPR&D intangible asset related to the Medical Devices segment that became amortizable in 2020 and a $55 million impairment of an IPR&D intangible asset related to the Medical Devices segment that was recorded in the Research and development line of Abbott’s Consolidated Statement of Earnings in 2020.

​

Note 8 — Restructuring Plans

From 2017 to 2020, Abbott management approved restructuring plans as part of the integration of the acquisitions of St. Jude Medical into the Medical Devices segment, and Alere Inc. (Alere) into the Diagnostic Products segment, in order to leverage economies of scale and reduce costs. As of December 31, 2017, the accrued balance associated with these actions was $68 million. From 2018 to 2020, Abbott recorded employee related severance and other charges totaling approximately $137 million, comprised of $13 million in 2020, $72 million in 2019 and $52 million in 2018. Approximately $30 million was recorded in Cost of products sold, approximately $15 million was recorded in Research and development, and approximately $92 million was recorded in Selling, general and administrative expense over the last three years. As of December 31, 2020, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $25 million and primarily represent severance obligations.

From 2016 to 2020, 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 $36 million in 2020, $66 million in 2019 and $28 million in 2018. Approximately $6 million in 2020, $16 million in 2019 and $10 million in 2018 are recorded in Cost of products sold, approximately $2 million in 2020, $28 million in 2019 and $2 million in 2018 are recorded in Research and development, and approximately $28 million in 2020, $22 million in 2019 and $16 million in 2018 are recorded in Selling, general and administrative expense.

The following summarizes the activity for these restructurings:

​

​	​	​	​
(in millions)		​	​
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
Restructuring charges	​	​	36
Payments and other adjustments	​	​	(45)
Accrued balance at December 31, 2020	​	$	70

​

​

Note 9 — 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 2020, Abbott granted 4,015,420 stock options, 569,961 restricted stock awards and 5,239,575 restricted stock units under this program.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 9 — Incentive Stock Program (Continued)

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, 2020, approximately 113 million shares remained available for future issuance.

The following table summarizes stock option activity for the year ended December 31, 2020 and the outstanding stock options as of December 31, 2020.

​

​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	Weighted	​	​
​	​	​	​	Weighted		​	Average	​	​
​	​	​	​	Average		​	Remaining	​	Aggregate
(intrinsic values in millions)		Options		Exercise Price			Life (Years)		Intrinsic Value
Outstanding at December 31, 2019	​	29,877,915	​	$	48.78		6.2		$	1,138
Granted		4,015,420	​		87.84	​	​	​	​	​
Exercised		(4,872,830)	​		39.62	​	​	​	​	​
Lapsed		(100,619)	​		75.22	​	​	​	​	​
Outstanding at December 31, 2020		28,919,886	​	$	55.65		6.0		$	1,557
Exercisable at December 31, 2020	​	20,390,745	​	$	46.16	​	5.0	​	$	1,291

​

The following table summarizes restricted stock awards and units activity for the year ended December 31, 2020.

​

​	​	​	​	​	​
​	​	​		Weighted
​	​	​	​	Average
​		​	​	Grant-Date
​	​	Share Units	​	Fair Value
Outstanding at December 31, 2019		14,463,314	​	$	65.51
Granted		5,809,536	​		87.83
Vested		(7,167,631)	​		60.67
Forfeited		(612,351)	​		75.16
Outstanding at December 31, 2020		12,492,868	​	$	78.19

​

The fair market value of restricted stock awards and units vested in 2020, 2019 and 2018 was $631 million, $588 million and $458 million, respectively.

The total intrinsic value of options exercised in 2020, 2019 and 2018 was $279 million, $315 million and $249 million, respectively. The total unrecognized compensation cost related to all share-based compensation plans at December 31, 2020 amounted to approximately $407 million, which is expected to be recognized over the next three years.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 9 — Incentive Stock Program (Continued)

Total non-cash stock compensation expense charged against income from continuing operations in 2020, 2019 and 2018 for share-based plans totaled approximately $546 million, $519 million and $477 million, respectively, and the tax benefit recognized was approximately $200 million, $197 million and $185 million, respectively. Stock compensation cost capitalized as part of inventory is not significant.

The table below summarizes the fair value of an option granted in 2020, 2019 and 2018 and the assumptions included in the Black-Scholes option-pricing model used to estimate the fair value:

​

​	​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018		​
Fair value	​	$	14.39	​	$	14.50	​	$	10.93	​
Risk-free interest rate		​	1.3	%	​	2.5	%	​	2.7	%
Average life of options (years)		​	6.0	​	​	6.0	​	​	6.0	​
Volatility		​	19.4	%	​	19.8	%	​	19.0	%
Dividend yield		​	1.6	%	​	1.7	%	​	1.9	%

​

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 10 — Debt and Lines of Credit

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

​

​	​	​	​	​	​	​
(in millions)		2020			2019
0.00% Notes, due 2020	​	$	—	​	$	1,272
2.55% Notes, due 2022	​	​	750	​	​	750
0.875% Notes, due 2023	​	​	1,398	​	​	1,272
3.40% Notes, due 2023	​	​	1,050	​	​	1,050
5-year term loan due 2024	​	​	577	​	​	546
0.10% Notes, due 2024	​	​	724	​	​	658
3.875% Notes, due 2025	​	​	500	​	​	500
2.95% Notes, due 2025	​	​	1,000	​	​	1,000
1.50% Notes, due 2026	​	​	1,398	​	​	1,272
3.75% Notes, due 2026	​	​	1,700	​	​	1,700
0.375% Notes, due 2027	​	​	724	​	​	658
1.15% Notes, due 2028	​	​	650	​	​	—
1.40% Notes, due 2030	​	​	650	​	​	—
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	​	​	(87)	​	​	(90)
Other, including fair value adjustments relating to interest rate hedge contracts designated as fair value hedges	​		144	​		(6)
Total carrying amount of long-term debt	​		18,534	​		17,938
Less: Current portion	​		7	​		1,277
Total long-term portion	​	$	18,527	​	$	16,661

​

On June 24, 2020, Abbott completed the issuance of $1.3 billion aggregate principal amount of senior notes, consisting of $650 million of its 1.15% Notes due 2028 and $650 million of its 1.40% Notes due 2030.

On September 28, 2020, Abbott repaid the €1.140 billion outstanding principal amount of its 0.00% Notes due 2020 upon maturity. The repayment equated to approximately $1.3 billion.

Abbott has readily available financial resources, including unused lines of credit that support commercial paper borrowing arrangements and provide Abbott with the ability to borrow up to $5 billion on an unsecured basis. The lines of credit are part of a Five Year Credit Agreement (Revolving Credit Agreement) that Abbott entered into on November 12, 2020. At that time, Abbott also terminated its 2018 revolving credit agreement. There were no outstanding borrowings under the 2018 revolving credit agreement at the time of its termination. Any borrowings under the Revolving Credit Agreement will mature and be payable on November 12, 2025. 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.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 10 — Debt and Lines of Credit (Continued)

In 2019, Abbott’s long-term borrowings and debt issuance included the following:

	●	On November 19, 2019, Abbott’s wholly owned subsidiary, Abbott 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.

In 2019, Abbott’s repayment of long-term debt included the following:

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

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

The 2.80% Notes were redeemed under the board of directors’ 2018 bond redemption authorization discussed below. The 2.9% Notes were redeemed under a bond redemption authorization approved by the board of directors in September 2019 for the early redemption of up to $5 billion of outstanding long-term notes. The 2019 bond redemption authorization superseded the board’s 2018 authorization. $2.15 billion of the $5 billion authorization remans available as of December 31, 2020.

On January 5, 2018, Abbott repaid $2.8 billion under a 5-year term loan agreement and $1.15 billion of borrowings under its lines of credit.

On February 16, 2018, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes. 2018 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

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

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 10 — Debt and Lines of Credit (Continued)

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 were 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.

Principal payments required on long-term debt outstanding at December 31, 2020 are $7 million in 2021, $753 million in 2022, $2.4 billion in 2023, $1.3 billion in 2024, $1.5 billion in 2025 and $12.5 billion in 2026 and thereafter.

At December 31, 2020, Abbott’s long-term debt rating was A by Standard & Poor’s Corporation and A3 by Moody’s. Abbott’s weighted-average interest rate on short-term borrowings was 0.4%at December 31, 2020, 2019 and 2018.

​

Note 11 — 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 right of use (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.

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 when ASC 842 was adopted.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 11 — Leases (Continued)

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

​

​	​	​	​	​	​	​	​
(in millions, except weighted averages)		2020			2019		​
Operating lease cost (a)	​	$	329	​	$	314	​
​	​	​	​	​	​	​	​
Cash paid for amounts included in the measurement of operating lease liabilities	​	​	264	​	​	253	​
​	​	​	​	​	​	​	​
ROU assets arising from entering into new operating lease obligations	​	​	396	​	​	310	​
​	​	​	​	​	​	​	​
Weighted average remaining lease term at December 31 (in years)	​	​	8	​	​	8	​
​	​	​	​	​	​	​	​
Weighted average discount rate at December 31	​	​	3.2	%	​	3.9	%

	(a)	Includes short-term lease expense and variable lease costs, which were immaterial in the years ended December 31, 2020 and 2019.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 were as follows:

​

​	​	​	​
(in millions)		​	​
2021	​	$	272
2022	​		228
2023	​		177
2024	​		131
2025	​		100
Thereafter	​		407
Total future minimum lease payments – undiscounted	​		1,315
Less: imputed interest	​		(172)
Present value of lease liabilities	​	$	1,143

​

The following table summarizes the amounts and location of operating lease ROU assets and lease liabilities:

​

​	​	​	​	​	​	​	​	​
(in millions)		December 31, 2020			December 31, 2019			Balance Sheet Caption
​	​	​	​	​	​	​	​	​
Operating Lease - ROU Asset	​	$	1,101	​	$	934	​	Deferred income taxes and other assets
​	​	​	​	​	​	​	​	​
Operating Lease Liability:	​		​	​	​	​	​
Current	​	$	241	​	$	205	​	Other accrued liabilities
Non-current	​		902	​	​	755	​	Post-employment obligations and other long-term liabilities
Total Liability	​	$	1,143	​	$	960	​

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 11 — 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 years ended December 31, 2020 and 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 $3.3 billion and $1.4 billion, respectively, as of December 31, 2020 and $2.8 billion and $1.2 billion, respectively, as of December 31, 2019.

​

Note 12 — 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 $8.1 billion at December 31, 2020, and $6.8 billion at December 31, 2019, 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, 2020 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, 2020 and 2019, Abbott held gross notional amounts of $11.0 billion and $9.1 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. The proceeds equated to approximately $550 million. The value of this long-term debt was approximately $577 million and $546 million as of December 31, 2020 and December 31, 2019, respectively. The change in the value of the debt, which is due to changes in foreign exchange rates, was 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, 2020 and 2019, 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 12 — Financial Instruments, Derivatives and Fair Value Measures (Continued)

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)			2020			2019			Balance Sheet Caption		2020			2019			Balance Sheet Caption
Interest rate swaps designated as fair value hedges	​	​	$	210	​	$	48		Deferred income taxes and other assets	​	$	—	​	$	—		Post-employment obligations and other long-term liabilities
Foreign currency forward exchange contracts:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Hedging instruments	​	​		30	​		110		Other prepaid expenses and receivables	​		433	​		56		Other accrued liabilities
Others not designated as hedges	​	​		60	​		38	​	Other prepaid expenses and receivables	​		65	​		33	​	Other accrued liabilities
Debt designated as a hedge of net investment in a foreign subsidiary	​	​	​	—	​	​	—	​	n/a	​	​	577	​	​	546	​	Long-term debt
​	​	​	$	300	​	$	196	​	​	​	$	1,075	​	$	635	​	​

​

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								​	​
(in millions)		2020			2019			2018			2020			2019			2018			Income Statement Caption
Foreign currency forward exchange contracts designated as cash flow hedges	​	$	(207)	​	$	9	​	$	73	​	$	102	​	$	79	​	$	(114)	​	Cost of products sold
Debt designated as a hedge of net investment in a foreign subsidiary	​		(31)	​		4	​		—	​		n/a	​		n/a	​		n/a		n/a
Interest rate swaps designated as fair value hedges	​		n/a	​		n/a	​		n/a	​		162	​		148	​		(97)		Interest expense

​

A loss of $171 million, a gain of $75 million and a loss of $100 million were recognized in 2020, 2019 and 2018, 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 12 — 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.

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020					​	2019
​	​	Carrying		​	Fair		​	Carrying		​	Fair
(in millions)		Value			Value			Value			Value
Long-term Investment Securities:	​	​	​	​	​	​	​	​	​	​	​	​
Equity securities	​	$	776	​	$	776	​	$	836	​	$	836
Other	​		45	​		45	​		47	​		47
Total Long-term debt	​		(18,534)	​		(22,809)	​		(17,938)	​		(20,772)
Foreign Currency Forward Exchange Contracts:	​	​	​	​	​	​	​	​	​	​	​	​
Receivable position	​		90	​		90	​		148	​		148
(Payable) position	​		(498)	​		(498)	​		(89)	​		(89)
Interest Rate Hedge Contracts:	​	​	​	​	​	​	​	​	​	​	​	​
Receivable position	​		210	​		210	​		48	​		48
(Payable) position	​	​	—	​	​	—	​	​	—	​	​	—

​

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

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 12 — Financial Instruments, Derivatives and Fair Value Measures (Continued)

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		​	​
​	​	​	​	​	Prices in		​	Other		​	Significant
​	​	Outstanding		​	Active		​	Observable		​	Unobservable
(in millions)		Balances			Markets			Inputs			Inputs
December 31, 2020:	​	​	​	​	​	​	​	​	​	​	​	​
Equity securities	​	$	386	​	$	386	​	$	—	​	$	—
Interest rate swap derivative financial instruments	​		210	​		—	​		210	​		—
Foreign currency forward exchange contracts	​		90	​		—	​		90	​		—
Total Assets	​	$	686	​	$	386	​	$	300	​	$	—
​	​	​	​	​	​	​	​	​	​	​	​	​
Fair value of hedged long-term debt	​	$	3,049	​	$	—	​	$	3,049	​	$	—
Foreign currency forward exchange contracts	​		498	​		—	​		498	​		—
Contingent consideration related to business combinations	​		68	​		—	​		—	​		68
Total Liabilities	​	$	3,615	​	$	—	​	$	3,547	​	$	68
​	​	​	​	​	​	​	​	​	​	​	​	​
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

​

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 $200 million, which is dependent upon attaining certain sales thresholds or based on the occurrence of certain events, such as regulatory approvals.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 13 — 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 $90 million to $120 million. The recorded accrual balance at December 31, 2020 for these proceedings and exposures was approximately $105 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.

​

Note 14 — 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:

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	Medical and Dental
​	​	Defined Benefit Plans					​	Plans
(in millions)		2020			2019			2020			2019
Projected benefit obligations, January 1	​	$	11,238	​	$	9,093	​	$	1,556	​	$	1,292
Service cost — benefits earned during the year	​		336	​		250	​		46	​		23
Interest cost on projected benefit obligations	​		300	​		337	​		42	​		52
(Gains) losses, primarily changes in discount rates, plan design changes, law changes and differences between actual and estimated health care costs	​		1,305	​		1,856	​		(5)	​		228
Benefits paid	​		(327)	​		(302)	​		(73)	​		(76)
Other, including foreign currency translation	​		277	​		4	​		1	​		37
Projected benefit obligations, December 31	​	$	13,129	​	$	11,238	​	$	1,567	​	$	1,556
Plan assets at fair value, January 1	​	$	10,277	​	$	8,553	​	$	360	​	$	351
Actual return (loss) on plan assets	​		1,463	​		1,622	​		46	​		65
Company contributions	​		400	​		382	​		12	​		12
Benefits paid	​		(327)	​		(302)	​		(65)	​		(68)
Other, including foreign currency translation	​		205	​		22	​		—	​		—
Plan assets at fair value, December 31	​	$	12,018	​	$	10,277	​	$	353	​	$	360
Projected benefit obligations greater than plan assets, December 31	​	$	(1,111)	​	$	(961)	​	$	(1,214)	​	$	(1,196)
Long-term assets	​	$	824	​	$	687	​	$	—	​	$	—
Short-term liabilities	​		(29)	​		(26)	​		(1)	​		(1)
Long-term liabilities	​		(1,906)	​		(1,622)	​		(1,213)	​		(1,195)
Net liability	​	$	(1,111)	​	$	(961)	​	$	(1,214)	​	$	(1,196)
Amounts Recognized in Accumulated Other Comprehensive Income (loss):	​	​	​	​	​	​	​	​	​	​	​	​
Actuarial losses, net	​	$	4,559	​	$	4,131	​	$	486	​	$	529
Prior service cost (credits)	​		(5)	​		(2)	​		(67)	​		(95)
Total	​	$	4,554	​	$	4,129	​	$	419	​	$	434

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 14 — Post-Employment Benefits (Continued)

The $1.3 billion and $1.9 billion of defined benefit plan losses in 2020 and 2019, respectively, that increased the projected benefit obligations in those years, primarily reflect the year-over-year decline in the discount rates used to measure the obligations. The projected benefit obligations for non-U.S. defined benefit plans were $4.1 billion and $3.3 billion at December 31, 2020 and 2019, respectively. The accumulated benefit obligations for all defined benefit plans were $11.9 billion and $10.2 billion at December 31, 2020 and 2019, respectively.

For plans where the projected benefit obligations exceeded plan assets at December 31, 2020 and 2019, the projected benefit obligations and the aggregate plan assets were as follows:

​

​	​	​	​	​	​	​
(in millions)		2020			2019
Projected benefit obligation	​	$	8,946	​	$	7,585
Fair value of plan assets	​		7,010	​		5,936

​

For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2020 and 2019, the aggregate accumulated benefit obligations, the projected benefit obligations and the aggregate plan assets were as follows:

​

​	​	​	​	​	​	​
(in millions)		2020			2019
Accumulated benefit obligation	​	$	2,459	​	$	1,985
Projected benefit obligation	​		2,773	​		2,266
Fair value of plan assets	​		965	​		821

​

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

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	Medical and
​	​	​	Defined Benefit Plans								​	Dental Plans
(in millions)			2020			2019			2018			2020			2019			2018
Service cost — benefits earned during the year	​	​	$	336	​	$	250	​	$	293	​	$	46	​	$	23	​	$	26
Interest cost on projected benefit obligations	​	​		300	​		337	​		308	​		42	​		52	​		48
Expected return on plans' assets	​	​		(770)	​		(710)	​		(680)	​		(28)	​		(27)	​		(33)
Amortization of actuarial losses	​	​		255	​		132	​	​	205	​	​	21	​	​	22	​	​	33
Amortization of prior service cost (credits)	​	​	​	1	​	​	1	​	​	1	​	​	(28)	​	​	(32)	​	​	(45)
Total net cost	​	​	$	122	​	$	10	​	$	127	​	$	53	​	$	38	​	$	29

​

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 $611 million for defined benefit plans and a gain of $23 million for medical and dental plans in 2020, 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. The net actuarial losses in 2020 and 2019 are primarily due to the year-over-year decline in discount rates partially offset by the impact of actual asset returns in excess of expected returns in each of the period.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 14 — Post-Employment Benefits (Continued)

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

​

​	​	​	​	​	​	​	​
​		2020		2019		2018
Discount rate		2.3	%	3.0	%	4.0	%
Expected aggregate average long-term change in compensation		4.3	%	4.3	%	4.3	%

​

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

​

​	​	​	​	​	​	​	​
​		2020		2019		2018
Discount rate		3.0	%	4.0	%	3.4	%
Expected return on plan assets		7.5	%	7.5	%	7.7	%
Expected aggregate average long-term change in compensation		4.3	%	4.3	%	4.4	%

​

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

​

​	​	​	​	​	​	​	​
​		2020		2019		2018
Health care cost trend rate assumed for the next year		8	%	9	%	9	%
Rate that the cost trend rate gradually declines to		5	%	5	%	5	%
Year that rate reaches the assumed ultimate rate		2025	​	2025	​	2025	​

​

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.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 14 — Post-Employment Benefits (Continued)

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 (j)
December 31, 2020:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Equities:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
U.S. large cap (a)	​	$	3,410	​	$	2,202	​	$	—	​	$	—	​	$	1,208
U.S. mid and small cap (b)	​	​	775	​	​	721	​	​	—	​	​	3	​	​	51
International (c)	​	​	2,654	​	​	542	​	​	—	​	​	—	​	​	2,112
Fixed income securities:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
U.S. government securities (d)	​	​	475	​	​	23	​	​	289	​	​	—	​	​	163
Corporate debt instruments (e)	​	​	1,408	​	​	425	​	​	908	​	​	—	​	​	75
Non-U.S. government securities (f)	​	​	523	​	​	16	​	​	—	​	​	—	​	​	507
Other (g)	​	​	503	​	​	159	​	​	72	​	​	—	​	​	272
Absolute return funds (h)	​	​	1,618	​	​	462	​	​	—	​	​	—	​	​	1,156
Cash and Cash Equivalents	​	​	281	​	​	77	​	​	—	​	​	—	​	​	204
Other (i)	​	​	724	​	​	9	​	​	—	​	​	—	​	​	715
​	​	$	12,371	​	$	4,636	​	$	1,269	​	$	3	​	$	6,463
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
Cash and Cash Equivalents	​	​	182	​	​	84	​	​	—	​	​	—	​	​	98
Other (i)	​		582	​	​	8	​	​	—	​	​	1	​	​	573
​	​	$	10,637	​	$	3,661	​	$	1,114	​	$	3	​	$	5,859

(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.

(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.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 14 — Post-Employment Benefits (Continued)

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

(j)	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 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, 2020 and 2019. Fixed income securities in a common collective trust or a registered investment company 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 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, 2020 and 2019. Investments in these funds may be generally redeemed monthly or quarterly with required notice periods ranging from 5 to 90 days. For approximately $245 million and $110 million of the absolute return funds, redemptions are subject to a 33 percent gate and a 25 percent gate, respectively, and $60 million is subject to a lock until 2022. Investments in the private funds cannot be redeemed but the funds will make distributions through liquidation. The estimate of the liquidation period for each fund ranges from 2021 to 2030. Abbott’s unfunded commitment in these funds was $523 million and $579 million as of December 31, 2020 and 2019, respectively.

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 $400 million in 2020 and $382 million in 2019 to defined pension plans. Abbott expects to contribute approximately $410 million to its pension plans in 2021.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 14 — Post-Employment Benefits (Continued)

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
2021	​	$	340	​	$	72
2022	​	​	355	​	​	73
2023	​	​	373	​	​	74
2024	​	​	395	​	​	75
2025	​	​	415	​	​	76
2026 to 2030	​	​	2,410	​	​	394

​

The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott’s contributions to this plan were $164 million in 2020, $158 million in 2019 and $146 million in 2018. The 2018 contributions include amounts related to participants of the St. Jude Medical Retirement Plan which was terminated in January 2018.

​

Note 15 — 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.

In 2020, taxes on earnings from continuing operations include the recognition of approximately $170 million of tax benefits associated with the impairment of certain assets, approximately $140 million of net tax benefits as a result of the resolution of various tax positions related to prior years, and approximately $100 million in excess tax benefits associated with share-based compensation. In 2020, taxes on earnings from continuing operations also include a $26 million increase to the transition tax associated with the 2017 TCJA. The $26 million increase to the transition tax liability was the result of the resolution of various tax positions related to prior years. This adjustment increased the cumulative net tax expense related to the TCJA to $1.53 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, 2020, the remaining balance of Abbott’s transition tax obligation is approximately $805 million, which will be paid over the next six years as allowed by the TCJA.

In 2019, taxes on earnings from continuing operations included an $86 million reduction of the transition tax and $68 million of tax expense resulting from tax legislation enacted in the fourth quarter of 2019 in India. 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. 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 2018, Abbott also recorded $130 million of additional tax expense related to the TCJA; the $130 million reflected 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.

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. 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.

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — Taxes on Earnings from Continuing Operations (Continued)

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

​

​	​	​	​	​	​	​	​	​	​
(in millions)		2020			2019			2018
Earnings From Continuing Operations Before Taxes:	​	​	​	​	​	​	​	​	​
Domestic	​	$	1,588	​	$	889	​	$	(430)
Foreign	​		3,380	​		3,188	​	​	3,303
Total	​	$	4,968	​	$	4,077	​	$	2,873

​

​	​	​	​	​	​	​	​	​	​
(in millions)		2020			2019			2018
Taxes on Earnings From Continuing Operations:		​	​		​	​	​	​	​
Current:	​	​	​	​	​	​	​	​	​
Domestic	​	$	39	​	$	291	​	$	(812)
Foreign	​		566	​		590	​	​	606
Total current	​		605	​		881	​	​	(206)
Deferred:	​	​	​	​	​	​	​	​	​
Domestic	​		(18)	​		(305)	​	​	832
Foreign	​		(90)	​		(186)	​	​	(87)
Total deferred	​		(108)	​		(491)	​	​	745
Total	​	$	497	​	$	390	​	$	539

​

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

​

​	​	​	​	​	​	​	​
​		2020		2019		2018
Statutory tax rate on earnings from continuing operations		21.0	%	21.0	%	21.0	%
Impact of foreign operations		(3.3)	​	(5.0)	​	(5.4)	​
Impact of TCJA and other related items	​	0.5	​	(2.1)	​	6.3	​
Foreign-derived intangible income benefit	​	(1.0)	​	(2.0)	​	(1.9)	​
Domestic impairment loss	​	(2.7)	​	—	​	(2.1)	​
Excess tax benefits related to stock compensation	​	(1.9)	​	(2.5)	​	(3.1)	​
Research tax credit	​	(1.0)	​	(1.2)	​	(1.8)	​
Resolution of certain tax positions pertaining to prior years		(2.8)	​	—	​	3.4	​
Intercompany restructurings and integration	​	0.5	​	—	​	—	​
State taxes, net of federal benefit		0.5	​	0.8	​	0.4	​
All other, net		0.2	​	0.6	​	2.0	​
Effective tax rate on earnings from continuing operations		10.0	%	9.6	%	18.8	%

​

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

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 15 — 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)		2020			2019
Deferred tax assets:	​	​	​	​	​	​
Compensation and employee benefits		$	1,003	​	$	982
Other, primarily reserves not currently deductible, and NOL’s and credit carryforwards	​	​	2,383	​	​	2,378
Trade receivable reserves	​	​	196	​	​	190
Inventory reserves	​	​	146	​	​	110
Lease liabilities	​	​	259	​	​	209
Deferred intercompany profit	​	​	254	​	​	259
Total deferred tax assets before valuation allowance	​	​	4,241	​	​	4,128
Valuation allowance	​	​	(1,060)	​	​	(978)
Total deferred tax assets	​	​	3,181	​	​	3,150
Deferred tax liabilities:	​	​	​	​	​	​
Depreciation	​	​	(297)	​	​	(219)
Right of Use lease assets	​	​	(251)	​	​	(209)
Other, primarily the excess of book basis over tax basis of intangible assets	​	​	(2,876)	​	​	(3,258)
Total deferred tax liabilities	​	​	(3,424)	​	​	(3,686)
Total net deferred tax assets (liabilities)		$	(243)	​	$	(536)

​

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)		2020			2019
January 1	​	$	1,175	​	$	1,120
Increase due to current year tax positions	​		190	​	​	137
Increase due to prior year tax positions	​		97	​	​	75
Decrease due to prior year tax positions	​		(144)	​	​	(117)
Settlements	​		(27)	​	​	(32)
Lapse of statute	​	​	(81)	​	​	(8)
December 31	​	$	1,210	​	$	1,175

​

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $1.08 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease within a range of $70 million to $430 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 16 — 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.

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.

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

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)		2020			2019			2018			2020			2019			2018
Established Pharmaceutical Products	​	$	4,303	​	$	4,486	​	$	4,422	​	$	794	​	$	904	​	$	894
Nutritional Products	​		7,647	​		7,409	​		7,229	​		1,751	​		1,705	​		1,652
Diagnostic Products	​		10,805	​		7,713	​		7,495	​		3,725	​		1,912	​		1,868
Medical Devices	​		11,787	​		12,239	​		11,370	​		3,038	​		3,769	​		3,500
Total Reportable Segments	​		34,542	​		31,847	​		30,516	​	$	9,308	​	$	8,290	​	$	7,914
Other	​		66	​		57	​		62	​	​	​	​	​	​	​	​	​
Total	​	$	34,608	​	$	31,904	​	$	30,578	​	​	​	​	​	​	​	​	​

(a)	Net sales and operating earnings were unfavorably affected by the impact of foreign exchange in 2020, 2019 and 2018.

​

Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 16 — Segment and Geographic Area Information (Continued)

​

​	​	​	​	​	​	​	​	​	​
(in millions)		2020			2019			2018
Total Reportable Segment Operating Earnings	​	$	9,308	​	$	8,290	​	$	7,914
Corporate functions and benefit plan costs	​	​	(518)	​		(468)	​		(618)
Net interest expense	​	​	(500)	​		(576)	​		(721)
Loss on extinguishment of debt	​	​	—	​	​	(63)	​	​	(167)
Share-based compensation	​	​	(546)	​		(519)	​		(477)
Amortization of intangible assets	​	​	(2,132)	​		(1,936)	​		(2,178)
Other, net (b)	​	​	(644)	​		(651)	​		(880)
Earnings from Continuing Operations Before Taxes	​	$	4,968	​	$	4,077	​	$	2,873

(b)

Other, net includes integration costs associated with the acquisition of St. Jude Medical and Alere and restructuring charges in 2020, 2019 and 2018. Other, net in 2020 also includes costs related to asset impairments, partially offset by income from the settlement of litigation. Other, net in 2018 also includes inventory step-up amortization associated with the acquisition of Alere. Charges for restructuring actions and other cost reduction initiatives were approximately $125 million in 2020, $215 million in 2019 and $153 million in 2018.

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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	Additions to								​	​	​	​	​	​	​	​	​
​	​	Depreciation								​	Property and Equipment								​	Total Assets
(in millions)		2020			2019			2018			2020			2019			2018			2020			2019			2018
Established Pharmaceuticals	​	$	88	​	$	98	​	$	92	​	$	109	​	$	109	​	$	131	​	$	2,888	​	$	2,858	​	$	2,664
Nutritionals	​	​	143	​		139	​		150	​		201	​		141	​		86	​		3,478	​		3,274	​		3,071
Diagnostics	​	​	488	​		403	​		397	​		1,263	​		726	​		609	​		7,696	​		5,235	​		4,464
Medical Devices	​	​	281	​		266	​		294	​		402	​		532	​		408	​		6,893	​		6,640	​		5,886
Total Reportable Segments	​	​	1,000	​		906	​		933	​		1,975	​		1,508	​		1,234	​	$	20,955	​	$	18,007	​	$	16,085
Other	​	​	195	​		172	​		167	​		218	​		160	​		160	​	​	​	​	​	​	​	​	​
Total	​	$	1,195	​	$	1,078	​	$	1,100	​	$	2,193	​	$	1,668	​	$	1,394	​	​	​	​	​	​	​	​	​

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​	​	​	​	​	​	​	​	​	​
(in millions)		2020			2019			2018
Total Reportable Segment Assets	​	$	20,955	​	$	18,007	​	$	16,085
Cash and investments	​		7,969	​		5,023	​		4,983
Goodwill and intangible assets	​		38,528	​		40,220	​		42,196
All other	​		5,096	​		4,637	​		3,909
Total Assets	​	$	72,548	​	$	67,887	​	$	67,173

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Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Note 16 — Segment and Geographic Area Information (Continued)

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​	​	​	​	​	​	​	​	​	​
​	​	Net Sales to External
​	​	Customers (c)
(in millions)		2020			2019			2018
United States	​	$	13,022	​	$	11,398	​	$	10,839
Germany	​	​	2,108	​	​	1,751	​	​	1,619
China	​		1,965	​		2,346	​		2,311
Japan	​		1,386	​		1,435	​		1,326
India	​	​	1,323	​	​	1,397	​	​	1,333
Switzerland	​	​	1,140	​	​	1,068	​	​	1,005
The Netherlands	​		1,084	​		975	​		930
All Other Countries	​		12,580	​		11,534	​		11,215
Consolidated	​	$	34,608	​	$	31,904	​	$	30,578

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

Long-lived assets on a geographic basis primarily include property and equipment. It excludes goodwill, intangible assets, deferred tax assets, and financial instruments. At December 31, 2020 and 2019, long-lived assets totaled $11.7 billion and $10.2 billion, respectively, and in the United States such assets totaled $6.1 billion and $5.1 billion, respectively. Long-lived asset balances associated with other countries were not material on an individual country basis in either of the two years.

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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, 2020. 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, 2020, 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 84.

Robert B. Ford

President and Chief Executive Officer

Robert E. Funck, Jr.

Executive Vice President, Finance and Chief Financial Officer

Philip P. Boudreau

Vice President, Finance and Controller

February 19, 2021

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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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 19, 2021 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.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

​	​	Income taxes – Unrecognized tax benefits
Description of the Matter	​	As described in Note 15 to the consolidated financial statements, unrecognized tax benefits were approximately $1.2 billion at December 31, 2020. 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, 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, with the support of our valuation specialists, 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.

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/s/ Ernst & Young LLP

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

Chicago, Illinois

February 19, 2021

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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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and our report dated February 19, 2021 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 19, 2021

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