Notes to Consolidated Financial Statements
Note 9 — Debt and Lines of Credit
The following is a summary of long-term debt at December 31:
(dollars in millions) |
2011 |
2010 |
2009 |
3.75% Notes, due 2011 |
$— |
$— |
$500 |
5.6% Notes, due 2011 |
— |
— |
1,500 |
5.15% Notes, due 2012 |
— |
1,000 |
1,000 |
1.95% Yen Notes, due 2013 |
321 |
299 |
288 |
4.35% Notes, due 2014 |
500 |
500 |
500 |
2.7% Notes, due 2015 |
750 |
750 |
— |
5.875% Notes, due 2016 |
2,000 |
2,000 |
2,000 |
5.6% Notes, due 2017 |
1,500 |
1,500 |
1,500 |
5.125% Notes, due 2019 |
2,000 |
2,000 |
2,000 |
4.125% Notes, due 2020 |
1,000 |
1,000 |
— |
6.15% Notes, due 2037 |
1,000 |
1,000 |
1,000 |
6.0% Notes, due 2039 |
1,000 |
1,000 |
1,000 |
5.3% Notes, due 2040 |
1,250 |
1,250 |
— |
Other, including fair value adjustments relating to interest rate hedge contracts designated as fair value hedges |
719 |
225 |
(22) |
Total, net of current maturities |
12,040 |
12,524 |
11,266 |
Current maturities of long-term debt |
1,027 |
2,045 |
211 |
Total carrying amount |
$13,067 |
$14,569 |
$11,477 |
Principal payments required on long-term debt outstanding at December 31, 2011, are $1.0 billion in 2012, $330 million in 2013, $505 million in 2014, $750 million in 2015, $2.0 billion in 2016 and $7.8 billion thereafter.
At December 31, 2011, Abbott’s long-term debt rating was AA by Standard & Poor’s Corporation and A1 by Moody’s Investors Service. Abbott has readily available financial resources, including unused lines of credit of $6.7 billion that support commercial paper borrowing arrangements of which a $3.0 billion facility expires in October 2012 and a $3.7 billion facility expires in 2013. Related compensating balances, which are subject to withdrawal by Abbott at its option, and commitment fees are not material. Abbott’s weighted-average interest rate on short-term borrowings was 0.4% at December 31, 2011 and 2010 and 0.2% at December 31, 2009.
Note 10 — Business Combinations, Technology Acquisitions and Related Transactions
On September 8, 2010, Abbott acquired Piramal Healthcare Limited’s Healthcare Solutions business, a leader in the Indian branded generics market, for $2.2 billion, in cash, plus additional payments of $400 million annually in 2011, 2012, 2013 and 2014. Abbott recorded a $1.6 billion liability for the present value of the additional payments at the acquisition date. The acquisition was financed with cash. The allocation of the fair value of the acquisition resulted in the recording of $2.7 billion of deductible acquired intangible assets and $1.0 billion of deductible goodwill. Acquired intangible assets consist primarily of trade names, customer relationships and associated rights and are amortized over an average of 19 years.
In February 2010, Abbott acquired Solvay’s pharmaceuticals business (Solvay Pharmaceuticals) for approximately $6.1 billion, in cash, plus additional payments of up to EUR 100 million per year if certain sales milestones are met in 2011, 2012 and 2013. Contingent consideration of approximately $290 million was recorded. The acquisition of Solvay Pharmaceuticals provides Abbott with a large and complementary portfolio of pharmaceutical products and expands Abbott’s presence in key global emerging markets. Abbott acquired control of this business on February 15, 2010 and the financial results of the acquired operations are included in these financial statements beginning on that date. Net sales for the acquired operations for 2010 were approximately $3.1 billion. Pretax loss of the acquired operations, including acquisition, integration and restructuring expenses, for 2010 was approximately $395 million. The acquisition was funded with cash and short-term investments. The allocation of the fair value of the acquisition is shown in the table below.
(in billions of dollars) |
|
Goodwill, non-deductible |
$2.2 |
Acquired intangible assets, non-deductible |
4.1 |
Acquired in-process research and development, non-deductible |
0.5 |
Acquired net tangible assets |
0.7 |
Deferred income taxes recorded at acquisition |
(1.1) |
Total allocation of fair value |
$6.4 |
Acquired intangible assets consist primarily of product rights for currently marketed products and are amortized over 2 to 14 years (average of 11 years). Acquired in-process research and development projects are accounted for as indefinite lived intangible assets until regulatory approval or discontinuation. The net tangible assets acquired consist primarily of trade accounts receivable of approximately $675 million, inventory of approximately $390 million, property and equipment of approximately $725 million, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities.
Had the acquisition of Solvay Pharmaceuticals taken place on January 1, 2010 and January 1, 2009, unaudited pro forma net sales, net earnings and diluted earnings per share for 2010 and 2009 would have been $35.8 billion and $34.2 billion, $4.6 billion and $5.2 billion and $2.96 and $3.36, respectively. The pro forma information includes adjustments for amortization of intangible assets and fair value adjustments to acquisition-date inventory as well as acquisition, integration and restructuring expenses. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date.
In March 2010, Abbott acquired STARLIMS Technologies for approximately $100 million, in cash, net of cash held by STARLIMS, providing Abbott with leading products and expertise to build its position in laboratory informatics. A substantial portion of the fair value of the acquisition has been allocated to goodwill and amortizable intangible assets.
In April 2010, Abbott acquired the outstanding shares of Facet Biotech Corporation for approximately $430 million, in cash, net of cash held by Facet. The acquisition enhances Abbott’s early- and mid-stage pharmaceutical pipeline, including a biologic for multiple sclerosis and compounds that complement Abbott’s oncology program. A substantial portion of the fair value of the acquisition has been allocated to acquired in-process research and development that is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation.
In February 2009, Abbott acquired the outstanding shares of Advanced Medical Optics, Inc. (AMO) for approximately $1.4 billion in cash, net of cash held by AMO. Prior to the acquisition, Abbott held a small investment in AMO. Abbott acquired AMO to take advantage of increasing demand for vision care technologies due to population growth and demographic shifts and AMO’s premier position in its field. Abbott acquired control of this business on February 25, 2009 and the financial results of the acquired operations are included in these financial statements beginning on that date. The allocation of the fair value of the acquisition resulted in non-deductible goodwill of approximately $1.7 billion, non-deductible definite-lived intangible assets of approximately $900 million and net tangible assets of approximately $400 million. In addition, Abbott assumed $1.5 billion of debt. Acquired intangible assets consist of established customer relationships, developed technology and trade names and are amortized over 2 to 30 years (average of 15 years). In addition, subsequent to the acquisition, Abbott repaid substantially all of the acquired debt of AMO.
In October 2009, Abbott acquired 100 percent of Visiogen, Inc. for $400 million, in cash, providing Abbott with a next-generation accommodating intraocular lens (IOL) technology to address presbyopia for cataract patients. The allocation of the fair value of the acquisition resulted in non-deductible acquired in-process research and development of approximately $200 million which is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, non-deductible definite-lived intangible assets of approximately $24 million and goodwill of approximately $200 million.
In October 2009, Abbott acquired Evalve, Inc. for $320 million, in cash, plus an additional payment of $90 million to be made upon completion of certain regulatory milestones. Abbott acquired Evalve to obtain a presence in the growing area of non-surgical treatment for structural heart disease. Including a previous investment in Evalve, Abbott has acquired 100 percent of the outstanding shares of Evalve. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $28 million of income, which is reported as Other (income) expense, net. The allocation of the fair value of the acquisition resulted in non-deductible definite-lived intangible assets of approximately $140 million, non-deductible acquired in-process research and development of approximately $220 million which is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, goodwill of approximately $100 million and deferred income taxes of approximately $110 million. Acquired intangible assets consist of developed technology and are being amortized over 11 years.
In January 2009, Abbott acquired Ibis Biosciences, Inc. (Ibis) for $175 million, in cash, to expand Abbott’s position in molecular diagnostics for infectious disease. Including a $40 million investment in Ibis in 2008, Abbott has acquired 100 percent of the outstanding shares of Ibis. A substantial portion of the fair value of the acquisition has been allocated to goodwill and amortizable intangible assets, and acquired in-process research and development which is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation. The investment in Ibis in 2008 resulted in a charge to acquired in-process research and development. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $33 million of income, which is reported as Other (income) expense, net.
Except for the acquisition of Solvay Pharmaceuticals, had the above acquisitions taken place on January 1 of the previous year, consolidated net sales and income would not have been significantly different from reported amounts.
In 2011, Abbott entered into a collaboration agreement for the joint development and commercialization of second-generation oral antioxidant inflammation modulators resulting in a charge to acquired in-process research and development of $400 million. In 2010, Abbott entered into an agreement to acquire licensing rights outside the U.S., excluding certain Asian markets, to a product in development for the treatment of chronic kidney disease resulting in a charge to acquired in-process research and development of $238 million. In 2011, certain milestones were achieved and charges to acquired in-process research and development of $188 million were recorded. Additional payments of approximately $200 million could be required for the achievement of certain development and regulatory milestones. In addition, equity interests of approximately $62 million each were acquired in 2011 and 2010. In 2011, Abbott entered into an agreement to develop and commercialize a treatment for rheumatoid arthritis and psoriasis resulting in a charge to acquired in-process research and development of $85 million. Additional payments totaling up to $395 million could be required for the achievement of certain development, regulatory and commercial milestones under the agreement. In 2010, Abbott also entered into an agreement to develop and commercialize a product for the treatment of endometriosis resulting in a charge to acquired in-process research and development of $75 million. Additional payments of approximately $500 million could be required for the achievement of certain development, regulatory and commercial milestones under this agreement. In 2009, Abbott acquired the global rights to a novel biologic for the treatment of chronic pain for $170 million resulting in a charge to acquired in-process research and development.
