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 primary products are medical devices, diagnostic testing products,
nutritional products and branded generic pharmaceuticals. Sales in
international markets comprise approximately 62 percent of consolidated net
In 2020, the coronavirus (COVID-19) pandemic affected Abbott's diversified
health care businesses in various ways. As is further described below, some
businesses have performed at the levels required to successfully meet new
demands, others have faced challenges, and still others have been relatively
less impacted by the pandemic.
Abbott's Diagnostics business experienced the most significant change in sales
from 2019 to 2020 as sales from new tests and other related products to detect
COVID-19 more than outweighed the negative impact of COVID-19 on routine
diagnostic testing volumes. Abbott mobilized its teams across multiple fronts
to develop and launch the following new diagnostic tests for COVID-19 in 2020:
In March, Abbott launched a molecular test using polymerase chain reaction
? (PCR) methods on its m2000™ RealTime lab-based platform to detect COVID-19
pursuant to an Emergency Use Authorization (EUA) in the U.S. and CE Mark.
? In March, Abbott also launched a molecular test to detect COVID-19 on its ID
NOW™ rapid point-of-care platform in the U.S. pursuant to an EUA.
In April, Abbott launched an IgG (Immunoglobulin G) lab-based serology blood
test on its ARCHITECT® i1000SR and i2000SR® laboratory instruments for the
? detection of an antibody to determine if someone was previously infected with
the virus. The serology test was granted an EUA in the U.S. and CE Mark in
? In May, Abbott launched a lab-based serology blood test on its Alinity® i
system pursuant to an EUA in the U.S. and CE Mark.
In May, Abbott also launched a molecular PCR test on its Alinity m system to
? detect COVID-19 pursuant to an EUA in the U.S.Abbott received CE Mark for this
test in June.
In June, Abbott launched a lateral flow COVID-19 rapid antibody test on its
? Panbio™ system in select countries pursuant to a CE Mark. This serology test
detects an antibody to determine if someone was previously infected with the
In August, Abbott launched its AdviseDx SARS-CoV-2 IgM (Immunoglobulin M)
? lab-based serology test for use on its ARCHITECT and Alinity platforms pursuant
to a CE Mark. Abbott was granted an EUA in the U.S. for this test in October.
? In August, Abbott launched its BinaxNOW™ COVID-19 Ag Card test, a portable,
lateral flow rapid test to detect COVID-19 pursuant to an EUA in the U.S.
In September, Abbott launched its Panbio rapid antigen test to detect COVID-19
? pursuant to a CE Mark. In October, Abbott received approval by the World
Health Organization for emergency use listing for the Panbio antigen test.
In December, Abbott received CE Mark and launched its SARS-CoV-2-IgG II
? quantitative lab-based serology blood test for use on its ARCHITECT and Alinity
In December, Abbott received an EUA in the U.S. for virtually guided at-home
? use of its BinaxNOW COVID-19 Ag Card rapid test to detect COVID-19 and launched
the product for at-home use.
In December, Abbott launched its multiplex molecular test on its Alinity m
? system to detect COVID-19, flu A, flu B, and respiratory syncytial virus (RSV)
pursuant to a CE Mark.
In 2020, Abbott's COVID-19 testing related sales totaled approximately $3.884
billion, led by sales related to Abbott's BinaxNOW, Panbio and ID NOW rapid
In addition to negatively impacting routine core diagnostic testing volumes, the
pandemic negatively affected the number of cardiovascular and neuromodulation
procedures performed by health care providers globally, thereby reducing the
demand for Abbott's cardiovascular and neuromodulation devices and routine
diagnostic tests in 2020. The decrease began in February in China as that
country implemented quarantine restrictions and postponed non-emergency health
care activities. The negative impact on cardiovascular and neuromodulation
procedures and routine diagnostic tests expanded to other countries and
geographic regions as COVID-19 spread geographically in the first half of 2020
and health care systems in these countries shifted their focus to fighting
The extent of the impact and the timing of a recovery in the number of
procedures and routine testing in a particular country or geographic region
depended upon the progression of COVID-19 cases in the country or region. The
recovery in procedures and routine testing volumes in China began in March.
other parts of the world, such as the U.S. and Europe, volumes improved across
Abbott's hospital-based businesses as the second quarter progressed and the
improvement continued in the third quarter. However, in the fourth quarter, the
improving trends in the demand for procedures and routine testing flattened or
were negatively impacted depending upon the business and the region as many
countries experienced an increase in the number of COVID-19 cases and
Abbott's branded generic pharmaceuticals business was also negatively affected
by the pandemic in 2020 as COVID-19 spread across emerging market countries in
the second and third quarters of 2020. Abbott's nutritional and diabetes care
businesses were the least affected by the pandemic as is further discussed
Abbott is continually implementing business continuity plans in the face of the
pandemic. Due to the critical nature of its products and services, Abbott was
generally exempt from governmental orders issued during the first quarter of
2020 in the U.S. and other countries requiring businesses to cease operations.
The majority of its office-based work was conducted remotely during the period
of such governmental orders and the company implemented strict travel
restrictions. As some governmental orders were lifted in May and June 2020,
Abbott entered a new phase in its operations whereby some office-based employees
started working at Abbott's offices on a rotational basis. As various
governmental orders and guidelines were modified in the fourth quarter to put in
place new restrictions, Abbott continued to ensure that its guidance was aligned
with such restrictions. Abbott has taken aggressive steps to limit exposure and
enhance the safety of facilities for its employees.
Due to the unpredictability of the duration and impact of the current COVID-19
pandemic, the extent to which the COVID-19 pandemic will have a material effect
on its business, financial condition or results of operations is uncertain.
While Abbott's 2020 sales were most significantly affected by the COVID-19
pandemic, the increase in total sales over the last three years also reflects
volume growth due to the introduction of new products across various businesses
as well as higher sales of various existing products. Sales in emerging
markets, which represent approximately 37 percent of total company sales,
increased 2.0 percent in 2020 and 8.2 percent in 2019, excluding the impact of
foreign exchange. (Emerging markets include all countries except the United
States, Western Europe, Japan, Canada, Australia and New Zealand.)
Over the last three years, Abbott's operating margin as a percentage of sales
increased from 11.9 percent in 2018 to 14.2 percent in 2019 and 15.5 percent in
2020. The increase in 2020 reflects the sales volume increases in the rapid and
molecular diagnostics businesses, partially offset by lower Medical Devices
sales due to the impact of the pandemic and the unfavorable effect of foreign
exchange. In addition, a reduction in the costs associated with business
acquisitions and restructuring activities drove an improvement in operating
margins from 2018 to 2020. In 2019, the increase in Abbott's operating margin
also reflects margin improvement in various businesses and lower intangible
amortization expense compared to 2018.
With respect to the performance of each reportable segment over the last three
years, sales in the Medical Devices segment excluding the impact of foreign
exchange decreased 3.8 percent in 2020 and increased 10.5 percent in 2019. The
sales decrease in 2020 was driven by Abbott's cardiovascular and neuromodulation
businesses due primarily to reduced procedure volumes as a result of the
COVID-19 pandemic. These decreases were partially offset by double-digit growth
in Diabetes Care. The sales increase in 2019 was driven primarily by higher
Diabetes Care, Structural Heart, Electrophysiology and Heart Failure sales.
In 2020, operating earnings for the Medical Devices segment decreased 19.4
percent. The operating margin profile decreased from 30.8 percent of sales in
2019 to 25.8 percent in 2020 primarily due to lower sales and manufacturing
volumes as a result of the pandemic and pricing pressures on drug eluting stents
(DES) as a result of market competition in the U.S. and other major markets.
In 2020, key product approvals in the Medical Devices segment included:
CE Mark for Abbott's Tendyne™ Transcatheter Mitral Valve Implantation system
? for the treatment of significant mitral regurgitation (MR) in patients
requiring a heart valve replacement who are not candidates for open-heart
surgery or transcatheter mitral valve repair,
CE Mark for Abbott's TriClip® heart valve repair system, the world's first
? minimally invasive, clip-based device for repair of a leaky tricuspid heart
U.S. Food and Drug Administration (FDA) clearance of FreeStyle® Libre 2 as an
? integrated continuous glucose monitoring (iCGM) system for adults and children
ages 4 and older with diabetes,
CE Mark for Abbott's FreeStyle Libre 3 system, which automatically delivers
? real time, up-to-the-minute glucose readings, 14-day accuracy and real-time
CE Mark for the Libre Sense™ Glucose Sport Biosensor that provides continuous
? glucose monitoring to help athletes better understand the efficacy of their
nutrition choices on training and athletic performance,
U.S. FDA approval of the next-generation Gallant™ implantable cardioverter
defibrillator and cardiac resynchronization therapy defibrillator devices which
? help manage heart rhythm disorders and offer Bluetooth technology and a new
patient smartphone app for improved remote monitoring and enhanced
? CE Mark for MitraClip® G4, Abbott's next-generation MitraClip mitral valve
? CE Mark of EnSite™ X EP System, a next-generation 3D cardiac mapping platform
used for ablation therapy to treat abnormal heart rhythms,
U.S. FDA clearance and CE Mark of the IonicRF™ Generator, a non-surgical,
? minimally invasive device that uses heat to target specific nerves for the
management of chronic pain, and
U.S. FDA approval of updated labeling to allow Abbott's HeartMate 3™ heart pump
? to be used in pediatric patients with advanced refractory left ventricular
In Abbott's worldwide diagnostics business, sales increased 40.6 percent in 2020
and 5.9 percent in 2019, excluding the impact of foreign exchange. As was
discussed above, sales growth in 2020 was driven by demand for Abbott's
portfolio of COVID-19 diagnostics tests across its rapid and lab-based
platforms, partially offset by lower volumes of routine laboratory testing due
to the pandemic. Growth in 2019 reflected continued market penetration by the
core laboratory business in the U.S. and internationally. The 2019 growth
included the continued adoption by customers of Alinity, which is Abbott's
integrated family of next-generation diagnostic systems and solutions that are
designed to increase efficiency by running more tests in less space, generating
test results faster and minimizing human errors while continuing to provide
Abbott has regulatory approvals in the U.S., Europe, China, and other markets
for the "Alinity c" and "Alinity i" instruments and has continued to build out
its test menu for clinical chemistry and immunoassay diagnostics. Abbott has
obtained regulatory approval for the "Alinity h" instrument for hematology in
Europe and Japan. Abbott has also obtained regulatory approvals in the U.S. and
Europe for the "Alinity s" (blood screening) and "Alinity m" (molecular)
instruments and several testing assays.
In 2020, operating earnings for the Diagnostics segment increased 94.8 percent.
The operating margin profile increased from 24.9 percent of sales in 2018 to
34.5 percent in 2020 primarily due to higher sales in 2020 in Rapid Diagnostics
and Molecular Diagnostics, partially offset by lower volumes of routine testing
in Core Laboratory.
In Abbott's worldwide nutritional products business, sales over the last three
years were positively impacted by numerous new product introductions, including
the roll-outs of human milk oligosaccharide, or HMO, in infant formula and of
high-protein Ensure®, that leveraged Abbott's strong brands. Sales were also
positively affected by demographics such as an aging population and an
increasing rate of chronic disease in developed markets and the rise of a middle
class in many emerging markets. Excluding the impact of foreign exchange, total
adult nutrition sales increased 10.3 percent in 2020 and 6.6 percent in 2019 led
by the continued growth of Ensure, Abbott's market-leading complete and balanced
nutrition brand, and Glucerna®, Abbott's market-leading diabetes-specific
nutrition brand, across several countries. The 2019 sales growth was partially
offset by the unfavorable impact of the discontinuation of a non-core product
line in the U.S. Excluding the impact of foreign exchange, total pediatric
nutrition sales increased 0.3 percent in 2020 and 3.4 percent in 2019 driven by
the PediaSure® and Pedialyte® brands in the U.S. as well as infant and toddler
product growth across several markets in Asia and Latin America, partially
offset by challenging market dynamics in the infant category in Greater China.
The 2020 increase was also driven by higher Similac® sales in the U.S.
The Established Pharmaceutical Products segment focuses on the sale of its
products in emerging markets. Excluding the impact of foreign exchange,
Established Pharmaceutical sales increased 1.9 percent in 2020 and 7.3 percent
in 2019. The sales increases in 2020 and 2019 reflect higher sales in several
geographies including India, China, Brazil and Russia. Operating margins
decreased from 20.2 percent of sales in 2018 to 18.5 percent in 2020 primarily
due to the unfavorable impact of foreign exchange, product mix and lower gross
With respect to Abbott's financial position, at December 31, 2020, Abbott's cash
and cash equivalents and short-term investments total approximately $7.1 billion
compared to $4.1 billion at December 31, 2019. Abbott's long-term debt and
short-term borrowings total $18.7 billion and $18.1 billion at December 31, 2020
and 2019, respectively.
Abbott declared dividends of $1.53 per share in 2020 compared to $1.32 per share
in 2019, an increase of approximately 16 percent. Dividends paid totaled $2.560
billion in 2020 compared to $2.270 billion in 2019. The year-over-year change
in the amount of dividends paid primarily reflects the increase in the dividend
rate. In December 2020, Abbott increased the company's quarterly dividend by 25
percent to $0.45 per share from $0.36 per share, effective with the dividend
paid in February 2021.
In 2021, Abbott will focus on continuing to meet the demand for COVID-19 tests
and will continue to invest in product development areas that provide the
opportunity for strong sustainable growth over the next several years. In its
diagnostics business, Abbott will continue to focus on driving market adoption
and geographic expansion of its Alinity suite of diagnostics instruments. In
the medical devices business, Abbott will continue to focus on expanding its
market position in various areas including diabetes care, structural heart,
electrophysiology, and heart failure. In its nutritionals business, Abbott will
continue to focus on driving growth globally and further enhancing its portfolio
with the introduction of line extensions of its science-based products. In the
established pharmaceuticals business, Abbott will continue to focus on growing
its business with the depth and breadth of its portfolio in emerging markets.
Critical Accounting Policies
Sales Rebates - In 2020, approximately 41 percent of Abbott's consolidated gross
revenues were subject to various forms of rebates and allowances that Abbott
recorded as reductions of revenues at the time of sale. Most of these rebates
and allowances in 2020 are in the Nutritional Products and Diabetes Care
businesses. Abbott provides rebates to state agencies that administer the
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC),
wholesalers, group purchasing organizations, and other government agencies and
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. Rebates and chargebacks charged against gross
sales in 2020, 2019 and 2018 amounted to approximately $3.3 billion, $3.1
billion and $3.0 billion, respectively, or 20.1 percent, 19.1 percent and 19.0
percent of gross sales, respectively, based on gross sales of approximately
$16.6 billion, $16.3 billion and $16.0 billion, respectively, subject to rebate.
A one-percentage point increase in the percentage of rebates to related gross
sales would decrease net sales by approximately $166 million in 2020. Abbott
considers a one-percentage point increase to be a reasonably likely increase in
the percentage of rebates to related gross sales. Other allowances charged
against gross sales were approximately $207 million, $169 million and $175
million for cash discounts in 2020, 2019 and 2018, respectively, and $232
million, $192 million and $191 million for returns in 2020, 2019 and 2018,
respectively. 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 returns terms and other
sales terms have remained relatively unchanged for several periods.
Management analyzes the adequacy of ending rebate accrual balances each quarter.
In the domestic nutritional business, management uses both internal and
external data available to estimate the accruals. In the WIC business,
estimates are required for the amount of WIC sales within each state where
Abbott holds the WIC contract. The state where the sale is made, which is the
determining factor for the applicable rebated price, is reliably determinable.
Rebated prices are based on contractually obligated agreements generally lasting
a period of two to four years. Except for a change in contract price or a
transition period before or after a change in the supplier for the WIC business
in a state, accruals are based on historical redemption rates and data from the
U.S. Department of Agriculture (USDA) and the states submitting rebate claims.
The USDA, which administers the WIC program, has been making its data available
for many years. Management also estimates the states' processing lag time based
on sales and claims data. Inventory in the retail distribution channel does not
vary substantially. Management has access to several large customers' inventory
management data, which allows management to make reliable estimates of inventory
in the retail distribution channel. At December 31, 2020, Abbott had WIC
business in 27 states.
Historically, adjustments to prior years' rebate accruals have not been material
to net income. Abbott employs various techniques to verify the accuracy of
claims submitted to it, and where possible, works with the organizations
submitting claims to gain insight into changes that might affect the rebate
amounts. For government agency programs, the calculation of a rebate involves
interpretations of relevant regulations, which are subject to challenge or
change in interpretation.
Income Taxes - Abbott operates in numerous countries where its income tax
returns are subject to audits and adjustments. Because Abbott operates
globally, the nature of the audit items is often very complex, and the
objectives of the government auditors can result in a tax on the same income in
more than one country. Abbott employs internal and external tax professionals
to minimize audit adjustment amounts where possible. In accordance with the
accounting rules relating to the measurement of tax contingencies, in order to
recognize an uncertain tax benefit, the taxpayer must be more likely than not of
sustaining the position, and the measurement of the benefit is calculated as the
largest amount that is more than 50 percent likely to be realized upon
resolution of the benefit. Application of these rules requires a significant
amount of judgment. In the U.S., Abbott's federal income tax returns through
2016 are settled. 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.
Pension and Post-Employment Benefits - Abbott offers pension benefits and
post-employment health care to many of its employees. Abbott engages outside
actuaries to assist in the determination of the obligations and costs under
these programs. 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. 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 a forward projection of health care costs as of the measurement date. A
difference between the assumed rates and the actual rates, which will not be
known for years, can be significant in relation to the obligations and the
annual cost recorded for these programs. Low interest rates have significantly
increased actuarial losses for these plans. At December 31, 2020, pretax net
actuarial losses and prior service costs and (credits) recognized in Accumulated
other comprehensive income (loss) were net losses of $4.6 billion for Abbott's
defined benefit plans and net losses of $419 million for Abbott's medical and
dental plans. Actuarial losses and gains are amortized over the remaining
service attribution periods of the employees under the corridor method, in
accordance with the rules for accounting for post-employment benefits.
Differences between the expected long-term return on plan assets and the actual
annual return are amortized over a five-year period.
Valuation of Intangible Assets - Abbott has acquired and continues to acquire
significant intangible assets that Abbott records at fair value at the
acquisition date. Transactions involving the purchase or sale of intangible
assets occur with some frequency between companies in the health care field and
valuations are usually based on a discounted cash flow analysis. The discounted
cash flow model requires assumptions about the timing and amount of future net
cash flows, risk, cost of capital, terminal values and market participants.
Each of these factors can significantly affect the value of the intangible
asset. Abbott engages independent valuation experts who review Abbott's
critical assumptions and calculations for acquisitions of significant
intangibles. Abbott reviews definite-lived intangible assets for impairment
each quarter using an undiscounted net cash flows approach. If the undiscounted
cash flows of an intangible asset are less than the carrying value of an
intangible asset, the intangible asset is written down to its fair value, which
is usually the discounted cash flow amount. Where cash flows cannot be
identified for an individual asset, the review is applied at the lowest group
level for which cash flows are identifiable. Goodwill and indefinite-lived
intangible assets, which relate to in-process research and development acquired
in a business combination, are reviewed for impairment annually or when an event
that could result in impairment occurs. At December 31, 2020, goodwill amounted
to $23.7 billion and net intangibles amounted to $14.8 billion. Amortization
expense in continuing operations for intangible assets amounted to $2.1 billion
in 2020, $1.9 billion in 2019 and $2.2 billion in 2018. There was no reduction
of goodwill relating to impairments in 2020, 2019 and 2018.
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.
These estimates are often initially developed substantially earlier than the
ultimate loss is known, and the estimates are refined each accounting period as
additional information becomes known. Accordingly, Abbott is often initially
unable to develop a best estimate of loss, and therefore the minimum amount,
which could be zero, is recorded. As information becomes known, either the
minimum loss amount is increased, resulting in additional loss provisions, or a
best estimate can be made, also resulting in additional loss provisions.
Occasionally, a best estimate amount is changed to a lower amount when events
result in an expectation of a more favorable outcome than previously expected.
Abbott estimates the range of possible loss to be from approximately $90
million to $120 million for its legal proceedings and environmental exposures.
Accruals of approximately $105 million have been recorded at December 31, 2020
for these proceedings and exposures. These accruals represent management's best
estimate of probable loss, as defined by FASB ASC No. 450, "Contingencies."
Results of Operations
The following table details the components of sales growth by reportable segment
for the last two years:
Components of % Change
% Change Price Volume Exchange
Total Net Sales
2020 vs. 2019 8.5 (0.4) 10.2 (1.3)
2019 vs. 2018 4.3 0.2 7.3 (3.2)
2020 vs. 2019 14.2 (1.1) 15.3 -
2019 vs. 2018 5.2 (0.4) 5.6 -
2020 vs. 2019 5.3 0.1 7.2 (2.0)
2019 vs. 2018 3.9 0.5 8.3 (4.9)
Established Pharmaceutical Products Segment
2020 vs. 2019 (4.1) 2.7 (0.8) (6.0)
2019 vs. 2018 1.4 3.0 4.3 (5.9)
Nutritional Products Segment
2020 vs. 2019 3.2 0.8 3.9 (1.5)
2019 vs. 2018 2.5 0.9 3.9 (2.3)
Diagnostic Products Segment
2020 vs. 2019 40.1 (0.8) 41.4 (0.5)
2019 vs. 2018 2.9 (0.5) 6.4 (3.0)
Medical Devices Segment
2020 vs. 2019 (3.7) (1.9) (1.9) 0.1
2019 vs. 2018 7.6 (0.9) 11.4 (2.9)
The increase in Total Net Sales in 2020 reflects volume growth in the
Diagnostics and Nutritional Products segments. In Medical Devices, the impact
of COVID-19 on Abbott's cardiovascular and neuromodulation businesses was
partially offset by double-digit volume growth in Diabetes Care. The increase
in Total Net Sales in 2019 reflects volume growth across all of Abbott's
segments. The price declines related to the Medical Devices segment in 2020 and
2019 primarily reflect DES pricing pressures as a result of market competition
in the U.S. and other major markets.
A comparison of significant product and product group sales is as follows.
Percent changes are versus the prior year and are based on unrounded numbers.
Total Impact of Total Change
2020 2019 Change Exchange Excl. Exchange
(dollars in millions)
Total Established Pharmaceuticals -
Key Emerging Markets $ 3,209$ 3,392 (5) % (8) % 3 %
Other 1,094 1,094 - 1 (1)
International Pediatric Nutritionals 2,140 2,282 (6) (2) (4)
U.S. Pediatric Nutritionals 1,987 1,879 6 - 6
International Adult Nutritionals 2,228 2,017 11
U.S. Adult Nutritionals 1,292 1,231 5 - 5
Core Laboratory 4,475 4,656 (4) (1) (3)
Molecular 1,438 442 225 (1) 226
Point of Care 516 561 (8) - (8)
Rapid Diagnostics 4,376 2,054 113 1 112
Medical Devices -
Rhythm Management 1,914 2,144 (11) - (11)
Electrophysiology 1,578 1,721 (8) 1 (9)
Heart Failure 740 769 (4) - (4)
Vascular (a) 2,339 2,850 (18) - (18)
Structural Heart 1,247 1,400 (11) - (11)
Neuromodulation 702 831 (16) - (16)
Diabetes Care 3,267 2,524 29 - 29
(a) Vascular Product Lines:
Coronary and Endovascular 2,263 2,740 (17) - (17)
Total Impact of Total Change
2019 2018 Change Exchange Excl. Exchange
(dollars in millions)
Total Established Pharmaceuticals -
Key Emerging Markets $ 3,392$ 3,363 1 % (7) % 8 %
Other 1,094 1,059 3 (3) 6
International Pediatric Nutritionals 2,282 2,254 1 (4) 5
U.S. Pediatric Nutritionals 1,879 1,843 2 - 2
International Adult Nutritionals 2,017 1,900 6
U.S. Adult Nutritionals 1,231 1,232 - - -
Core Laboratory 4,656 4,386 6 (4) 10
Molecular 442 484 (9) (3) (6)
Point of Care 561 553 2 - 2
Rapid Diagnostics 2,054 2,072 (1) (2) 1
Medical Devices -
Rhythm Management 2,144 2,198 (3) (3) -
Electrophysiology 1,721 1,561 10 (3) 13
Heart Failure 769 646 19 (1) 20
Vascular (a) 2,850 2,929 (3) (3) -
Structural Heart 1,400 1,239 13 (3) 16
Neuromodulation 831 864 (4) (2) (2)
Diabetes Care 2,524 1,933 31 (5) 36
(a) Vascular Product Lines:
Coronary and Endovascular 2,740 2,778 (1) (2) 1
In order to compute results excluding the impact of exchange rates, current year
U.S. dollar sales are multiplied or divided, as appropriate, by the current year
average foreign exchange rates and then those amounts are multiplied or divided,
as appropriate, by the prior year average foreign exchange rates.
Total Established Pharmaceutical Products sales increased 1.9 percent in 2020
and 7.3 percent in 2019, excluding the unfavorable impact of foreign exchange.
The Established Pharmaceutical Products segment is focused on several key
emerging markets including India, Russia, China and Brazil. Excluding the
impact of foreign exchange, total sales in these key emerging markets increased
2.6 percent in 2020 and 7.9 percent in 2019 due to higher sales in several
geographies including China, Brazil, India and Russia. Excluding the impact of
foreign exchange, sales in Established Pharmaceuticals' other emerging markets
decreased 0.5 percent in 2020 and increased 5.6 percent in 2019.
Total Nutritional Products sales increased 4.7 percent in 2020 and 4.8 percent
in 2019, excluding the impact of foreign exchange. In 2020, International
Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased
4.1 percent as growth across Abbott's pediatric products in various countries in
Southeast Asia was more than offset by challenging market dynamics in the infant
category in Greater China. The 4.6 percent increase in 2019 International
Pediatric Nutritional sales, excluding the effect of foreign exchange, was
driven by growth across Abbott's portfolio, including Similac and PediaSure in
various countries in Asia and Latin America and Pedialyte in Latin America.
This growth was partially offset by challenging market dynamics in the infant
category in Greater China. In the U.S. Pediatric Nutritional business, sales
increased 5.8 percent in 2020 and 1.9 percent in 2019, reflecting growth in
Similac in 2020 and growth in PediaSure and Pedialyte in both years.
In the International Adult Nutritional business, sales increased 13.6 percent
and 10.9 percent in 2020 and 2019, respectively, excluding the effect of foreign
exchange, due to continued growth of Ensure and Glucerna in several countries.
In 2020 U.S. Adult Nutritional sales increased 4.9 percent, primarily due to
growth of Ensure. In 2019, U.S. Adult Nutritional sales were unchanged from
2018 due to the impact of Abbott's discontinuation of a non-core product line
during the third quarter of 2018 that was offset by growth in other areas of the
In the Diagnostics segment, Core Laboratory sales decreased 2.8 percent in 2020,
excluding the effect of foreign exchange, as the lower volume of routine testing
performed in hospital and other laboratories due to COVID-19 was partially
offset by sales of Abbott's COVID-19 laboratory-based tests for the detection of
the IgG and IgM antibodies, which determine if someone was previously infected
with the virus. Core Laboratory antibody testing-related sales on Abbott's
ARCHITECT and Alinity i platforms were $268 million in 2020. The 225.7 percent
increase in Molecular Diagnostics sales in 2020, excluding the effect of foreign
exchange, reflects higher volumes due to demand for Abbott's laboratory-based
molecular tests for COVID-19 on its m2000 and Alinity m platforms. Abbott
received U.S. FDA approval in March 2020 for its Alinity m molecular diagnostics
system. Molecular Diagnostics COVID-19 testing-related sales were $1.023
billion in 2020.
In Rapid Diagnostics, sales increased 112.3 percent in 2020, excluding the
effect of foreign exchange, due to strong demand for Abbott's point-of-care
COVID-19 molecular test on its ID NOW platform and its BinaxNOW COVID-19 Ag Card
test in the U.S. as well as international demand for COVID-19 rapid tests on its
Panbio system and increased testing in the first quarter for the flu in the U.S.
These increases were partially offset by the unfavorable impact of COVID-19 on
routine diagnostic testing. Rapid Diagnostics COVID-19 testing-related sales
were $2.593 billion in 2020.
In the Diagnostics segment, the sales increase in 2019 was driven by
above-market growth in Core Laboratory in the U.S. and internationally, where
Abbott achieved continued adoption of its Alinity family of diagnostic
instruments. The 6.3 percent decrease in 2019 Molecular sales, excluding the
effect of foreign exchange, reflects the negative impact of lower
non-governmental organization purchases in Africa. In Rapid Diagnostics, sales
growth in 2019 in various areas, including infectious disease testing in
developed markets and cardio-metabolic testing, was mostly offset by lower than
expected infectious disease testing sales in Africa.
Excluding the effect of foreign exchange, total Medical Devices sales decreased
3.8 percent and increased 10.5 percent in 2020 and 2019, respectively. In 2020,
double-digit growth in Diabetes Care was more than offset by decreases in
Abbott's cardiovascular and neuromodulation businesses due to the impact of
COVID-19 and lower vascular sales in China in the fourth quarter of 2020 as a
result of a new national tender program. The 2019 sales increase was driven by
double-digit growth in Diabetes Care, Structural Heart, Electrophysiology and
The 2020 and 2019 growth in Diabetes Care revenue was driven by continued growth
of FreeStyle Libre, Abbott's continuous glucose monitoring system,
internationally and in the U.S. In 2020, FreeStyle Libre sales totaled $2.635
billion, which reflected a 42.6 percent increase over 2019, excluding the effect
of foreign exchange. FreeStyle Libre sales in 2019 were $1.842 billion, which
reflected a 69.8 percent increase, excluding the effect of foreign exchange,
over 2018 when sales totaled $1.128 billion.
In 2019, growth in Structural Heart revenue was broad-based across several areas
of the business, including MitraClip, Abbott's market-leading device for the
minimally invasive treatment of mitral regurgitation (MR), a leaky heart valve.
2019 growth in Electrophysiology revenue reflects higher sales of cardiac
diagnostic and ablation catheters in both the U.S. and internationally. The
growth in Heart Failure revenue in 2019 was driven by rapid market adoption in
the U.S. of Abbott's HeartMate 3® Left Ventricular Assist Device (LVAD)
following FDA approval in October 2018 as a destination (long-term use) therapy
for people living with advanced heart failure as well as higher sales of
Abbott's CardioMEMS® heart failure monitoring system. In Vascular, excluding
the effect of foreign exchange, sales in 2019 were flat as the 1.3 percent
increase in coronary and endovascular product sales, which includes drug-eluting
stents, balloon catheters, guidewires, vascular imaging/diagnostics products,
vessel closure, carotid and other coronary and peripheral products, was offset
by reductions in royalty and contract manufacturing revenue. In Rhythm
Management, higher 2019 international sales, excluding the effect of foreign
exchange, were offset by a 4.4 percent decrease in U.S. revenue. In 2019, the
2.4 percent decline in Neuromodulation sales, excluding the effect of foreign
exchange, reflects a 4.2 percent decline in U.S. sales.
Abbott has periodically sold product rights to non-strategic products and has
recorded the related gains in net sales in accordance with Abbott's revenue
recognition policies as discussed in Note 1 to the consolidated financial
statements. Related net sales were not significant in 2020, 2019 and 2018.
The expiration of licenses and patent protection can affect the future revenues
and operating income of Abbott. There are no significant patent or license
expirations in the next three years that are expected to materially affect
In April 2017, Abbott received a warning letter from the U.S. FDA related to its
manufacturing facility in Sylmar, CA which was acquired by Abbott on January 4,
2017 as part of the acquisition of St. Jude Medical, Inc. (St. Jude Medical).
This facility manufactures implantable cardioverter defibrillators, cardiac
resynchronization therapy defibrillators, and monitors. Abbott prepared and
executed a comprehensive plan of corrective actions. On April 28, 2020, Abbott
received a letter from the FDA indicating that, based on the FDA's evaluation,
it appeared that Abbott had addressed the items in the warning letter. As a
result, the warning letter is considered closed.
Gross profit margins were 50.5 percent of net sales in 2020, 52.5 percent in
2019 and 51.3 percent in 2018. In 2020, the decrease primarily reflects the mix
of sales across Abbott's various businesses and operational inefficiencies due
to the impact of COVID-19, as well as the increase in intangible asset
amortization, the impairment of intangible assets and the unfavorable effect of
foreign exchange on gross margin in 2020. In 2019, the increase primarily
reflects lower intangible amortization expense and lower integration and
Research and development (R&D) expenses were $2.4 billion in 2020 and 2019, and
$2.3 billion in 2018. R&D spending in 2020 was relatively flat compared to 2019
as the impact of the immediate expensing in 2019 of an R&D asset valued at $102
million that was acquired in conjunction with the acquisition of Cephea Valve
Technologies, Inc. (Cephea) was partially offset by the $55 million impairment
of an in-process R&D intangible asset in 2020. R&D expense in 2020 also
reflects lower integration and restructuring costs in 2020 related to R&D,
partially offset by higher spending on various projects. R&D expenses in 2019
increased 6.1 percent, primarily reflecting the immediate expensing of the
Cephea R&D asset as well as higher R&D spending in various businesses, primarily
in Medical Devices, partially offset by the favorable effect of foreign
exchange. In 2020, R&D expenditures totaled $1.3 billion for the Medical
Devices segment, $608 million for the Diagnostic Products segment, $189 million
for the Nutritional Products segment and $177 million for the Established
Pharmaceutical Products segment.
Selling, general and administrative (SG&A) expenses were basically flat in 2020
and 2019 versus the respective prior years. In 2020, the favorable effect of
foreign exchange, income of approximately $100 million from a litigation
settlement in 2020, lower spending due to COVID-19 travel restrictions, and the
impact of various cost saving initiatives were offset by higher spending to
drive growth in various businesses. In 2019, the favorable effect of foreign
exchange and lower acquisition-related integration costs offset higher selling
and marketing costs to drive continued growth across various businesses.
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.
Interest Expense and Interest (Income)
Interest expense, net decreased $76 million in 2020 due to a reduction in
interest expense resulting from the favorable impact of the euro debt financing
in November 2019, the repayment of debt in December 2019 and a lower interest
rate environment in 2020. In 2019, interest expense, net decreased $145 million
due to the favorable impact of the euro debt financing in September 2018, as
well as the repayment of debt in 2018 and the first quarter of 2019.
Debt Extinguishment Costs
On December 19, 2019, Abbott redeemed the $2.850 billion principal amount of its
2.9% Notes due 2021. Abbott incurred a charge of $63 million related to the
early repayment of this debt.
On 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. Abbott
incurred a net charge of $153 million related to the early repayment of this
debt and the unwinding of related interest rate swaps.
On March 22, 2018, Abbott redeemed all of the $947 million principal amount of
its 5.125% Notes due 2019, as well as $1.055 billion of the $2.850 billion
principal amount of its 2.35% Notes due 2019. Abbott incurred a net charge of
$14 million related to the early repayment of this debt.
Other (Income) Expense, net
Other (income) expense, net, for 2020, 2019 and 2018 includes approximately $205
million, $225 million, and $160 million of income in each year, respectively,
related to the non-service cost components of the net periodic benefit costs
associated with the pension and post-retirement medical plans. Other (income)
expense, net for 2020 also includes equity investment impairments that totaled
approximately $115 million.
Taxes on Earnings
The income tax rates on earnings from continuing operations were 10.0 percent in
2020, 9.6 percent in 2019 and 18.8 percent in 2018.
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
Tax Cuts and Jobs Act (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.
In 2019, taxes on earnings from continuing operations included approximately
$100 million in excess tax benefits associated with share-based compensation, 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 as well as approximately $90
million in excess tax benefits associated with share-based compensation. 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.
Exclusive of these discrete items, tax expense was favorably impacted by lower
tax rates and tax exemptions on foreign income primarily derived from operations
in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore,
and Malta. Abbott benefits from a combination of favorable statutory tax rules,
tax rulings, grants, and exemptions in these tax jurisdictions. See Note 15 to
the consolidated financial statements for a full reconciliation of the effective
tax rate to the U.S. federal statutory rate.
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.
Research and Development Programs
Abbott currently has numerous pharmaceutical, medical devices, diagnostic and
nutritional products in development.
Research and Development Process
In the Established Pharmaceuticals segment, the development process focuses on
the geographic expansion and continuous improvement of the segment's existing
products to provide benefits to patients and customers. As Established
Pharmaceuticals does not actively pursue primary research, development usually
begins with work on existing products or after the acquisition of an advanced
stage licensing opportunity.
Depending upon the product, the phases of development may include:
? Drug product development.
Phase I bioequivalence studies to compare a future Established Pharmaceutical's
? brand with an already marketed compound with the same active pharmaceutical
? Phase II studies to test the efficacy of benefits in a small group of patients.
? Phase III studies to broaden the testing to a wider population that reflects
the actual medical use.
? Phase IV and other post-marketing studies to obtain new clinical use data on
existing products within approved indications.
The specific requirements (e.g., scope of clinical trials) for obtaining
regulatory approval vary across different countries and geographic regions. The
process may range from one year for a bioequivalence study project to 6 or more
years for complex formulations, new indications, or geographic expansion in
specific countries, such as China.
In the Diagnostics segment, the phases of the research and development process
? Discovery which focuses on identification of a product that will address a
specific therapeutic area, platform, or unmet clinical need.
Concept/Feasibility during which the materials and manufacturing processes are
? evaluated, testing may include product characterization and analysis is
performed to confirm clinical utility.
Development during which extensive testing is performed to demonstrate that the
? product meets specified design requirements and that the design specifications
conform to user needs and intended uses.
The regulatory requirements for diagnostic products vary across different
countries and geographic regions. In the U.S., the FDA classifies diagnostic
products into classes (I, II, or III) and the classification determines the
regulatory process for approval. While the Diagnostics segment has products in
all three classes, the vast majority of its products are categorized as Class I
or Class II. Submission of a separate regulatory filing is not required for
Class I products. Class II devices typically require pre-market notification to
the FDA through a regulatory filing known as a 510(k) submission. Most Class III
products are subject to the FDA's Premarket Approval (PMA) requirements. Other
Class III products, such as those used to screen blood, require the submission
and approval of a Biological License Application (BLA).
In the European Union (EU), diagnostic products are also categorized into
different categories and the regulatory process, which has been governed by the
European In Vitro Diagnostic Medical Device Directive, depends upon the
category, with certain product categories requiring review and approval by an
independent company, known as a Notified Body, before the manufacturer can affix
a CE mark to the product to declare conformity to the Directive. Other products
only require a self-certification process. In the second quarter of 2017, the
EU adopted the new In Vitro Diagnostic Regulation (IVDR) which replaces the
existing directive in the EU for in vitro diagnostic products. The IVDR will
apply after a five-year transition period and imposes additional premarket and
postmarket regulatory requirements on manufacturers of such products.
In the Medical Devices segment, the research and development process begins with
research on a specific technology that is evaluated for feasibility and
commercial viability. If the research program passes that hurdle, it moves
forward into development. The development process includes evaluation,
selection and qualification of a product design, completion of applicable
clinical trials to test the product's safety and efficacy, and validation of the
manufacturing process to demonstrate its repeatability and ability to
consistently meet pre-determined specifications.
Similar to the diagnostic products discussed above, in the U.S., medical devices
are classified as Class I, II, or III. Most of Abbott's medical device products
are classified as Class II devices that follow the 510(k) regulatory process or
Class III devices that are subject to the PMA process.
In the EU, medical devices are also categorized into different classes and the
regulatory process, which has been governed by the European Medical Device
Directive and the Active Implantable Medical Device Directive, varies by class.
Each product must bear a CE mark to show compliance with the Directive. In the
second quarter of 2017, the EU adopted the new Medical Devices Regulation (MDR)
which replaces the existing directives in the EU for medical devices and imposes
additional premarket and postmarket regulatory requirements on manufacturers of
such products. While the MDR was previously adopted to apply after a three year
transition period, in 2020 the European Parliament postponed the date of
application by one year.
Some products require submission of a design dossier to the appropriate
regulatory authority for review and approval prior to CE marking of the device.
For other products, the company is required to prepare a technical file which
includes testing results and clinical evaluations but can self-certify its
ability to apply the CE mark to the product. Outside the U.S. and the EU, the
regulatory requirements vary across different countries and regions.
After approval and commercial launch of some medical devices, post-market trials
may be conducted either due to a conditional requirement of the regulatory
market approval or with the objective of proving product superiority.
In the Nutritional segment, the research and development process generally
focuses on identifying and developing ingredients and products that address the
nutritional needs of particular populations (e.g., infants and adults) or
patients (e.g., people with diabetes). Depending upon the country and/or
region, if claims regarding a product's efficacy will be made, clinical studies
typically must be conducted.
In the U.S., the FDA requires that it be notified of proposed new formulations
and formulation or packaging changes related to infant formula products. Prior
to the launch of an infant formula or product packaging change, the company is
required to obtain the FDA's confirmation that it has no objections to the
proposed product or packaging. For other nutritional products, notification or
pre-approval from the FDA is not required unless the product includes a new food
additive. In some countries, regulatory approval may be required for certain
nutritional products, including infant formula and medical nutritional products.
Areas of Focus
In 2021 and beyond, Abbott's significant areas of therapeutic focus will include
Established Pharmaceuticals - Abbott focuses on building country-specific
portfolios made up of high-quality medicines that meet the needs of people in
emerging markets. Over the next several years, Abbott plans to expand its
product portfolio in key therapeutic areas with the aim of being among the first
to launch new off-patent and differentiated medicines. In addition, Abbott
continues to expand existing brands into new markets, implement product
enhancements that provide value to patients and acquire strategic products and
technology through licensing activities. Abbott is also actively working on the
further development of several key brands such as Creon™, Duphaston™, Duphalac™
and Influvac™. Depending on the product, the activities focus on development of
new data, markets, formulations, delivery systems, or indications. One example
includes the launch of Abbott's quadrivalent influenza vaccination Influvac®
Tetra in 12 markets and an expanded indication in 16 markets to cover children,
adolescents and young adults from 3 to 17 years old.
Medical Devices - Abbott's research and development programs focus on:
Cardiac Rhythm Management - Development of next-generation rhythm management
? technologies, including advanced communication capabilities and leadless pacing
Heart Failure - Continued enhancements to Abbott's mechanical circulatory
? support and pulmonary artery pressure systems, including enhanced clinical
performance and usability.
? Electrophysiology - Development of next-generation technologies in the areas of
ablation, diagnostic, mapping, and visualization and recording.
? Vascular - Development of next-generation technologies for use in coronary and
peripheral vascular procedures.
Structural Heart - Development of minimally-invasive transcatheter and surgical
? devices for the repair and replacement of heart valves and other structural
Neuromodulation - Development of additional clinical evidence and
? next-generation technologies leveraging digital health to improve patient and
physician engagement to treat chronic pain, movement disorders and other
Diabetes Care - Develop enhancements and additional indications for the
? FreeStyle Libre platform of continuous glucose monitoring products to help
patients improve their ability to manage diabetes and for use beyond diabetes.
Nutritionals - Abbott is focusing its research and development spend on
platforms that span the pediatric and adult nutrition areas: gastro
intestinal/immunity health, brain health, mobility and metabolism, and user
experience platforms. Numerous new products that build on advances in these
platforms are currently under development, including clinical outcome testing,
and are expected to be launched over the coming years.
Core Laboratory Diagnostics - Abbott continues to commercialize its
next-generation blood screening, immunoassay, clinical chemistry and hematology
systems, along with assays, including a focus on unmet medical need, in various
areas including infectious disease, cardiac care, metabolics, and oncology, as
well as informatics solutions to help optimize diagnostics laboratory
performance and automation solutions to increase efficiency in laboratories.
Molecular Diagnostics - Several new molecular in vitro diagnostic (IVD) tests
are in various stages of development and launch.
Rapid Diagnostics - Abbott's research and development programs focus on the
development of diagnostic products for infectious disease, cardiometabolic
disease and toxicology.
In addition, the Diagnostics Divisions are pursuing the FDA's customary
regulatory process for various COVID-19 tests for which an EUA was obtained in
Given the diversity of Abbott's business, its intention to remain a broad-based
health care company and the numerous sources for potential future growth, no
individual project is expected to be material to cash flows or results of
operations over the next five years. Factors considered included research and
development expenses projected to be incurred for the project over the next year
relative to Abbott's total research and development expenses, as well as
qualitative factors, such as marketplace perceptions and impact of a new product
on Abbott's overall market position. There were no delays in Abbott's 2020
research and development activities that are expected to have a material impact
While the aggregate cost to complete the numerous projects currently in
development is expected to be material, the total cost to complete will depend
upon Abbott's ability to successfully finish each project, the rate at which
each project advances, and the ultimate timing for completion. Given the
potential for significant delays and the risk of failure inherent in the
development of medical device, diagnostic and pharmaceutical products and
technologies, it is not possible to accurately estimate the total cost to
complete all projects currently in development. Abbott plans to manage its
portfolio of projects to achieve research and development spending that will be
competitive in each of the businesses in which it participates, and such
spending is expected to approximate 7.0 percent of total Abbott sales in 2021.
Abbott does not regularly accumulate or make management decisions based on the
total expenses incurred for a particular development phase in a given period.
At December 31, 2020, goodwill recorded as a result of business combinations
totaled $23.7 billion. Goodwill is reviewed for impairment annually in the
third quarter or when an event that could result in an impairment occurs, using
a quantitative assessment to determine whether it is more likely than not that
the fair value of any reporting unit is less than its carrying amount. The
income and market approaches are used to calculate the fair value of each
reporting unit. The results of the last impairment test indicated that the fair
value of each reporting unit was substantially in excess of its carrying value.
Net cash from operating activities amounted to $7.9 billion, $6.1 billion and
$6.3 billion in 2020, 2019 and 2018, respectively. The increase in Net cash
from operating activities in 2020 was primarily due to the favorable cash flow
impact of higher segment operating earnings, lower payments related to interest,
integration expenses, and restructuring actions, and the proceeds from a
litigation settlement partially offset by an increased investment in working
capital and higher income tax payments. The decrease in Net cash from operating
activities in 2019 was primarily due to an increased investment in working
capital, timing of pension contributions relative to 2018 and higher income tax
payments, partially offset by the favorable cash flow impact of improved segment
operating earnings and lower interest and acquisition-related expenses.
While a significant portion of Abbott's cash and cash equivalents at December
31, 2020, are reinvested in foreign subsidiaries, Abbott does not expect such
reinvestment to affect its liquidity and capital resources. Due to the
enactment of the TCJA, if these funds were needed for operations in the U.S.,
Abbott does not expect to incur significant additional income taxes in the
future to repatriate these funds.
Abbott funded $400 million in 2020, $382 million in 2019 and $114 million in
2018 to defined benefit pension plans. Abbott expects pension funding of
approximately $410 million in 2021 for its pension plans. Abbott expects annual
cash flow from operating activities to continue to exceed Abbott's capital
expenditures and cash dividends.
Debt and Capital
At December 31, 2020, Abbott's long-term debt rating was A by Standard & Poor's
Corporation and A3 by Moody's. Abbott expects to maintain an investment grade
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.
In 2020, financing activities related to the issuance and repayment of long-term
debt included the following:
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.
As of December 31, 2020, Abbott's total debt is $18.7 billion.
In 2018 and 2019, Abbott committed to reducing its debt levels which had
increased as part of the acquisitions of St. Jude Medical and Alere in 2017. In
2018, net repayments totaled approximately $8.3 billion of debt.
On February 24, 2019, Abbott redeemed the $500 million outstanding principal
amount of its 2.80% Notes due 2020.
In September 2019, the board of directors authorized the early redemption of up
to $5 billion of outstanding long-term notes. This bond redemption
authorization superseded the board's previous authorization under which $700
million had not yet been redeemed. On December 19, 2019, Abbott redeemed the
$2.850 billion outstanding principal amount of its 2.90% Notes due 2021. $2.15
billion of the 2019 $5 billion redemption authorization remains available as of
December 31, 2020.
On November 19, 2019, Abbott's wholly owned subsidiary, Abbott Ireland Financing
DAC, completed a euro debt offering of €1.180 billion of long-term debt. The
proceeds equated to approximately $1.3 billion. The Notes are guaranteed by
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 total, these 2019 transactions resulted in the repayment of approximately of
$1.6 billion of debt, net of borrowings.
In September 2014, the board of directors authorized the repurchase of up to
$3.0 billion of Abbott's common shares from time to time. Under the program
authorized in 2014, Abbott repurchased 36.2 million shares at a cost of $1.666
billion in 2015, 10.4 million shares at a cost of $408 million in 2016, 1.9
million shares at a cost of $130 million in 2018, 6.3 million shares at a cost
of $525 million in 2019, and 1.6 million shares at a cost of $173 million in
2020 for a total of approximately $2.9 billion. In October 2019, the board of
directors authorized the repurchase of up to $3 billion of Abbott's common
shares from time to time. The 2019 authorization is in addition to the
approximately $100 million unused portion of the share repurchase program
authorized in 2014.
On April 27, 2016, the board of directors authorized the issuance and sale for
general corporate purposes of up to 75 million common shares that would result
in proceeds of up to $3 billion. No shares have been issued under this
Abbott declared dividends of $1.53 per share in 2020 compared to $1.32 per share
in 2019, an increase of approximately 16 percent. Dividends paid were $2.560
billion in 2020 compared to $2.270 billion in 2019. The year-over-year change
in dividends paid primarily reflects the impact of the increase in the dividend
Working capital was $8.5 billion at December 31, 2020 and $4.8 billion at
December 31, 2019. The increase was due in large part to the higher level of
cash and cash equivalents, which was due primarily to the increase in cash
generated from operating activities, and the repayment of the current portion of
long term debt after the issuance of new long term notes in 2020. Working
capital also increased due to the higher levels of accounts receivable and
inventory partially offset by an increase in accounts payable associated with
the growth of the business.
Abbott monitors the credit worthiness of customers and establishes an allowance
that reflects the current estimate of credit losses expected to be incurred over
the life of the financial asset. 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
Capital expenditures of $2.2 billion in 2020, $1.6 billion in 2019 and $1.4
billion in 2018 were principally for upgrading and expanding manufacturing and
research and development facilities and equipment in various segments,
investments in information technology, and laboratory instruments placed with
customers. The 2020 increase in capital expenditures primarily reflects the
building of capacity for the manufacture of COVID-19 diagnostics tests.
The table below summarizes Abbott's estimated contractual obligations as of
December 31, 2020.
Payments Due By Period
(in millions) Total 2021 20222023 20242025 Thereafter
Longterm debt, including current maturities $ 18,490$ 7 $
3,203 $ 2,802$ 12,478
Interest on debt obligations 9,011 596 1,152 1,024 6,239
Operating lease obligations 1,315 272 405 231 407
Purchase commitments (a) 4,757 4,192 478 77 10
Other longterm liabilities (b) 3,845 -
1,959 1,266 620
Total (c) $ 37,418$ 5,067$ 7,197$ 5,400$ 19,754
(a) Purchase commitments are for purchases made in the normal course of business
to meet operational and capital expenditure requirements.
(b) Other long-term liabilities include estimated payments for the transition tax
under the TCJA, net of applicable credits.
Net unrecognized tax benefits totaling approximately $740 million are
excluded from the table above as Abbott is unable to reasonably estimate the
period of cash settlement with the respective taxing authorities on such
items. See Note 15 - Taxes on Earnings from Continuing Operations for further
(c) details. The company has employee benefit obligations consisting of pensions
and other post-employment benefits, including medical and life, which have
been excluded from the table. A discussion of the company's pension and
post-retirement plans, including funding matters is included in Note 14 -
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.
Abbott's primary markets are highly competitive and subject to substantial
government regulations throughout the world. Abbott expects debate to continue
over the availability, method of delivery, and payment for health care products
and services. It is not possible to predict the extent to which Abbott or the
health care industry in general might be adversely affected by these factors in
the future. A more complete discussion of these factors is contained in Item 1,
Business, and Item 1A, Risk Factors.
Recently Issued Accounting Standards
In December 2019, the FASB issued Accounting Standards Update (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
In February 2018, the FASB issued 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
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.
Private Securities Litigation Reform Act of 1995 - A Caution Concerning
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, Abbott cautions investors that any forward-looking statements or
projections made by Abbott, including those made in this document, are subject
to risks and uncertainties that may cause actual results to differ materially
from those projected. Economic, competitive, governmental, technological and
other factors that may affect Abbott's operations are discussed in Item 1A,
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