Notes to Consolidated Financial Statements
Note 11 — Goodwill and Intangible Assets
Abbott recorded goodwill of approximately $3.4 billion in 2010 related to the acquisitions of Solvay’s pharmaceuticals business, Piramal Healthcare Limited’s Healthcare Solutions business, Facet Biotech and STARLIMS Technologies. Goodwill related to the Solvay, Piramal and Facet acquisitions was allocated to the pharmaceutical products segments. In addition, in 2010, Abbott paid $250 million to Boston Scientific as a result of the approval to market the Xience V drug-eluting stent in Japan, resulting in an increase in goodwill in the Vascular Products segment. Abbott recorded goodwill of approximately $2.2 billion in 2009 related to the acquisitions of Advanced Medical Optics, Inc., Ibis Biosciences, Inc., Visiogen, Inc. and Evalve, Inc. Goodwill of approximately $120 million related to the Ibis acquisition was allocated to the Diagnostic Products segment and goodwill of approximately $160 million related to the Evalve acquisition was allocated to the Vascular Products segment. Foreign currency translation and other adjustments (decreased) increased goodwill in 2011, 2010 and 2009 by $(225) million, $(879) million and $997 million, respectively. The amount of goodwill related to reportable segments at December 31, 2011 was $6.2 billion for the Proprietary Pharmaceutical Products segment, $3.0 billion for the Established Pharmaceutical Products segment, $207 million for the Nutritional Products segment, $383 million for the Diagnostic Products segment, and $2.6 billion for the Vascular Products segment. There were no significant reductions of goodwill relating to impairments or disposal of all or a portion of a business.
The gross amount of amortizable intangible assets, primarily product rights and technology was $17.5 billion, $17.3 billion and $10.8 billion as of December 31, 2011, 2010 and 2009, respectively, and accumulated amortization was $8.3 billion, $6.5 billion and $5.1 billion as of December 31, 2011, 2010 and 2009, respectively. Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, were approximately $814 million, $1.4 billion and $610 million at December 31, 2011, 2010 and 2009, respectively. In 2011, Abbott recorded impairment charges for certain research and development assets due to changes in the projected development and regulatory timelines for the projects. $125 million related to a non-reportable segment and $49 million related to the Other categories in Abbott’s segment reporting. Discounted cash flow analysis was used to analyze fair value and the charges are included in research and development expenses. The estimated annual amortization expense for intangible assets recorded at December 31, 2011 is approximately $1.5 billion in 2012, $1.3 billion in 2013, $1.0 billion in 2014, $800 million in 2015 and $765 million in 2016. Intangible asset amortization is included in Cost of products sold in the consolidated statement of earnings. Amortizable intangible assets are amortized over 2 to 30 years (average 10 years).
Note 12 — Restructuring Plans
In 2011 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2011, 2010 and 2009, Abbott recorded charges of approximately $194 million, $56 million and $114 million, respectively, reflecting the impairment of manufacturing facilities and other assets, employee severance and other related charges. Approximately $76 million in 2011 is classified as Cost of products sold, $69 million as Research and development and $49 million as Selling, general and administrative. Approximately $56 million in 2010 is classified as Cost of products sold and $114 million in 2009 as Selling, general and administrative. The following summarizes the activity for these restructurings:
(dollars in millions) |
|
Accrued balance at January 1, 2009 |
$105 |
2009 restructuring charges |
114 |
Payments, impairments and other adjustments |
(74) |
Accrued balance at December 31, 2009 |
145 |
2010 restructuring charges |
56 |
Payments, impairments and other adjustments |
(124) |
Accrued balance at December 31, 2010 |
77 |
2011 restructuring charges |
194 |
Payments and other adjustments |
(94) |
Accrued balance at December 31, 2011 |
$177 |
An additional $25 million, $13 million and $47 million were recorded in 2011, 2010 and 2009, respectively, relating to these restructurings, primarily for accelerated depreciation.
In 2010, Abbott management approved a restructuring plan primarily related to the acquisition of Solvay’s pharmaceuticals business. This plan streamlines operations, improves efficiencies and reduces costs in certain Solvay sites and functions as well as in certain Abbott and Solvay commercial organizations in various countries. Under this plan, Abbott recorded charges to Cost of products sold, Research and development and Selling, general and administrative of approximately $99 million, $152 million and $272 million, respectively. The following summarizes the activity for this restructuring:
(dollars in millions) |
|
2010 restructuring charge |
$523 |
Payments, impairments and other adjustments |
(113) |
Accrued balance at December 31, 2010 |
410 |
Payments and other adjustments |
(302) |
Accrued balance at December 31, 2011 |
$108 |
An additional $102 million and $12 million were recorded in 2011 and 2010, respectively, relating to this restructuring, primarily for additional employee severance and accelerated depreciation.
In 2011 and 2008, Abbott management approved plans to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business. In 2011 a charge of $28 million was recorded in Cost of products sold. The following summarizes the activity for these restructurings:
(dollars in millions) |
|
Accrued balance at January 1, 2009 |
$110 |
Payments and other adjustments |
(12) |
Accrued balance at December 31, 2009 |
98 |
Payments and other adjustments |
(10) |
Accrued balance at December 31, 2010 |
88 |
2011 restructuring charge |
28 |
Payments and other adjustments |
(37) |
Accrued balance at December 31, 2011 |
$79 |
In addition, charges of approximately $42 million, $60 million and $54 million were recorded in 2011, 2010 and 2009, primarily for accelerated depreciation and product transfer costs. Additional charges will be incurred through 2012 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines.
Note 13 — Spin-off of Abbott’s Proprietary Pharmaceuticals Business
In October 2011, Abbott announced a plan to separate into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals. To accomplish the separation, Abbott plans to create a new company for its research-based pharmaceuticals business which will include Abbott’s Proprietary Pharmaceutical Products segment. The transaction is expected to take the form of a tax-free distribution to Abbott shareholders of the stock of the newly created research-based pharmaceutical company and is expected to be completed by the end of 2012. Subsequent to the separation, the historical results of the research-based pharmaceuticals business will be presented as discontinued operations.
Note 14 — Quarterly Results (Unaudited)
(dollars in millions except per share data) |
2011 |
2010 |
2009 |
First Quarter |
|||
Net Sales |
$9,040.9 |
$7,698.4 |
$6,718.4 |
Gross Profit |
5,181.9 |
4,363.2 |
3,782.4 |
Net Earnings |
863.8 |
1,003.0 |
1,438.6 |
Basic Earnings Per Common Share (a) |
.56 |
.65 |
.93 |
Diluted Earnings Per Common Share (a) |
.55 |
.64 |
.92 |
Market Price Per Share-High |
49.45 |
56.79 |
57.39 |
Market Price Per Share-Low |
45.07 |
52.21 |
44.10 |
Second Quarter |
|||
Net Sales |
$9,616.3 |
$8,826.0 |
$7,494.9 |
Gross Profit |
5,745.8 |
5,282.1 |
4,365.9 |
Net Earnings |
1,942.8 |
1,291.7 |
1,288.1 |
Basic Earnings Per Common Share (a) |
1.24 |
.83 |
.83 |
Diluted Earnings Per Common Share (a) |
1.23 |
.83 |
.83 |
Market Price Per Share-High |
54.24 |
53.25 |
48.37 |
Market Price Per Share-Low |
49.05 |
45.26 |
41.27 |
Third Quarter |
|||
Net Sales |
$9,816.7 |
$8,674.5 |
$7,761.3 |
Gross Profit |
5,843.4 |
4,933.4 |
4,401.2 |
Net Earnings |
303.2 |
890.7 |
1,480.4 |
Basic Earnings Per Common Share (a) |
.19 |
.58 |
.95 |
Diluted Earnings Per Common Share (a) |
.19 |
.57 |
.95 |
Market Price Per Share-High |
53.60 |
52.86 |
49.69 |
Market Price Per Share-Low |
46.29 |
44.59 |
43.45 |
Fourth Quarter |
|||
Net Sales |
$10,377.4 |
$9,967.8 |
$8,790.1 |
Gross Profit |
6,539.6 |
5,922.8 |
5,005.9 |
Net Earnings |
1,618.7 |
1,440.8 |
1,538.7 |
Basic Earnings Per Common Share (a) |
1.03 |
.93 |
.99 |
Diluted Earnings Per Common Share (a) |
1.02 |
.92 |
.98 |
Market Price Per Share-High |
56.44 |
53.75 |
54.97 |
Market Price Per Share-Low |
48.96 |
46.03 |
48.41 |
|
(a) The sum of the quarters’ basic earnings per share for 2011, 2010 and 2009 and diluted earnings per share for 2011 and 2009 do not add to the full year earnings per share amounts due to rounding.
|
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