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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-2189
ABBOTT LABORATORIES
| An Illinois Corporation | I.R.S. Employer Identification No. | ||||
| 36-0698440 |
100 Abbott Park Road
Abbott Park, Illinois 60064-6400
Telephone: (224) 667-6100
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Shares, Without Par Value | ABT | New York Stock Exchange Chicago Stock Exchange, Inc. |
Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer x | Accelerated Filer o | ||||
| Non-Accelerated Filer o | Smaller reporting company o | ||||
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of September 30, 2022, Abbott Laboratories had 1,743,573,777 common shares without par value outstanding.
Abbott Laboratories
Table of Contents
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Earnings
(Unaudited)
(dollars in millions except per share data; shares in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | 10,410 | $ | 10,928 | $ | 33,562 | $ | 31,607 | |||||||||||||||
| Cost of products sold, excluding amortization of intangible assets | 4,629 | 4,423 | 14,549 | 13,771 | |||||||||||||||||||
| Amortization of intangible assets | 498 | 520 | 1,517 | 1,533 | |||||||||||||||||||
| Research and development | 782 | 672 | 2,163 | 1,980 | |||||||||||||||||||
| Selling, general and administrative | 2,731 | 2,767 | 8,275 | 8,276 | |||||||||||||||||||
| Total operating cost and expenses | 8,640 | 8,382 | 26,504 | 25,560 | |||||||||||||||||||
| Operating earnings | 1,770 | 2,546 | 7,058 | 6,047 | |||||||||||||||||||
| Interest expense | 141 | 133 | 404 | 402 | |||||||||||||||||||
| Interest (income) | (55) | (10) | (95) | (32) | |||||||||||||||||||
| Net foreign exchange (gain) loss | 19 | 4 | 16 | 7 | |||||||||||||||||||
| Other (income) expense, net | (93) | (74) | (253) | (214) | |||||||||||||||||||
| Earnings before taxes | 1,758 | 2,493 | 6,986 | 5,884 | |||||||||||||||||||
| Taxes on earnings | 323 | 393 | 1,086 | 802 | |||||||||||||||||||
| Net Earnings | $ | 1,435 | $ | 2,100 | $ | 5,900 | $ | 5,082 | |||||||||||||||
| Basic Earnings Per Common Share | $ | 0.82 | $ | 1.18 | $ | 3.35 | $ | 2.85 | |||||||||||||||
| Diluted Earnings Per Common Share | $ | 0.81 | $ | 1.17 | $ | 3.32 | $ | 2.83 | |||||||||||||||
| Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share | 1,752,968 | 1,774,516 | 1,756,209 | 1,776,870 | |||||||||||||||||||
| Dilutive Common Stock Options | 10,685 | 14,483 | 11,638 | 14,407 | |||||||||||||||||||
| Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options | 1,763,653 | 1,788,999 | 1,767,847 | 1,791,277 | |||||||||||||||||||
| Outstanding Common Stock Options Having No Dilutive Effect | 5,445 | 2,740 | 2,655 | 2,694 |
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
(dollars in millions)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net Earnings | $ | 1,435 | $ | 2,100 | $ | 5,900 | $ | 5,082 | |||||||||||||||
| Foreign currency translation gain (loss) adjustments | (1,008) | (391) | (1,429) | (762) | |||||||||||||||||||
| Net actuarial gains (losses) and amortization of net actuarial losses and prior service costs and credits, net of taxes of $11 and $36 in 2022 and $18 and $54 in 2021 | 56 | 78 | 172 | 211 | |||||||||||||||||||
| Net gains (losses) for derivative instruments designated as cash flow hedges and other, net of taxes of $50 and $96 in 2022 and $50 and $98 in 2021 | 213 | 139 | 186 | 257 | |||||||||||||||||||
| Other comprehensive income (loss) | (739) | (174) | (1,071) | (294) | |||||||||||||||||||
| Comprehensive Income | $ | 696 | $ | 1,926 | $ | 4,829 | $ | 4,788 |
| September 30, 2022 | December 31, 2021 | ||||||||||
| Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax: | |||||||||||
| Cumulative foreign currency translation (loss) adjustments | $ | (7,268) | $ | (5,839) | |||||||
| Net actuarial (losses) and prior service (costs) and credits | (2,498) | (2,670) | |||||||||
| Cumulative gains (losses) on derivative instruments designated as cash flow hedges and other | 321 | 135 | |||||||||
| Accumulated other comprehensive income (loss) | $ | (9,445) | $ | (8,374) |
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Balance Sheet
(Unaudited)
(dollars in millions)
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 9,594 | $ | 9,799 | |||||||
| Short-term investments | 313 | 450 | |||||||||
| Trade receivables, less allowances of $520 in 2022 and $519 in 2021 | 6,408 | 6,487 | |||||||||
| Inventories: | |||||||||||
| Finished products | 3,407 | 3,081 | |||||||||
| Work in process | 726 | 694 | |||||||||
| Materials | 1,601 | 1,382 | |||||||||
| Total inventories | 5,734 | 5,157 | |||||||||
| Prepaid expenses and other receivables | 2,796 | 2,346 | |||||||||
| Total Current Assets | 24,845 | 24,239 | |||||||||
| Investments | 764 | 816 | |||||||||
| Property and equipment, at cost | 19,306 | 19,364 | |||||||||
| Less: accumulated depreciation and amortization | 10,617 | 10,405 | |||||||||
| Net property and equipment | 8,689 | 8,959 | |||||||||
| Intangible assets, net of amortization | 10,850 | 12,739 | |||||||||
| Goodwill | 22,284 | 23,231 | |||||||||
| Deferred income taxes and other assets | 5,369 | 5,212 | |||||||||
| $ | 72,801 | $ | 75,196 | ||||||||
| Liabilities and Shareholders’ Investment | |||||||||||
| Current Liabilities: | |||||||||||
| Trade accounts payable | $ | 4,133 | $ | 4,408 | |||||||
| Salaries, wages and commissions | 1,426 | 1,625 | |||||||||
| Other accrued liabilities | 5,475 | 5,181 | |||||||||
| Dividends payable | 820 | 831 | |||||||||
| Income taxes payable | 394 | 306 | |||||||||
| Current portion of long-term debt | 1,117 | 754 | |||||||||
| Total Current Liabilities | 13,365 | 13,105 | |||||||||
| Long-term debt | 15,297 | 17,296 | |||||||||
| Post-employment obligations, deferred income taxes and other long-term liabilities | 8,255 | 8,771 | |||||||||
| 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: 2022: 1,985,919,440; 2021: 1,985,273,421 | 24,560 | 24,470 | |||||||||
| Common shares held in treasury, at cost — Shares: 2022: 242,345,663; 2021: 221,191,228 | (14,555) | (11,822) | |||||||||
| Earnings employed in the business | 35,115 | 31,528 | |||||||||
| Accumulated other comprehensive income (loss) | (9,445) | (8,374) | |||||||||
| Total Abbott Shareholders’ Investment | 35,675 | 35,802 | |||||||||
| Noncontrolling Interests in Subsidiaries | 209 | 222 | |||||||||
| Total Shareholders’ Investment | 35,884 | 36,024 | |||||||||
| $ | 72,801 | $ | 75,196 |
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Shareholders’ Investment
(Unaudited)
(in millions except shares and per share data)
| Three Months Ended September 30 | |||||||||||
| 2022 | 2021 | ||||||||||
| Common Shares: | |||||||||||
| Balance at June 30 | |||||||||||
| Shares: 2022: 1,985,676,735; 2021: 1,982,553,488 | $ | 24,429 | $ | 24,153 | |||||||
| Issued under incentive stock programs | |||||||||||
| Shares: 2022: 242,705; 2021: 550,366 | 12 | 26 | |||||||||
| Share-based compensation | 123 | 113 | |||||||||
| Issuance of restricted stock awards | (4) | (7) | |||||||||
| Balance at September 30 | |||||||||||
| Shares: 2022: 1,985,919,440; 2021: 1,983,103,854 | $ | 24,560 | $ | 24,285 | |||||||
| Common Shares Held in Treasury: | |||||||||||
| Balance at June 30 | |||||||||||
| Shares: 2022: 234,456,992; 2021: 209,736,139 | $ | (13,720) | $ | (10,340) | |||||||
| Issued under incentive stock programs | |||||||||||
| Shares: 2022: 528,436; 2021: 545,860 | 31 | 26 | |||||||||
| Purchased | |||||||||||
| Shares: 2022: 8,417,107; 2021: 5,626,606 | (866) | (685) | |||||||||
| Balance at September 30 | |||||||||||
| Shares: 2022: 242,345,663; 2021: 214,816,885 | $ | (14,555) | $ | (10,999) | |||||||
| Earnings Employed in the Business: | |||||||||||
| Balance at June 30 | $ | 34,487 | $ | 29,053 | |||||||
| Net earnings | 1,435 | 2,100 | |||||||||
| Cash dividends declared on common shares (per share — 2022: $0.47; 2021: $0.45) | (822) | (799) | |||||||||
| Effect of common and treasury share transactions | 15 | 22 | |||||||||
| Balance at September 30 | $ | 35,115 | $ | 30,376 | |||||||
| Accumulated Other Comprehensive Income (Loss): | |||||||||||
| Balance at June 30 | $ | (8,706) | $ | (9,066) | |||||||
| Other comprehensive income (loss) | (739) | (174) | |||||||||
| Balance at September 30 | $ | (9,445) | $ | (9,240) | |||||||
| Noncontrolling Interests in Subsidiaries: | |||||||||||
| Balance at June 30 | $ | 226 | $ | 229 | |||||||
| Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases | (17) | (13) | |||||||||
| Balance at September 30 | $ | 209 | $ | 216 |
The accompanying notes to condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Shareholders’ Investment
(Unaudited)
(in millions except shares and per share data)
| Nine Months Ended September 30 | |||||||||||
| 2022 | 2021 | ||||||||||
| Common Shares: | |||||||||||
| Balance at January 1 | |||||||||||
| Shares: 2022: 1,985,273,421; 2021: 1,981,156,896 | $ | 24,470 | $ | 24,145 | |||||||
| Issued under incentive stock programs | |||||||||||
| Shares: 2022: 646,019; 2021: 1,946,958 | 36 | 91 | |||||||||
| Share-based compensation | 572 | 536 | |||||||||
| Issuance of restricted stock awards | (518) | (487) | |||||||||
| Balance at September 30 | |||||||||||
| Shares: 2022: 1,985,919,440; 2021: 1,983,103,854 | $ | 24,560 | $ | 24,285 | |||||||
| Common Shares Held in Treasury: | |||||||||||
| Balance at January 1 | |||||||||||
| Shares: 2022: 221,191,228; 2021: 209,926,622 | $ | (11,822) | $ | (10,042) | |||||||
| Issued under incentive stock programs | |||||||||||
| Shares: 2022: 4,808,575; 2021: 5,524,291 | 261 | 265 | |||||||||
| Purchased | |||||||||||
| Shares: 2022: 25,963,010; 2021: 10,414,554 | (2,994) | (1,222) | |||||||||
| Balance at September 30 | |||||||||||
| Shares: 2022: 242,345,663; 2021: 214,816,885 | $ | (14,555) | $ | (10,999) | |||||||
| Earnings Employed in the Business: | |||||||||||
| Balance at January 1 | $ | 31,528 | $ | 27,627 | |||||||
| Net earnings | 5,900 | 5,082 | |||||||||
| Cash dividends declared on common shares (per share — 2022: $1.41; 2021: $1.35) | (2,475) | (2,403) | |||||||||
| Effect of common and treasury share transactions | 162 | 70 | |||||||||
| Balance at September 30 | $ | 35,115 | $ | 30,376 | |||||||
| Accumulated Other Comprehensive Income (Loss): | |||||||||||
| Balance at January 1 | $ | (8,374) | $ | (8,946) | |||||||
| Other comprehensive income (loss) | (1,071) | (294) | |||||||||
| Balance at September 30 | $ | (9,445) | $ | (9,240) | |||||||
| Noncontrolling Interests in Subsidiaries: | |||||||||||
| Balance at January 1 | $ | 222 | $ | 219 | |||||||
| Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases | (13) | (3) | |||||||||
| Balance at September 30 | $ | 209 | $ | 216 |
The accompanying notes to condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(dollars in millions)
| Nine Months Ended September 30 | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flow From (Used in) Operating Activities: | |||||||||||
| Net earnings | $ | 5,900 | $ | 5,082 | |||||||
| Adjustments to reconcile net earnings to net cash from operating activities — | |||||||||||
| Depreciation | 943 | 1,122 | |||||||||
| Amortization of intangible assets | 1,517 | 1,533 | |||||||||
| Share-based compensation | 570 | 534 | |||||||||
| Trade receivables | (409) | (194) | |||||||||
| Inventories | (1,224) | (471) | |||||||||
| Other, net | (42) | (140) | |||||||||
| Net Cash From Operating Activities | 7,255 | 7,466 | |||||||||
| Cash Flow From (Used in) Investing Activities: | |||||||||||
| Acquisitions of property and equipment | (1,167) | (1,271) | |||||||||
| Acquisitions of businesses and technologies, net of cash acquired | — | (187) | |||||||||
| Proceeds from business dispositions | 48 | 134 | |||||||||
| Sales (purchases) of other investment securities, net | (3) | (27) | |||||||||
| Other | 14 | 14 | |||||||||
| Net Cash From (Used in) Investing Activities | (1,108) | (1,337) | |||||||||
| Cash Flow From (Used in) Financing Activities: | |||||||||||
| Net borrowings (repayments) of short-term debt and other | 37 | (7) | |||||||||
| Proceeds from issuance of long-term debt | 7 | — | |||||||||
| Repayments of long-term debt | (753) | (45) | |||||||||
| Purchases of common shares | (3,110) | (1,325) | |||||||||
| Proceeds from stock options exercised | 126 | 173 | |||||||||
| Dividends paid | (2,486) | (2,404) | |||||||||
| Net Cash From (Used in) Financing Activities | (6,179) | (3,608) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (173) | (57) | |||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (205) | 2,464 | |||||||||
| Cash and Cash Equivalents, Beginning of Year | 9,799 | 6,838 | |||||||||
| Cash and Cash Equivalents, End of Period | $ | 9,594 | $ | 9,302 |
The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made. It is suggested that these statements be read in conjunction with the financial statements included in Abbott’s Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.
Note 2 — Revenue
Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Abbott has four reportable segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices.
The following tables provide detail by sales category:
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||
| (in millions) | U.S. | Int’l | Total | U.S. | Int’l | Total | ||||||||||||||||||||||||||||||||
| Established Pharmaceutical Products — | ||||||||||||||||||||||||||||||||||||||
| Key Emerging Markets | $ | — | $ | 993 | $ | 993 | $ | — | $ | 936 | $ | 936 | ||||||||||||||||||||||||||
| Other | — | 333 | 333 | — | 329 | 329 | ||||||||||||||||||||||||||||||||
| Total | — | 1,326 | 1,326 | — | 1,265 | 1,265 | ||||||||||||||||||||||||||||||||
| Nutritionals — | ||||||||||||||||||||||||||||||||||||||
| Pediatric Nutritionals | 357 | 470 | 827 | 586 | 514 | 1,100 | ||||||||||||||||||||||||||||||||
| Adult Nutritionals | 329 | 639 | 968 | 333 | 675 | 1,008 | ||||||||||||||||||||||||||||||||
| Total | 686 | 1,109 | 1,795 | 919 | 1,189 | 2,108 | ||||||||||||||||||||||||||||||||
| Diagnostics — | ||||||||||||||||||||||||||||||||||||||
| Core Laboratory | 281 | 938 | 1,219 | 291 | 1,001 | 1,292 | ||||||||||||||||||||||||||||||||
| Molecular | 65 | 118 | 183 | 162 | 183 | 345 | ||||||||||||||||||||||||||||||||
| Point of Care | 92 | 35 | 127 | 100 | 35 | 135 | ||||||||||||||||||||||||||||||||
| Rapid Diagnostics | 1,303 | 839 | 2,142 | 1,394 | 746 | 2,140 | ||||||||||||||||||||||||||||||||
| Total | 1,741 | 1,930 | 3,671 | 1,947 | 1,965 | 3,912 | ||||||||||||||||||||||||||||||||
| Medical Devices — | ||||||||||||||||||||||||||||||||||||||
| Rhythm Management | 263 | 270 | 533 | 266 | 305 | 571 | ||||||||||||||||||||||||||||||||
| Electrophysiology | 225 | 244 | 469 | 192 | 293 | 485 | ||||||||||||||||||||||||||||||||
| Heart Failure | 177 | 51 | 228 | 170 | 59 | 229 | ||||||||||||||||||||||||||||||||
| Vascular | 213 | 393 | 606 | 219 | 425 | 644 | ||||||||||||||||||||||||||||||||
| Structural Heart | 207 | 213 | 420 | 177 | 215 | 392 | ||||||||||||||||||||||||||||||||
| Neuromodulation | 156 | 36 | 192 | 149 | 41 | 190 | ||||||||||||||||||||||||||||||||
| Diabetes Care | 423 | 744 | 1,167 | 323 | 798 | 1,121 | ||||||||||||||||||||||||||||||||
| Total | 1,664 | 1,951 | 3,615 | 1,496 | 2,136 | 3,632 | ||||||||||||||||||||||||||||||||
| Other | 3 | — | 3 | 6 | 5 | 11 | ||||||||||||||||||||||||||||||||
| Total | $ | 4,094 | $ | 6,316 | $ | 10,410 | $ | 4,368 | $ | 6,560 | $ | 10,928 |
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 2 — Revenue (Continued)
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||
| (in millions) | U.S. | Int’l | Total | U.S. | Int’l | Total | ||||||||||||||||||||||||||||||||
| Established Pharmaceutical Products — | ||||||||||||||||||||||||||||||||||||||
| Key Emerging Markets | $ | — | $ | 2,826 | $ | 2,826 | $ | — | $ | 2,672 | $ | 2,672 | ||||||||||||||||||||||||||
| Other | — | 870 | 870 | — | 843 | 843 | ||||||||||||||||||||||||||||||||
| Total | — | 3,696 | 3,696 | — | 3,515 | 3,515 | ||||||||||||||||||||||||||||||||
| Nutritionals — | ||||||||||||||||||||||||||||||||||||||
| Pediatric Nutritionals | 1,108 | 1,491 | 2,599 | 1,622 | 1,637 | 3,259 | ||||||||||||||||||||||||||||||||
| Adult Nutritionals | 1,016 | 2,027 | 3,043 | 1,006 | 1,987 | 2,993 | ||||||||||||||||||||||||||||||||
| Total | 2,124 | 3,518 | 5,642 | 2,628 | 3,624 | 6,252 | ||||||||||||||||||||||||||||||||
| Diagnostics — | ||||||||||||||||||||||||||||||||||||||
| Core Laboratory | 836 | 2,788 | 3,624 | 845 | 2,935 | 3,780 | ||||||||||||||||||||||||||||||||
| Molecular | 308 | 507 | 815 | 431 | 651 | 1,082 | ||||||||||||||||||||||||||||||||
| Point of Care | 284 | 110 | 394 | 289 | 112 | 401 | ||||||||||||||||||||||||||||||||
| Rapid Diagnostics | 5,523 | 2,923 | 8,446 | 3,178 | 2,732 | 5,910 | ||||||||||||||||||||||||||||||||
| Total | 6,951 | 6,328 | 13,279 | 4,743 | 6,430 | 11,173 | ||||||||||||||||||||||||||||||||
| Medical Devices — | ||||||||||||||||||||||||||||||||||||||
| Rhythm Management | 775 | 830 | 1,605 | 776 | 881 | 1,657 | ||||||||||||||||||||||||||||||||
| Electrophysiology | 667 | 773 | 1,440 | 580 | 823 | 1,403 | ||||||||||||||||||||||||||||||||
| Heart Failure | 523 | 167 | 690 | 483 | 167 | 650 | ||||||||||||||||||||||||||||||||
| Vascular | 650 | 1,228 | 1,878 | 684 | 1,292 | 1,976 | ||||||||||||||||||||||||||||||||
| Structural Heart | 604 | 667 | 1,271 | 537 | 654 | 1,191 | ||||||||||||||||||||||||||||||||
| Neuromodulation | 456 | 112 | 568 | 460 | 124 | 584 | ||||||||||||||||||||||||||||||||
| Diabetes Care | 1,165 | 2,320 | 3,485 | 865 | 2,292 | 3,157 | ||||||||||||||||||||||||||||||||
| Total | 4,840 | 6,097 | 10,937 | 4,385 | 6,233 | 10,618 | ||||||||||||||||||||||||||||||||
| Other | 8 | — | 8 | 31 | 18 | 49 | ||||||||||||||||||||||||||||||||
| Total | $ | 13,923 | $ | 19,639 | $ | 33,562 | $ | 11,787 | $ | 19,820 | $ | 31,607 |
Remaining Performance Obligations
As of September 30, 2022, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $3.9 billion in the Diagnostics segment and approximately $433 million in the Medical Devices segment. Abbott expects to recognize revenue on approximately 60 percent of these remaining performance obligations over the next 24 months, approximately 16 percent over the subsequent 12 months and the remainder thereafter.
These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations, extended warranty or service obligations related to previously sold equipment, and remote monitoring services related to previously implanted devices. Abbott has applied the practical expedient described in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606-10-50-14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 2 — Revenue (Continued)
Other Contract Assets and Liabilities
Abbott discloses Trade receivables separately in the Condensed 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, 2021 | $ | 520 | ||||||
| Unearned revenue from cash received during the period | 466 | |||||||
| Revenue recognized related to contract liability balance | (508) | |||||||
| Balance at September 30, 2022 | $ | 478 |
Note 3 — Supplemental Financial Information
Shares of unvested restricted stock 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. Net earnings allocated to common shares for the three months ended September 30, 2022 and 2021 were $1.429 billion and $2.092 billion, respectively, and for the nine months ended September 30, 2022 and 2021 were $5.876 billion and $5.061 billion, respectively.
Other, net in Net cash from operating activities in the Condensed Consolidated Statement of Cash Flows for the first nine months of 2022 includes $362 million of pension contributions and the payment of cash taxes of approximately $987 million. The first nine months of 2021 includes $366 million of pension contributions and the payment of cash taxes of approximately $990 million.
The following summarizes the activity for the first nine months of 2022 related to the allowance for doubtful accounts as of September 30, 2022:
| (in millions) | ||||||||
| Allowance for Doubtful Accounts: | ||||||||
| Balance at December 31, 2021 | $ | 313 | ||||||
| Provisions/charges to income | 10 | |||||||
| Amounts charged off and other deductions | (49) | |||||||
| Balance at September 30, 2022 | $ | 274 |
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.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 3 — Supplemental Financial Information (Continued)
The components of long-term investments as of September 30, 2022 and December 31, 2021 are as follows:
| (in millions) | September 30, 2022 | December 31, 2021 | ||||||||||||
| Long-term Investments: | ||||||||||||||
| Equity securities | $ | 604 | $ | 748 | ||||||||||
| Other | 160 | 68 | ||||||||||||
| Total | $ | 764 | $ | 816 |
The decrease in Abbott’s long-term investments as of September 30, 2022 versus the balance as of December 31, 2021 primarily relates to a decrease in the value of investments held in a rabbi trust and the impact of equity method investment losses partially offset by an investment in long-term time deposits.
Abbott’s equity securities as of September 30, 2022, include $285 million of investments in mutual funds that are held in a rabbi trust and were 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 September 30, 2022 with a carrying value of $228 million that are accounted for under the equity method of accounting and other equity investments with a carrying value of approximately $83 million that do not have a readily determinable fair value.
In September 2021, Abbott acquired 100 percent of Walk Vascular, LLC (Walk Vascular), a commercial-stage medical device company with a minimally invasive thrombectomy system designed to remove peripheral blood clots. The purchase price, the allocation of acquired assets and liabilities, and the revenue and net income contributed by Walk Vascular since the date of acquisition are not material to Abbott’s condensed consolidated financial statements.
Note 4 — Changes In Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss), net of income taxes, are as follows:
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| Cumulative Foreign Currency Translation (Loss) Adjustments | Net Actuarial (Losses) and Prior Service (Costs) and Credits | Cumulative Gains (Losses) on Derivative Instruments Designated as Cash Flow Hedges and Other | ||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Balance at June 30 | $ | (6,260) | $ | (5,230) | $ | (2,554) | $ | (3,738) | $ | 108 | $ | (98) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (1,008) | (391) | 15 | 16 | 278 | 70 | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | — | 41 | 62 | (65) | 69 | ||||||||||||||||||||||||||||||||
| Net current period comprehensive income (loss) | (1,008) | (391) | 56 | 78 | 213 | 139 | ||||||||||||||||||||||||||||||||
| Balance at September 30 | $ | (7,268) | $ | (5,621) | $ | (2,498) | $ | (3,660) | $ | 321 | $ | 41 |
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 4 — Changes In Accumulated Other Comprehensive Income (Loss) (Continued)
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| Cumulative Foreign Currency Translation (Loss) Adjustments | Net Actuarial (Losses) and Prior Service (Costs) and Credits | Cumulative Gains (Losses) on Derivative Instruments Designated as Cash Flow Hedges and Other | ||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Balance at January 1 | $ | (5,839) | $ | (4,859) | $ | (2,670) | $ | (3,871) | $ | 135 | $ | (216) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (1,429) | (762) | 45 | 26 | 289 | 138 | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | — | 127 | 185 | (103) | 119 | ||||||||||||||||||||||||||||||||
| Net current period comprehensive income (loss) | (1,429) | (762) | 172 | 211 | 186 | 257 | ||||||||||||||||||||||||||||||||
| Balance at September 30 | $ | (7,268) | $ | (5,621) | $ | (2,498) | $ | (3,660) | $ | 321 | $ | 41 |
Reclassified amounts for cash flow hedges are recorded as Cost of products sold. Net actuarial losses and prior service cost are included as a component of net periodic benefit costs; see Note 11 for additional details.
Note 5 — Goodwill and Intangible Assets
The total amount of goodwill reported was $22.3 billion at September 30, 2022 and $23.2 billion at December 31, 2021. Foreign currency translation adjustments decreased goodwill by approximately $946 million in the first nine months of 2022. The amount of goodwill related to reportable segments at September 30, 2022 was $2.6 billion for the Established Pharmaceutical Products segment, $286 million for the Nutritional Products segment, $3.5 billion for the Diagnostic Products segment, and $15.9 billion for the Medical Devices segment. There was no reduction of goodwill relating to impairments in the first nine months of 2022.
The gross amount of amortizable intangible assets, primarily product rights and technology, was $26.9 billion and $27.7 billion as of September 30, 2022 and December 31, 2021, respectively. Accumulated amortization was $16.9 billion and $15.9 billion as of September 30, 2022 and December 31, 2021, respectively. Foreign currency translation adjustments decreased intangible assets by $250 million in the first nine months of 2022. Abbott’s estimated annual amortization expense for intangible assets is approximately $2.1 billion in 2022, $2.0 billion in 2023, $1.9 billion in 2024, $1.7 billion in 2025 and $1.6 billion in 2026.
Indefinite-lived intangible assets, which relate to in-process R&D (IPR&D) acquired in a business combination, were approximately $807 million as of September 30, 2022 and $919 million as of December 31, 2021. In the third quarter of 2022, $111 million of impairment charges were recorded on the Research and development line of the Condensed Consolidated Statement of Earnings related to certain IPR&D intangible assets associated with the Medical Devices business segment.
Note 6 — Restructuring Plans
On May 27, 2021, Abbott management approved a restructuring plan related to its Diagnostic Products segment to align its manufacturing network for COVID-19 diagnostic tests with changes in the second quarter in projected testing demand driven by several factors, including significant reductions in cases in the U.S. and other major developed countries, the accelerated rollout of COVID-19 vaccines globally and the U.S. health authority’s updated guidance on testing for fully vaccinated individuals. In the second quarter of 2021, Abbott recorded charges of $499 million under this plan in Cost of products sold. The charge recognized in the second quarter of 2021 included fixed asset write-downs of $80 million, inventory-related charges of $248 million, and other exit costs, which included contract cancellations and employee-related costs of $171 million.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 6 — Restructuring Plans (Continued)
In the second half of 2021, as the Delta and Omicron variants of COVID-19 spread and the number of new COVID-19 cases increased significantly, particularly in the U.S., demand for rapid COVID-19 tests increased significantly. As a result, in the second half of 2021, Abbott sold approximately $181 million of inventory that was previously estimated to have no net realizable value under the second quarter of 2021 restructuring action. In addition, the estimate of other exit costs was reduced by a net $58 million as Abbott fulfilled its purchase obligations under certain contracts for which a liability was recorded in the second quarter of 2021 or Abbott settled with the counterparty in the second half of 2021.
The following summarizes the activity related to this restructuring action and the status of the related accruals as of September 30, 2022:
| (in millions) | Inventory- Related Charges | Fixed Asset Write-Downs | Other Exit Costs | Total | ||||||||||||||||||||||
| Restructuring charges recorded in 2021 | $ | 248 | $ | 80 | $ | 113 | $ | 441 | ||||||||||||||||||
| Payments | — | — | (90) | (90) | ||||||||||||||||||||||
| Other non-cash | (248) | (80) | — | (328) | ||||||||||||||||||||||
| Accrued balance at December 31, 2021 | — | — | 23 | 23 | ||||||||||||||||||||||
| Payments and other adjustments | — | — | (10) | (10) | ||||||||||||||||||||||
| Accrued balance at September 30, 2022 | $ | — | $ | — | $ | 13 | $ | 13 |
In 2021, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in Abbott’s diagnostic, established pharmaceutical, and nutritional businesses. In 2022 and 2021, Abbott management approved plans to streamline operations in its medical devices segment. Abbott recorded employees-related severance and other charges of approximately $12 million in the first nine months of 2022 of which approximately $5 million was recorded in Cost of products sold, approximately $2 million was recorded in Research and development, and approximately $5 million was recorded in Selling, general and administrative expense.
The following summarizes the activity for these restructurings:
| (in millions) | ||||||||
| Restructuring charges recorded in 2021 | $ | 68 | ||||||
| Payments and other adjustments | (7) | |||||||
| Accrued balance at December 31, 2021 | 61 | |||||||
| Restructuring charges recorded in 2022 | 12 | |||||||
| Payments and other adjustments | (39) | |||||||
| Accrued balance at September 30, 2022 | $ | 34 |
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 7 — Incentive Stock Program
In the first nine months of 2022, Abbott granted 2,634,647 stock options, 514,205 restricted stock awards and 5,427,697 restricted stock units under its incentive stock program. At September 30, 2022, approximately 87 million shares were reserved for future grants. Information regarding the number of options outstanding and exercisable at September 30, 2022 is as follows:
| Outstanding | Exercisable | |||||||||||||
| Number of shares | 29,048,449 | 23,310,464 | ||||||||||||
| Weighted average remaining life (years) | 5.4 | 4.6 | ||||||||||||
| Weighted average exercise price | $ | 70.22 | $ | 59.69 | ||||||||||
| Aggregate intrinsic value (in millions) | $ | 901 | $ | 890 |
The total unrecognized share-based compensation cost at September 30, 2022 amounted to approximately $600 million which is expected to be recognized over the next three years.
Note 8 — Debt and Lines of Credit
On March 15, 2022, Abbott repaid the $750 million outstanding principal amount of its 2.55% Notes upon maturity.
Note 9 — 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 $7.9 billion at September 30, 2022 and $8.6 billion at December 31, 2021, 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 September 30, 2022 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 other European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar and European currencies. At September 30, 2022 and December 31, 2021, Abbott held the gross notional amounts of $10.3 billion and $12.2 billion, respectively, of such foreign currency forward exchange contracts.
Abbott has designated a yen-denominated, 5-year term loan of approximately $413 million and $521 million as of September 30, 2022 and December 31, 2021, respectively, as a hedge of the net investment in certain foreign subsidiaries. The change in the value of the debt, which is due to changes in foreign exchange rates, is recorded in Accumulated other comprehensive income (loss), net of tax.
Abbott is a party to interest rate hedge contracts with notional values totaling approximately $2.9 billion at September 30, 2022 and December 31, 2021 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.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 9 — Financial Instruments, Derivatives and Fair Value Measures (Continued)
The following table summarizes the amounts and location of certain derivative financial instruments as of September 30, 2022 and December 31, 2021:
| Fair Value - Assets | Fair Value - Liabilities | |||||||||||||||||||||||||||||||||||||
| (in millions) | September 30, 2022 | Dec. 31, 2021 | Balance Sheet Caption | September 30, 2022 | Dec. 31, 2021 | Balance Sheet Caption | ||||||||||||||||||||||||||||||||
| Interest rate swaps designated as fair value hedges | $ | — | $ | 87 | Deferred income taxes and other assets | $ | 166 | $ | — | Post-employment obligations, deferred income taxes and other long-term liabilities | ||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts: | ||||||||||||||||||||||||||||||||||||||
| Hedging instruments | 760 | 222 | Prepaid expenses and other receivables | 66 | 65 | Other accrued liabilities | ||||||||||||||||||||||||||||||||
| Others not designated as hedges | 148 | 70 | Prepaid expenses and other receivables | 141 | 32 | Other accrued liabilities | ||||||||||||||||||||||||||||||||
| Debt designated as a hedge of net investment in a foreign subsidiary | — | — | n/a | 413 | 521 | Long-term debt | ||||||||||||||||||||||||||||||||
| $ | 908 | $ | 379 | $ | 786 | $ | 618 |
The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges and certain other derivative financial instruments, as well as the amounts and location of income (expense) and gain (loss) reclassified into income for the three and nine months ended September 30, 2022 and 2021.
| Gain (loss) Recognized in Other Comprehensive Income (loss) | Income (expense) and Gain (loss) Reclassified into Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | Income Statement Caption | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts designated as cash flow hedges | $ | 350 | $ | 96 | $ | 442 | $ | 142 | $ | 79 | $ | (92) | $ | 149 | $ | (207) | Cost of products sold | |||||||||||||||||||||||||||||||||||||||
| Debt designated as a hedge of net investment in a foreign subsidiary | 24 | 4 | 108 | 41 | — | — | — | — | n/a | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps designated as fair value hedges | n/a | n/a | n/a | n/a | (85) | (14) | (253) | (81) | Interest expense |
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 9 — Financial Instruments, Derivatives and Fair Value Measures (Continued)
Losses of $27 million and $18 million were recognized in the three months ended September 30, 2022 and 2021, respectively, related to foreign currency forward exchange contracts not designated as a hedge. Gains of $225 million and $15 million were recognized in the nine months ended September 30, 2022 and 2021, respectively, related to foreign currency forward exchange contracts not designated as a hedge. These amounts are reported in the Condensed Consolidated Statement of Earnings on the Net foreign exchange (gain) loss line.
The carrying values and fair values of certain financial instruments as of September 30, 2022 and December 31, 2021 are shown in the following table. 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 non-performance by these counterparties.
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| (in millions) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| Long-term Investment Securities: | ||||||||||||||||||||||||||
| Equity securities | $ | 604 | $ | 604 | $ | 748 | $ | 748 | ||||||||||||||||||
| Other | 160 | 160 | 68 | 68 | ||||||||||||||||||||||
| Total Long-term Debt | (16,414) | (15,821) | (18,050) | (21,152) | ||||||||||||||||||||||
| Foreign Currency Forward Exchange Contracts: | ||||||||||||||||||||||||||
| Receivable position | 908 | 908 | 292 | 292 | ||||||||||||||||||||||
| (Payable) position | (207) | (207) | (97) | (97) | ||||||||||||||||||||||
| Interest Rate Hedge Contracts: | ||||||||||||||||||||||||||
| Receivable position | — | — | 87 | 87 | ||||||||||||||||||||||
| (Payable) position | (166) | (166) | — | — |
The fair value of the debt was determined based on significant other observable inputs, including current interest rates.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 9 — 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 | ||||||||||||||||||||||||||
| (in millions) | Outstanding Balances | Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||
| September 30, 2022: | ||||||||||||||||||||||||||
| Equity securities | $ | 293 | $ | 293 | $ | — | $ | — | ||||||||||||||||||
| Foreign currency forward exchange contracts | 908 | — | 908 | — | ||||||||||||||||||||||
| Total Assets | $ | 1,201 | $ | 293 | $ | 908 | $ | — | ||||||||||||||||||
| Fair value of hedged long-term debt | $ | 2,685 | $ | — | $ | 2,685 | $ | — | ||||||||||||||||||
| Interest rate swap derivative financial instruments | 166 | — | 166 | — | ||||||||||||||||||||||
| Foreign currency forward exchange contracts | 207 | — | 207 | — | ||||||||||||||||||||||
| Contingent consideration related to business combinations | 138 | — | — | 138 | ||||||||||||||||||||||
| Total Liabilities | $ | 3,196 | $ | — | $ | 3,058 | $ | 138 | ||||||||||||||||||
| December 31, 2021: | ||||||||||||||||||||||||||
| Equity securities | $ | 402 | $ | 402 | $ | — | $ | — | ||||||||||||||||||
| Interest rate swap derivative financial instruments | 87 | — | 87 | — | ||||||||||||||||||||||
| Foreign currency forward exchange contracts | 292 | — | 292 | — | ||||||||||||||||||||||
| Total Assets | $ | 781 | $ | 402 | $ | 379 | $ | — | ||||||||||||||||||
| Fair value of hedged long-term debt | $ | 2,926 | $ | — | $ | 2,926 | $ | — | ||||||||||||||||||
| Foreign currency forward exchange contracts | 97 | — | 97 | — | ||||||||||||||||||||||
| Contingent consideration related to business combinations | 130 | — | — | 130 | ||||||||||||||||||||||
| Total Liabilities | $ | 3,153 | $ | — | $ | 3,023 | $ | 130 |
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 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. The fair value of the contingent consideration was determined based on independent appraisals at the time of acquisition, adjusted for the time value of money and other changes in fair value.
Note 10 — 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 Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 10 — Litigation and Environmental Matters (Continued)
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 $40 million to $50 million. The recorded accrual balance at September 30, 2022 for these proceedings and exposures was approximately $45 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 11 — Post-Employment Benefits
Retirement plans consist of defined benefit, defined contribution, and medical and dental plans. Net periodic benefit costs, other than service costs, are recognized in the Other (income) expense, net line of the Condensed Consolidated Statement of Earnings. Net cost recognized for the three and nine months ended September 30 for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:
| Defined Benefit Plans | Medical and Dental Plans | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Sept. 30 | Nine Months Ended Sept. 30 | Three Months Ended Sept. 30 | Nine Months Ended Sept. 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| Service cost - benefits earned during the period | $ | 92 | $ | 98 | $ | 282 | $ | 294 | $ | 13 | $ | 14 | $ | 38 | $ | 42 | ||||||||||||||||||||||||||||||||||
| Interest cost on projected benefit obligations | 74 | 62 | 225 | 186 | 9 | 8 | 27 | 25 | ||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (231) | (211) | (701) | (633) | (8) | (6) | (23) | (20) | ||||||||||||||||||||||||||||||||||||||||||
| Net amortization of: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial loss, net | 58 | 79 | 174 | 238 | 2 | 7 | 8 | 21 | ||||||||||||||||||||||||||||||||||||||||||
| Prior service cost (credit) | — | — | 1 | 1 | (6) | (7) | (18) | (21) | ||||||||||||||||||||||||||||||||||||||||||
| Net cost (credit) | $ | (7) | $ | 28 | $ | (19) | $ | 86 | $ | 10 | $ | 16 | $ | 32 | $ | 47 |
Abbott funds its domestic defined benefit plans according to Internal Revenue Service funding limitations. International pension plans are funded according to similar regulations. In the first nine months of 2022 and 2021, $362 million and $366 million, respectively, were contributed to defined benefit plans. In the first nine months of 2022 and 2021, $28 million and $26 million, respectively, were contributed to the post-employment medical and dental plans.
Note 12 — Taxes on Earnings
Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. In the first nine months of 2022 and 2021, taxes on earnings include approximately $36 million and $97 million, respectively, in excess tax benefits associated with share-based compensation. In the first nine months of 2022, taxes on earnings also include approximately $20 million of tax expense as the result of the resolution of various tax positions related to prior years.
Tax authorities in various jurisdictions regularly review Abbott’s income tax filings. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately $75 million to $100 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 the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 13 — Segment 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, physician offices and alternate-care testing sites. For segment reporting purposes, the Core Laboratory Diagnostics, Rapid Diagnostics, Molecular Diagnostics and Point of Care Diagnostics 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, Heart Failure, Vascular, Structural Heart, Neuromodulation 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. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. 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.
Abbott Laboratories and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
Note 13 — Segment Information (Continued)
The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and is not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.
| Net Sales to External Customers | Operating Earnings | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended Sept. 30 | Nine Months Ended Sept. 30 | Three Months Ended Sept. 30 | Nine Months Ended Sept. 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| Established Pharmaceutical Products | $ | 1,326 | $ | 1,265 | $ | 3,696 | $ | 3,515 | $ | 331 | $ | 293 | $ | 831 | $ | 682 | ||||||||||||||||||||||||||||||||||
| Nutritional Products | 1,795 | 2,108 | 5,642 | 6,252 | 69 | 431 | 550 | 1,388 | ||||||||||||||||||||||||||||||||||||||||||
| Diagnostic Products | 3,671 | 3,912 | 13,279 | 11,173 | 1,352 | 1,652 | 5,631 | 4,429 | ||||||||||||||||||||||||||||||||||||||||||
| Medical Devices | 3,615 | 3,632 | 10,937 | 10,618 | 1,039 | 1,160 | 3,272 | 3,375 | ||||||||||||||||||||||||||||||||||||||||||
| Total Reportable Segments | 10,407 | 10,917 | 33,554 | 31,558 | 2,791 | 3,536 | 10,284 | 9,874 | ||||||||||||||||||||||||||||||||||||||||||
| Other | 3 | 11 | 8 | 49 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 10,410 | $ | 10,928 | $ | 33,562 | $ | 31,607 | ||||||||||||||||||||||||||||||||||||||||||
| Corporate functions and benefit plan costs | (115) | (204) | (352) | (450) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net interest expense | (86) | (123) | (309) | (370) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation (a) | (123) | (114) | (570) | (534) | ||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | (498) | (520) | (1,517) | (1,533) | ||||||||||||||||||||||||||||||||||||||||||||||
| Other, net (b) | (211) | (82) | (550) | (1,103) | ||||||||||||||||||||||||||||||||||||||||||||||
| Earnings before taxes | $ | 1,758 | $ | 2,493 | $ | 6,986 | $ | 5,884 |
| (a) | Approximately 45 percent of the annual net cost of share-based awards will typically be recognized in the first quarter due to the timing of the granting of share-based awards. |
| (b) | Other, net for the three and nine months ended September 30, 2022 includes $10 million and $172 million, respectively, of charges related to a voluntary recall within the Nutritional Products segment and $111 million of charges related to the impairment of IPR&D intangible assets. Other, net for the three and nine months ended September 30, 2022 and 2021 also includes integration costs associated with the acquisition of Alere and restructuring charges. Restructuring charges in 2021 include Abbott’s restructuring plan for its COVID-19 test manufacturing network. Other, net for the nine months ended September 30, 2021 also includes costs related to certain litigation. |
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations